The MTA Wants One Master Tenant for Its Grand Central Madison Retail
‘COVID, as you know, fouled everything.’
By Mark Hallum March 29, 2023 8:00 amreprints
The last thing most people equate a transit hub like Grand Central Terminal with is a shopping mall.
But the amount of retail spaces within its many corridors gives many visitors the opposite impression. Grand Central has places to buy meals, groceries, everyday essentials, and even a place to absorb some old-world ambiance over a glass of wine.
On the heels of the February opening of the 700,000-square-foot Grand Central Madison — that two-decade-long and nearly $13 billion project to connect Grand Central Terminal to the Long Island Rail Road — one would think the retail component of the addition would have been fully leased up prior to welcoming commuters.
But it has been more complicated than simply getting tenants to sign leases for storefronts in what are now the deepest depths of Grand Central, according to David Florio, the Metropolitan Transportation Authority’s chief of real estate transactions and operations, who has been on the hunt for one entity to manage leasing for all 25 spaces in Grand Central Madison.
The maximum amount of retail space that the MTA believes it could lease would be around 25,000 square feet between built-out space and kiosks.
On one hand, the MTA is attempting to replicate another successful leasing model, while on the other hand, the effort to get spaces leased has been stalled by the fact that finding a master tenant requires foot traffic data and ridership numbers.
Those data points have become elusive with ridership still impacted by a lagging return to office, not to mention the fact that construction on many of Grand Central Madison’s 25 stalls is still ongoing.
A master tenant like Hudson Group or Delaware North would fit the description of who the MTA would like managing the space, similar to the partnership the agency has with Vornado Realty Trust at Pennsylvania Station.
“We would rather have a master tenant to have one vision for the entire north-to-south corridor and curated appropriately by people who know how to do that,” Florio told Commercial Observer.
“We [lease] upstairs individually ourselves because historically that’s the way it’s worked out,” he said. But for Grand Central Madison, “we’re looking for people who really do this for a living, whether it’s in the airport space, another transit space or even the suburbs. You can get a sense of what works if you leverage that intellectual capital.”
The MTA has considered leasing out one of the spaces in the new concourse in an individual deal, master tenant in place or not, because the individual stall is complete. It sits in a section that used to serve as a Metro-North Railroad storage yard and offers direct connections to RXR’s 175 Park Avenue, a 2.1 million-square-foot office tower made possible by the Midtown East rezoning in 2017.
The rezoning prepared the area for Grand Central Madison and the new seven-mile East River tunnels that connect it to Sunnyside Yards in Queens, essentially priming the pump for transit-oriented development. The zoning law allows developers to build newer and taller buildings in the area between East 39th and East 57th streets between Second Avenue and a line 150 feet east of Fifth Avenue.
As of a March 8 tour of the concourse’s retail footprint, the MTA’s construction work on the spaces was still ongoing in anticipation of a master tenant taking over and managing the fitting out for individual retailers. The halls between many of the empty spaces are occupied by art installations, including a number of displays showing work from the International Center of Photography.
The presence of columns holding up entire buildings impacts some retail spaces. One 4,000-square-foot space at the northern end, too, is defined by a shear wall supporting JPMorgan Chase’s 270 Park Avenue, a 2.5 million-square-foot headquarters building currently under construction, making it one long slot without pillars. The shear wall has a capacity of 16,000 pounds per square inch, and the space could act as one large shop or be split up by the master tenant. A service corridor on the east side of the concourse will also give tenants access to a loading dock on 50th Street.
At this stage, the MTA has not established asking rents for the Grand Central Madison’s retail spaces, a process that could take about two more months when the agency establishes what foot traffic will look like on a regular basis and prospective tenants give Florio and his team their first impressions. The agency had only eight days worth of ridership data as of March 8 to indicate foot traffic since East Side Access opened for full service on Feb. 27.
“COVID, as you know, fouled everything. We had a number that was going to be in the retail RFP saying ‘this amount of people are going to be coming here, foot traffic-wise,’ ” Florio said.
The early projection for LIRR ridership through Grand Central would be roughly 162,000 people per day in both arrivals and departures, which became dated with the onset of COVID. Ridership through Grand Central Madison has steadily increased with its second day of full service on Feb. 28 reaching 38,820 coming and going from the trains. Ridership hit 51,816 on March 21.
“We’re learning,” Florio added.
The agency is even open to leasing space on the platforms, 170 feet below the surface, similar to a coffee grab-and-go installation on the platforms of the 96th Street Q train station.
The last major rail hub built in the United States was in Buffalo in 1954, so any comparison drawn will be outdated, according to an MTA spokesperson.
Retail leasing in Grand Central proper throughout the pandemic has been a saga of its own with challenges that Florio’s team has had to adapt to. They’ve confronted the same kind of volatility that the rest of the city’s retail market has seen, according to Florio. He said tenants in the station have been signing three-year licensing agreements — short-term, in other words, compared to the five- or 10-year deals businesses used to agree to before the onset of the pandemic.
The MTA has seen a steady rise in the number of tenants returning to Grand Central Terminal, however, with most stalls full now in the Grand Central Market, Vanderbilt Hall, the Biltmore Passage and the Lexington Passage. While many tenants slid off during the height of the health scare, some like Li-Lac Chocolates in the market survived throughout.
Others are new to the terminal, including City Winery, which licensed space in April 2022, handing over to the MTA $500,000 and 8 percent of sales for the first year, $750,000 and 9 percent of sales for the second year and $1 million and 10 percent of sales for the third year at Vanderbilt Hall. Altogether, it was a three-year, $4.5 million licensing agreement.
The 400-square-foot kiosks along some corridors that connect to the street have been targeted for the MTA’s pop-up program, which signs tenants to a single year with the possibility of a longer lease in another part of the terminal. Incubating tenants in somewhat experimental spaces was a strategy for the MTA since before the pandemic.
Warby Parker, Tiffany and Lululemon are all tenants that initially leased as incubators. In the last two years, the agency has seen deals spike by 60 percent, bringing the train station’s retail to 69 percent occupancy.
The MTA didn’t squeeze its tenants for every dime either, with retention in mind. Rent for Grand Central Terminal tenants was fully abated from April to July 2020. As the pandemic waned, those tenants would pay 10 percent their fixed rental rate in August 2020 with that expectation slowly increasing to 20 percent, where it’s at now.
Tenant retention and leasing in other stations was a huge challenge as well, according to Florio, with many stations like Times Square offering retail — but locked behind a turnstile. And, with ridership numbers dropping to below 10 percent their pre-pandemic figures in the beginning of the pandemic, tenants perished.
Mark Hallum can be reached at firstname.lastname@example.org.