Retail Investment in New York Right Now
Tom Acitelli May 18, 2011, 10:44 a.m.
With ICSC in Vegas in two days, guest columnist Michael Stoler on retail investment sales right now in New York.
Timing is everything, especially when it relates to real estate. It is hard to imagine that in April 2010, The Wall Street Journal reported that a partnership led by the Carlyle Group and Crown Acquisitions planned to sell part of the first and second floors of retail space at 666 Fifth Avenue, hoping to fetch between $600 million and $700 million.
The joint venture acquired the retail space in July 2008 for approximately $525 million. Real Capital Analytics reported that the sale of the interest valued the retail space at $6,187 per square foot. At the time of the sale, the Kushner Companies, 666 Fifth’s controlling landlord, retained a 51 percent stake of the retail segment. (Jared Kushner, a principal at Kushner Companies, is publisher of The Commercial Observer.)
The Journal article added that the venture raised the value of the site by buying out existing tenants, like Hickey Freeman and Brooks Brothers, with below-market leases. The venture was eager to sell the space since it had just leased space to Japanese clothing chain Uniqlo, which agreed to pay more than $300 million over 15 years, making its lease one of the most expensive retail ones ever in New York.
Eleven months later, the venture announced an amazing sale of some of the retail space on the base of the office tower. Instead of selling the first and second floors, the venture, including Kushner Companies, announced the sale of the former NBA Store, which occupied the corner of the building at 52nd Street and Fifth Avenue. Spanish retail giant Inditex Group, which owns fashion brands Zara, Pull & Bear and Stradivarious, paid $324 million, or $8,361 per square foot, for the 38,750-square-foot retail space. In addition, Inditex paid $76 million to cover the costs of the early termination of the NBA lease and for improvements at the store, which will serve as the flagship U.S. location of Zara.
That record price of $8,361 per square foot exceeded the 2008 purchase by Longchamp, the Paris-based retailer and manufacturer of bags, clothing and accessories, which paid $48,000, or $8,000 per square foot, for the five-story townhouse at 713 Madison Avenue from heirs of Mailman family.
Crown Acquisitions has been a very active purchaser of retail on Fifth Avenue and elsewhere in New York City. In November 2009, an investment group called GFC Fifth Avenue LLC, comprised of Crown Acquisitions, Goldman Properties, the Feil Organization, Centurion Realty, the Braka family and U.S. Realty, acquired the retail portion of the historic St. Regis New York Hotel at 2 East 55th Street. The joint venture-which owns six other midtown retail properties, including include 590 Fifth Avenue, 717 Fifth Avenue, 1 East 57th Street, 551 Fifth Avenue and 743 Fifth Avenue-agreed to pay $117 million for the 24,700-square-foot space, or approximately $4,737 per square foot.
Kenneth Bernstein, president and CEO of Acadia Realty Trust, stated on my panels and TV shows that New York, especially Manhattan, is under-retailed. If you can find the right location in the boroughs and secure the right mix of tenants, your spot has a great chance of success.
One active purchaser of urban retail is Madison International Realty. Madison is a real estate private equity firm focusing on providing secondary equity capital for Partner Replacements and Recapitalization of Class A properties. In March, Madison International entered into a joint venture with an affiliated entity of the company and Forest City Enterprises. The venture will enter into existing partnerships in 15 mature retail and entertainment properties that are valued by this transaction at $851.5 million, including $499.9 million of debt. Madison will receive 49 percent equity in the partnerships in exchange for an interest of $172.3 million in cash. Subsidiaries of Forest City will retain 51 percent equity interest, serve as asset and property manager, and manage leasing for the joint venture.
The New York City properties included in the transaction were:
– The 42nd Street Retail and Entertainment Complex at 234 West 42nd Street, with nine shops including the AMC 25 cinema;
– The retail component of Harlem Center at 125 West 125th Street. Anchors include Staples, H & M, JPMorgan Chase, Planet Fitness and Dunkin Donuts;
– Atlantic Center at 625 Atlantic Avenue in Brooklyn. Anchors include DMV, Pathmark, Burlington Coat Factory, Party City, Marshalls, Old Navy, Office Max and Sleepy’s;
– The retail component of Atlantic Terminal at 139 Flatbush Avenue in Brooklyn. Anchors include Target, Starbucks, Bath & BodyWorks, Daffy’s and Outback Steakhouse;
– The Heights at 94-110 Court Street in Brooklyn Heights, with anchors like United Artists Cinema and Barnes & Noble;
– Queens Place at 8801 Queens Boulevard in Forest Hills. Anchors include Target, Best Buy, Macy’s Furniture, DSW, Sleepy’s, Outback Steakhouse, Red Lobster, Daffy’s and Skechers;
– Steinway Street Theaters at 3501 37th Street in Astoria, home of the United Artists Cinema;
– Shops at Northern Boulevard at 48-18 Northern Boulevard in Long Island City. Anchors include Stop & Shop, Old Navy, Marshalls, Guitar Center and Chuck E. Cheese’s;
– Shops at Bruckner Boulevard at 1910 Story Avenue in the Bronx. Anchors include Conway, Jimmy Jazz, Old Navy and Marshalls;
– Castle Center at 1865 Eastchester Road in the Bronx, where the anchor tenant is Pathmark;
– Shops at Gun Hill Road at 1806 Gun Hill Road in the Bronx, where the anchors are Home Depot and Chuck E. Cheese’s;
– Shops at Richmond Avenue at 2505-2535 Richmond Avenue in Staten Island. Anchors include Staples, Men’s Warehouse, Starbucks, Vitamin Shoppe, Sleepy’s and Bank of America;
– and Forest Avenue Cinemas at 2474 Forest Avenue in Staten Island, which is anchored by United Artists Cinemas.
MADISON CAPITAL (no relationship to Madison International) is an established real estate investment and operating company based in New York. Madison’s urban retail and mixed-use strategy is focused on acquiring prime urban retail and mixed-use assets in major urban markets like New York. The company’s current retail investments include prime retail sites at 655 Fifth Avenue and 100 Broadway, puchased last October.
The company is the owner of retail condos and co-ops, including the retail space and parking facility at the Manhattan House condo on the Upper East Side; 380-386 Broome Street in Little Italy, the home of Umberto’s Clam House; retail space in Times Square at 1657 Broadway; the retail condo at 1880 Broadway (also known at 15 CPS), home of Best Buy, West Elm and JP Morgan Chase; and 754 Fifth Avenue, the Bergdorf Goodman Building.
Madison and other real estate investors have been actively seeking to acquire such retail space in condos and co-ops in Manhattan. To increase the value of a residential condo, many developers are offering the ground-floor retail space for sale, especially if one of the tenants is a well-capitalized financial institution like TD Bank or JPMorgan.
Jones Lang LaSalle has been retained to sell the retail condo at One Jackson Square, an 8,709-square-foot space with three ground-floor retail storefronts and basement storage at the corner of Eighth and Greenwich avenues, south of 14th Street. The ground-floor space totals 7,080 square feet and is 78 percent occupied by two investment-grade tenants, TD Bank and Starbucks.
Speaking of TD Bank, many of the bank branch locations opening up on New York street corners are occupied by the Canadian concern. As I reported earlier in the year, the 3,750-square-foot retail condo at the southwest corner of 49th Street and Second Avenue occupied by the bank on a long-term net lease was sold for $11.1 million to a South American investor.
Industry insiders believe that another location with a TD Bank is also for sale: the one in the retail condo at 400 East 67th Street, at the corner of First Avenue, in the Laurel Tower.
In the heart of Soho is 210 Lafayette Street, also known as One Kenmare Square. The 12-story, mid-rise tower is located at the east end of Delancey Street, where it meets Cleveland Place and Kenmare and Lafayette streets. The 33-unit condo was a development of Andre Balazs and Cape Advisors. Eastern Consolidated has been retained to offer for sale the two-story retail condo, with 7,400 square feet on the ground floor and 4,000 square feet in the basement. The space is fully leased to the Mitchell Gold Co., a high-end furniture store, through March 2017, and has an asking price of $15.950 million.
A few blocks away is another commercial condo at 202 Spring Street, also known as 84-89 Sullivan Street, on the southwest corner of Spring and Sullivan streets. It’s 3,200 square feet on the ground floor and lower level of a seven-story building.
The retail condo or the entire building is for sale at 654 Broadway in Noho, on the east side of Broadway at Bond Street. The retail tenant is located on the ground floor, currently occupied by Shoe Mania on a long-term lease that expires in 2028.
Massey Knakal’s website reports a major reduction in the asking price for the retail condo at 200 Riverside Boulevard in the base of the residential high-rise Trump Place, between 69th and 70th streets. The asking price for the vacant condo, with 13,098 square feet of ground floor retail and 7,944 square feet of storage in the basement, has been reduced from $8.95 million to $5.5 million. The firm is also selling retail and office condos at 80, 100 and 120 Riverside Boulevard in Trump Place and Rushmore residential.
In Rockefeller Center, at 16 West 48th Street, is the 34-story, 131,500-square-foot residential condo the Centria, a project of J.D. Carlisle Development Corporation. The building, which was completed in 2006, has a total of 152 residential condos, and the developer is now offering for sale the retail condo on the first floor.
Kips Bay is a highly regard section of Manhattan for retail. There, the master lease for two retail units at 201 East 25th Street and 200 East 27th Street are being marketed for sale by Eastern Consolidated. The 12,618-square-foot commercial property is occupied by a 78-spot parking garage, a D’Agostino supermarket and a Ricky’s.
Forty to 50 years ago, 14th Street at Union Square was one of Manhattan’s premier retail streets. J.W. Mays Department store was located at 40 East 14th Street, presently known as 4 Union Square South, the home of Whole Foods, DSW, Filene’s Basement, Forever 21 and Jamba Juice. Zeckendorf Tower at 1 Irving Place and Park Avenue South between 14th and 15th streets replaced the flagship store of S. Klein’s On-the-Square Department Store. Today, Union Square serves as the home of other prominent retailers, which include Best Buy, P.C. Richards, Nordstrom Rack, Duane Reade, Citibank and Walgreens.
As I reported earlier in the year, the State Teachers Retirement System of Ohio is now an owner of Union Square retail. The pension fund has acquired the four retail stores on the first, mezzanine and cellar floors of the building at 15 Union Square West. It paid $57.88 million, or $3,993 per square foot, for the 14,494 square feet of retail space. Three of the four stores are leased to HSBC Bank, Lululemon Athletica and Sketchers.
With the success of urban retailing, it looks like investors will continue to pursue ownership opportunities in this asset class for the foreseeable future.
Michael Stoler is a managing director at Madison Realty Capital and president of New York Real Estate TV LLC.