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Category ArchiveEastern Consolidated

Dollar Stores Likely to Benefit Big From Toys ‘R’ Us Closures

Dollar stores could “benefit” from Toys “R” Us closures, according to a new research survey by Coresight Research, formerly Fung Global Retail & Technology.

With the New Jersey chain shutting down, Amazon, Walmart and Target are the big retail giants who will be duking it out for the $7 billion in annual toy sales that are up for grabs, as per the Coresight data. But, the survey concludes, “dollar stores…could also benefit from Toys ‘R’ Us closures.”

Looking at where shoppers have browsed and bought children’s toys and games in the past 12 months, excluding Toys “R” Us (which placed fourth in the rankings), Coresight found that Amazon led the pack (63.8 percent browsed and 53.7 percent bought) followed by Walmart (54.7 percent browsed and 45.5 percent bought) and then Target (50.4 percent browsed and 38.6 bought). Dollar stores came in fourth (25.3 browsed and 21.4 bought).

“On a percentage basis, they may see the biggest boost to their sales [of all toy sellers],” said Timothy King, the managing partner of CPEX Real Estate.

Toys “R” Us announced this month that it is closing its 800-plus U.S. Toys “R” Us and Babies “R” Us stores, six months after filing for bankruptcy protection. When surveying Toys “R” Us shoppers to find out where else they browsed for toys and games in the past year, Coresight, which provides future-focused analysis to organizations at the intersection of retail, technology and fashion, found Walmart and Amazon tied at 65.4 percent and Target was close behind at 63.6 percent. Dollar stores ranked fourth at 29.8 percent.

“For most consumers, low price and convenience are paramount features,” King said. “Dollar stores offer both low prices and ease of shopping. Smaller stores in more locations make them easy to get to and easy to shop at. A trip to Costco is time consuming and tiring—at least for me. Targets are large stores as well. A dollar store is like the 7-Eleven of retail—convenient locations and easy in and out.”

Retail consultant Kate Newlin said of dollar stores: They are “okay and cheap. They have a good enough selection and the prices are low. I believe some great portion of the stock is close-out and remainders, but for some kid you don’t know’s fifth birthday a bright and shiny something is the price of admission to the party.”

One retail broker, Eastern Consolidated‘s Robin Abrams said that while her mother loves to buy her great-grandchildren toys at the local dollar store, and dollar stores “will get a share of the business,” she can’t “imagine [it] will have a huge impact unless they greatly broaden their product offering to embrace some higher price points.”

Source: commercial

Owners of ForGround Opening ‘High-End All-Day Café’ in Tribeca

The folks behind ForGround café in Midtown are opening a 1,234-square-foot ground-floor café at 112 Hudson Street in Tribeca, Commercial Observer has learned. An 832-square-foot basement space will be used for kitchen prep, storage and an office, according to Eastern Consolidated’s James Famularo who represented the landlord, Hudson Street Retail, with Eastern’s Clayton Traynham.

This will be “a first location from the same owner as ForGround, rather the a second ForGround location,” noted George Wlodarczyk of Douglas Elliman. Called Noted Tribeca, the new venue will be a “high-end all-day café and cocktail bar,” he said. Wlodarczyk along with Elliman’s Peter Gross represented the tenant in the deal.

ForGround is a café at 8 East 41st Street with ground coffee and a farm-to-table menu.

The asking rent in the 10-year deal was $150 per square foot, according to Famularo and the marketing materials for the property, which is between North Moore and Franklin Streets. The tenant will open in the next three or four months, Famularo said.

This is the second tenant the landlords’ brokers nailed down in the space within a six-month period.

“The space had sat empty since the new owners bought the retail condo from Robert De Niro five years ago, but within six months my team brought two tenants,” Famularo said in prepared remarks. He originally arranged a lease with Le Du’s Wines, but the wine shop’s relocation wasn’t approved by the New York State Liquor Authority last fall. The café deal was signed last Thursday.

Source: commercial

Is High Street Retail (Finally) on the Upswing?

It’s been a bumpy few years for high street retail, and at the risk of taking us off high alert too early, it looks like we’re finally entering a period of stabilized rents, increased deal activity, and a détente between e-commerce and bricks-and-mortar sites.

At the height of the market in 2015, everyone lost sight of the fact that retail stores needed to perform and that sales had to support rents. On prime Madison Avenue, for example, rents jumped seemingly overnight from $1,100 to $1,500 per square foot to an all-time high of $1,800 to $2,200 per square foot.

Putting aside the jolt e-commerce delivered to the rest of retail, this was never sustainable. Landlords increased rents to unrealistic levels and tenants grabbed spaces at any cost. There were painful repercussions for both, ultimately prompting stores to exit the market. Landlords who continued to demand top dollar found themselves saddled with vacant spaces.

Today retail rents have declined by 30 to 50 percent from the peak and leveled off, delivering a much-needed correction. Now those prime Madison Avenue rents have returned to their previous $1,100- to $1,500-per-square-foot level.

Not surprising, the rent adjustment is bringing about a renewed demand for retail spaces.

Tenants initially tiptoed back into the market with pop-ups—short-term scenarios to occupy a space, move some product, build a brand and make a statement. Brands like Amazon and Google did experiential pop-ups, while other brands did exciting collaborations like Supreme X Louis Vuitton. And then there were multiple pop-ups that provided great brand exposure for everything from Casper Bedding to Yankee Candle to Unilever’s multiple pop-ups for St. Ives skincare, Magnum Ice Cream Bars and Pure Leaf Tea. On top of that, it is now becoming the norm for many fashion apparel and shoe brands to do pop-ups in retail spaces for fashion week—i.e., Bogner and Sophia Webster. Lastly, some brands take pop-up space to conduct sample sales to clear out merchandise. Christian Siriano occupied a space on Madison Avenue for a week, and featured fabulous merchandise at much-reduced prices.

Now we’ve gone from very short-term pop-ups to seeing tenants sign one- to three-year leases with options for long-term extensions, a scenario that is limiting risk for both landlords and tenants. If sales are strong and the stores perform well, the tenants plan to stay long term.

Brands are reengaging, perhaps taking fewer stores or spaces with a smaller footprint, but making a real commitment, spending money, and opening retail locations with substantial product.

Retailers that aren’t yet ready to commit to five- or 10- or 15-year leases are nervous about the changing retail climate and future of the industry. Their anxiety is heightened by the constant drumbeat that e-commerce will continue to take market share away from bricks-and-mortar stores.

But I believe that retailers should relax because retail is all about driving sales and there is now less concern whether those sales originate online or in a store. If customers visit a store and it helps them make a decision to go home and buy merchandise online, then that store is serving a purpose.

A classic example is a luxury online brand we represented that wanted to test the New York City market. The tenant opened in a pop-up space in Soho, which was so successful we found the store a permanent space in Soho where sales have been phenomenal.

This retailer understood after opening the pop-up how important it was to have a physical presence. The managers learned that there were expensive products customers weren’t comfortable buying online. Instead, customers wanted to go to the store and see and touch these high-ticket items before making such a significant purchase.

For bricks-and-mortar shops, the lesson is that the internet isn’t something they should fear but embrace and integrate into their brand identity. For e-commerce sites, the lesson is that to increase sales, online retailers should open a physical store, which today is more doable than ever in this climate of reasonable rents.

Robin Abrams is a principal and vice chairman of retail at Eastern Consolidated.

Source: commercial

Euro Retailers Sense Opportunity Here While US Brands Look to Old World for Salvation

Last week, while JLL retail pro Michael Hirschfeld was in London for business, he learned of three U.K. retailers collapsing.

Those were the U.K. arm of Toys “R” Us, which went into insolvency administration, Maplin Electronics, which failed to find a buyer to get it out of administration, and dining chain Prezzo, which is being restructured. In addition, the 600-fleet London fashion chain New Look is looking to make deals with landlords to close underperforming stores and reduce rents.

The news sounds eerily similar to headlines in the U.S. as bankruptcies, e-commerce and the popularity of discount department and specialty stores have impacted the retail business on both sides of the pond.

“I think the retail challenges are universal,” said Hirschfeld, a vice chairman of national retail tenant services at JLL who spends 80 percent of his time bringing retailers from Europe to the U.S. and vice versa.

This comes, however, with a big caveat.

It is often said that what happens in the U.S. market will then follow in Continental Europe and Great Britain. But JLL warned in a retail report comparing the U.S. and Europe at the end of 2017, “we shouldn’t assume markets automatically mirror each other.”

In Europe, and the U.K. in particular, retailers braced themselves for the change in shopping patterns due to e-commerce faster and earlier than did their U.S. counterparts, according to the JLL report.

And beyond the internet, there are clear differences between the two markets.

One of the big ones is the sheer amount of retail space available in the U.S., in large part due to an excessive number of shopping centers. In the U.S., there is 13,713 square feet of leasable shopping center space per 1,000 people, JLL determined at the end of last year. In the U.K., by contrast, there is 3,175 square feet per 1,000 people, and in Europe as a whole, there is 2,335 square feet.

And the European retailers smell the opportunity—many view the U.S. as if “it’s on sale,” Hirschfeld said. “You’re seeing rent levels that you could achieve in the financial crisis. It’s a very opportune time. The demand is super strong.”

Hirschfeld brokered deals to bring British clothing company Superdry to various cities in the U.S. and is working on a deal for British toy store Hamleys to come to New York City. Accessories brand Furla, which comes from Milan and already has a store in Manhattan, is expanding with a new lease in Aventura Mall in Miami, Fla. (one of the top malls in the country), and one in the Forum Shops at Caesars in Las Vegas (another top U.S. mall) with likely another three or four more in major markets, he said of his client.

Susan Kurland, an executive vice president and a co-head of global retail services at Savills Studley, said that the difference between retail in Europe and the U.S. is the vacancies.

“The difference is their spaces are filled,” Kurland said. “You walk down our Madison Avenue, and almost every store on Madison Avenue is available.”

She is working with a high-end Chinese-owned Milan-based company, which is looking to enter the U.S.

“[The owner] feels the only places to expand are China and the U.S. as those are the two most important markets,” the broker said. “They’re in…the exclusive places in China. They’re on the important street in Milan. He feels that the U.S. is really important for his expansion.”

While there will be more store closures in Europe, JLL determined that the continent is “unlikely to experience the sheer volume of closures currently being forecast in the U.S.”

Another distinction between the U.S. and Europe is that most of Europe employs a high-street model rather than a shopping-center model. Furthermore, in shopping centers, the U.S. has relied on department store anchors (which have been one of the worst victims of e-commerce and commoditization), JLL noted. In Europe, on the other hand, shopping mall owners have been quick to switch gears with their anchor tenants, often turning to food-and-beverage concepts, and they are more diverse in their offerings.

Yet another important difference between European and U.S. leases is the rent structure. In the U.S., when a tenant signs a lease it knows what the rent is for the entire term. In the U.K., for example, you may sign a 10-year deal, but every couple of years you go through a fair-market rent review process, Hirschfeld said, so you don’t know your rent.

But one thing both places have in common is that consumers have so many options for how they want to shop.

“We’re seeing across the board a fragmentation of distribution,” said Betsy McCullar of Hilltop Alliance, who develops and executes marketing and strategy solutions for brands and businesses. “Western Europe is even more fragmented than the United States because, for example, the U.K. and Germany—and France, to some extent—have a big mature structure of department stores. But Italy and Spain are still dominated by one-off specialty stores.”

Among the European brands that are on the fast track in the U.S. are fast-fashion brands Swedish Hennes & Mauritz (H&M), Zara from Spain and the U.K.-based Reiss Ltd., The Wall Street Journal reported in May 2017. Amsterdam-based Scotch & Soda is also popping up in the U.S. with 28 free-standing retail stores, with a store at Woodbury Common Premium Outlets in Central Valley, N.Y. opening on March 30. European discounters like German grocer Aldi, German competitor Lidl and Irish clothing company Primark are on a tear in the U.S., Bloomberg Gadfly pointed out last October. International cosmetics companies like Rituals from Amsterdam are taking New York City by storm. Plus there are food chains like Wagamama, an Asian food concept that actually hails from London, that has set up shop in New York City and Boston.

When entering the U.S., European retailers focus on major cities for entrée.

Since they’re used to high streets at home, European retailers want to rent on a U.S. high street. And they generally enter by way of one of the gateway markets of New York City, Miami, Los Angeles, San Francisco, Chicago and Las Vegas, Hirschfeld said. They often choose a U.S. location that is most similar to where they hail from, Hirschfeld said.

“Brands usually like to do either the East Coast or the West Coast initially, and I believe that most start on the East Coast first,” said Robin Abrams, a vice chairman of retail at Eastern Consolidated, with New York City being a priority due to its tourist population, ease of navigation, walkability and great public transportation. For U.K. retailers, New York is logical, Abrams said, “because it is more similar” than other places in the U.S.

Interestingly, CBRE’s most recent annual global retail report highlighted Philadelphia as a target city for international retailers in 2016. That year, Italian furniture company Natuzzi Italia and Superdry set up shop in Philadelphia, the fifth-largest city in the U.S. The market was appealing, the report said, because of its increased millennial population, income growth, new multihousing developments, burgeoning food and retail scene and reputation as a tourist destination.

But there’s no refuting that New York City often is the beau ideal market for European retailers looking to expand abroad.

21 Euro Retailers Sense Opportunity Here While US Brands Look to Old World for Salvation
SUITING UP: EUROPEAN WOMEN’S STORE SUITSTUDIO HAS FARED WELL IN BROOKFIELD PLACE SINCE OPENING LAST NOVEMBER. Photo: Brookfield Property Partners

“Retailers looking for a first or second opportunity look at New York,” said Mark Kostic, a vice president of retail leasing in the U.S. at Brookfield Property Partners. “Everyone’s next step is a global flagship in New York.”

Kostic worked on the deal to bring European suitmaker Suitsupply to Brookfield Place. The brand has fared well since the men’s store opened about a year ago, and the women’s store Suitstudio opened this past November, he said.

Jason Pruger, an executive managing director at Newark Knight Frank, said he will be helping Black Sheep Coffee expand from London into the U.S. come springtime. He anticipates that Black Sheep will enter the country by way of New York City.

“We are looking to expand in the U.S. because we have be inundated with customer requests, particularly in the last few months—mostly Americans living in the U.K. or who came across Black Sheep while visiting the U.K.,” said Gabriel Shohet, one of the co-founders of Black Sheep Coffee. “New York City has many Black Sheep fans but is one of four U.S. cities [including Chicago, Washington, D.C.. and Atlanta] we have shortlisted as a potential starting base for a U.S. market entry.”

Faith Hope Consolo, the chairman of Douglas Elliman’s retail leasing, marketing and sales division, said that New York City is “the shopping capital of the world, and the No. 1 leisure activity in this country is shopping. Yes, New York City is the center of the world. Companies are willing to risk everything to make it here. Just like the song goes, ‘If you can make it here, you can make it anywhere.’ ”

Going the other way, U.S. retailers often start in London for their European expansion, where English is the native language. Indeed, companies from the U.S. marked the majority of new international retail entrants to London in 2016, according to CBRE’s global retail report. (Hirschfeld called London “probably the retail capital of the Europe in many ways.”)

But London is desirable for just about any retailer looking to make an entrance on a global stage. “Overseas brands continue to see London as the pathway to greater expansion” in Europe, the Middle East and Africa, or EMEA, the CBRE report said. London was the second most-targeted market globally for international retailers entering new markets in 2016 (behind Hong Kong) and 10 markets in EMEA made the list of 19 global cities with the greatest international retailer presence. And this was the year of the Brexit vote for the U.K. to leave the European Union, so presumably the vote did not rock anybody’s faith in London retail.

At the end of last year, New York-based high-end fitness brand Equinox opened its first standalone E by Equinox location—an even higher-end Equinox—in central London. “Opening our first standalone E by Equinox in one of the most esteemed neighborhoods in London was only fitting,” Gentry Long, the managing director of U.K. operations for Equinox, said in a press release in December 2017. “We’re thrilled to introduce an elevated take on the private members’ establishment with fitness at its core.”

Some in-demand cities for U.S. retailers going abroad are Germany’s Munich, Berlin, Hamburg and Frankfort for fashion brands and food and beverage brands, Hirschfeld said. And there’s Paris, France and Milan, Italy. He has not seen a lot of demand for a Spain brick-and-mortar location.

In the last coupe of years, Hirschfeld’s team has brought Detroit-founded Shinola watch, bicycle and leather company to London. And his team brought Seattle-based outerwear company Filson to London.

“What you must look at when you’re looking throughout Europe, or Asia or South America is products that are transferrable to other markets,” Virginia Pittarelli, a principal of Crown Retail Services whose clients have included Sephora and Godiva, told Commercial Observer late last year.“That’s really the key.”

Source: commercial

Barneys Shuttering Upper West Side Store After More Than a Decade

Barneys New York is closing its Upper West Side store store on Feb. 18, a company spokeswoman confirmed to Commercial Observer.

“Barneys New York has enjoyed serving the community on the Upper West Side for over a decade. We sincerely appreciate the loyalty of our customers, and we look forward to continuing to serve them at our Madison, Downtown and Brooklyn locations,” the spokeswoman emailed.

West Side Rag first reported the news on Feb. 2 based on information provided by a manager.

The roughly 10,000-square-foot clothing store, which is on the ground and lower levels at 2151 Broadway between West 75th and West 76th Streets, opened in 2004, according to retail broker Faith Hope Consolo of Douglas Elliman Real Estate, who represented the landlord in the original lease negotiations with Barneys. The space underwent a renovation in July 2013, which included rebranding it from a Co-op store—selling lower-price fashion—to a Barneys New York. (The company has converted Co-ops stores to Barneys New York shops.) The lease is slated to expire at the end of 2023, according to CoStar Group.

Once it shutters, there will be two remaining Barneys stores in Manhattan: one at 660 Madison Avenue between East 60th and East 61st Streets and one at 101 Seventh Avenue between West 16th and West 17th Streets.

“This is a big loss for the Upper West Side,” Consolo said. The deal was unique at the time as most retailers were focused on Columbus Avenue, but Barneys took a Broadway space.

Broker John Brod, a partner at ABS Partners Real Estate, said the news is of no surprise.

“Customers can go on line at Bonobos, UNTUCKit, Allbirds, Amazon, Suitsupply and manufacturers’ own online e-commerce store to purchase the same merchandise so the need for Barneys to have a brick-and-mortar presence has past,” Brod emailed. “Specifically, Barneys is a multi-brand retailer and as such the need for a second store in a secondary market becomes redundant in today’s retail and shopping environment. The issues are further challenged by the general state of retail in this area—note that Sephora has opted to downsize from their 2162 Broadway location—they passed on their right to renew. Moreover, Anthropology who was negotiating to replace Sephora here after many months of negotiation, decided not to proceed. Additionally Eastern Mountain Sports vacated this area [at 2152 Broadway] as well. The fact is there is a very limited demand for large flagships in both primary and secondary markets. Clearly the Upper West Side is a secondary market.”

The market and neighborhood combined to hurt Barneys.

“Barneys closing is a reflection of the current market,” said SCG Retail Partner David Firestein. “With that said, they were never right for the neighborhood, in the mid 70s. A better fit would have been closer to Lincoln Center, near Century 21.”

And the popularity of online food shopping has impacted the area, including Barneys.

“That stretch of Broadway has always been local, and much of its traffic from shoppers that live or work outside the market area was based on the food anchors—Citerella, Fairway and Zabars—all on the west side of Broadway in a seven-block stretch,” said Robin Abrams, a vice president at Eastern Consolidated. “Once it became possible to get fresh produce and a wide array of prepared foods at the various Whole Foods [stores], Fairway’s other locations and a variety of other competitors, the pedestrian traffic on Broadway diminished. Now the retailers on Broadway must be strong to cater to local traffic, and even stronger if they are to pull from a broader customer base.”

Source: commercial

While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern

Over the past several years, the unofficial motto of the New York City hotel market has been “If you build it, they will come.” The city has seen tens of thousands of new hotel rooms crop up across the city this decade, and there are tens of thousands more in the pipeline due to arrive in the coming years—but despite all that new supply, the rooms keep getting absorbed.

That’s undoubtedly good news for the hotel developers and operators who built those new rooms and plan on bringing more to the market in the near future. But a closer look at the statistics and conversations with hotel market participants reveal a more mixed view of the city’s hotel landscape—one that finds it attempting to strike a balance between the number of rooms sold and the prices being paid for those rooms, and bracing for a variety of headwinds that could make it hard to sustain future development.

The clear, undoubtedly positive story is that while the U.S. hotel industry has struggled recently—with declining tourism figures among the factors that have made it difficult to absorb the roughly 2 percent supply growth experienced nationally last year—New York City has shown little problem handling the 4 percent growth in its supply that it saw in 2017. As Jan Freitag, the senior vice president of lodging insights for data and analytics firm STR, put it, the city’s hotel market is experiencing a dynamic that “doesn’t make sense in any other market but does make sense in New York City.”

The average occupancy of New York hotels in 2017 stood at 86.7 percent, up 1.1 percent from the previous year—with the city now home to more than 119,000 hotel rooms across the five boroughs, according to STR. That 86.7 percent occupancy rate means that nearly nine out of 10 hotel rooms available in the city were sold out through the course of last year—a “stunning” figure given the added supply, Freitag said.

“What demonstrates the strength of the New York market is that all of those hotel rooms are being absorbed in the year that they open,” said Mark VanStekelenburg, a managing director in the hotels division at CBRE. “From an occupancy standpoint, the market is at or near its peak occupancy and is continuing to be, even while we’re experiencing 4 to 6 percent [annual] supply growth. We’ve never really seen something like that in the U.S.”

That should give confidence to the city’s hotel developers, given that room supply will only continue to grow in the next few years; STR tracks more than 22,000 new rooms presently in the city’s development pipeline, including nearly 12,000 that are presently under construction.

But while the city has shown an ability to absorb that kind of supply influx, the underlying economics of doing so—such as the daily rates those rooms are able to command and the revenues flowing into the pockets of hoteliers—are somewhat murkier.

Though hotel occupancy in New York has been on an upward trajectory, average daily rates have not; those slipped 1.4 percent to $255.54 in 2017, according to STR. Room rates in the city have continued to slide since peaking at more than $271 per night in 2014, as has the metric of revenue per available room (RevPAR), which has fallen 4.6 percent to $221.60 in that time.

Market observers attribute this inability to translate high occupancy rates to improved room rates and revenues to a number of factors. Some noted that most of the city’s new hotel rooms fall under the booming limited- or select-service category, where rates are on the lower end of the spectrum (such rooms comprise more than 6,000 of the nearly 12,000 rooms currently under construction in the city, per STR). Others cited the influence of Airbnb, which has forced hoteliers to re-evaluate the prices they ask of consumers who can now choose a cheaper, often more spacious lodging alternative.

Still, despite softening rates and the promise of even more supply to come, it’s not hard to find real estate players willing to bet on the hotel market’s continued viability.

“You can see from our commitment to the city hotel market that we’re still very bullish in our long-term view of hospitality investments,” Mitchell Hochberg, the president of the Lightstone Group, said.

Hochberg pointed to his development firm’s hotel projects around the city, such as its Moxy brand hotels in Times Square, NoMad and the East Village, as examples of Lightstone’s continued faith in the hotel sector. “New York is one of the strongest economies in the country, and it’s a global center for finance and media,” he said. “Although there’s been a supply increase in the last couple of years, the data indicates that demand has kept up with supply.”

1713 pod twin 026 While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern
Guest room at the Pod Times Square Hotel. Photo: The Pod Hotels

But other hotel market players are far less convinced. Richard Born, the co-founder of BD Hotels and the hotelier behind boutique Manhattan brands such as the Mercer Hotel, the Greenwich Hotel, the Ludlow Hotel and the Jane Hotel, espoused his view that, “with some exceptions, by and large the hotel market in New York is terrible.”

He cited a combination of factors including the “erosion” of daily rates (which he attributed to the influx in room supply as well as Airbnb’s vast “shadow inventory”), higher property taxes and operating costs, and the increased influence of third-party booking websites like Expedia and Travelocity (which have brought more transparency and reduced hotels’ “pricing power” while also charging booking commissions that are an additional “line item” for operators).

“Any hotel operator operating today is making a fraction of their net operating income compared to what they were making 10 years ago,” Born said. He added that the operators best positioned to succeed in such a challenging market are the ones capable of differentiating themselves from the more malleable product of their competitors. “There’s a fungibility to the hotel market that makes pricing very difficult because everyone is looking at everyone else’s rates. But the exceptions are the hotels that are not fungible—the ones that are unique, designed and have something different to offer their customers.”

In addition to its higher-end boutique brands like the Mercer, Bowery, Ludlow and Maritime hotels—where rates are on the higher end of the pricing spectrum—BD Hotels has sought to differentiate itself from the landscape with projects like its Pod hotels, which have parlayed the micro-apartment trend into a concept the hotelier terms the “micro-hotel.” With four locations in New York and one in Washington, D.C., the Pod hotels offer nightly rooms of around 100 square feet but also come equipped with food-and-beverage concepts and boutique-minded aesthetics (such as the mural from Brooklyn artist JM Rizzi that adorns the elevator shaft at the recently opened Pod Times Square).

Born pointed to the Pod BK—the brand’s Williamsburg, Brooklyn location—as offering something specifically different from the new luxury hotels that have cropped up in that neighborhood in recent years, such as the Wythe Hotel and the William Vale. “We have a hotel that we don’t think is fungible, in a marketplace where all the hotels are four-star boutiques looking for high rates,” he said.

Hochberg cited a similar rationale behind Lightstone’s Moxy brand; the developer teamed up with Marriott International with the goal of “delivering an affordable product with a lifestyle component to it”—one that offers the sensibilities of a boutique product at a lower price point with smaller rooms and limited-service offerings.

“The industry has introduced many more products and choices for the consumer of the past few years,” Hochberg said. “There’s a whole variety of new genres and brands that are focusing more on the consumer and trying to understand what today’s consumer is looking for.”

Hoteliers may also receive a boost from the fact that, beyond this decade, the city’s hotel development pipeline is slated to slow down significantly, making it easier for the incoming supply to be absorbed and potentially driving up room rates again.

Multiple market observers and participants noted that the supply influx the city is now seeing is the result of plans initiated a few years ago, adding that a variety of factors—from risk-averse lenders shying away from financing new projects to regulatory pressures being placed on the hotel sector by the de Blasio administration—could slow future development significantly.

“When we go out to find financing, there are less people able to provide debt than there were before,” said Eastern Consolidated’s Adam Hakim, a managing director in the brokerage’s capital advisory division. “Lenders control supply and demand; when they give hotel developers money, people build hotels, and when they don’t, they can’t.”

Hakim’s colleague James Murad, a director at Eastern, described the hotel market as “one of the thinnest construction financing markets you can go out for” to procure funds, with lenders mindful about the sheer volume of new supply and how that may affect borrowers’ abilities to refinance in the future.

“That said,” Murad added, “for quality sponsors and the right product, there’s appetite.”

wythe guestroom 4 credit matthew williams While Occupancy Skyrockets, NYC Hotel Players See Cause for Concern
Guest room at the Wythe Hotel in Williamsburg. Photo: Matthew Williams

Jared Kelso, a senior managing director in  Cushman & Wakefield’s global hospitality group, echoed that sentiment. “The last 24 months have been very challenging to find construction financing [for hotels],” he said, attributing the slowdown to lenders being in a “checklist underwriting” mind frame in considering hotel market fundamentals.

But Kelso added that financing is still available to “sponsors with a long and proven track record” with debt funds and alternative lenders also stepping in to fill the void left by the more risk-averse banks. He also noted that the tightening of the financing market is “frustrating for developers but not a bad thing at large” given the impact it will have on restricting supply. “After 2018, the supply pipeline thins dramatically, and that will ultimately be a good thing for the [hotel market] at large.”

And then there are regulatory obstacles that market observers say will impede hotel development in the future. That includes the de Blasio administration’s proposal to limit projects in industrially zoned M1 manufacturing districts by requiring developers to obtain a special permit, as well as the extension of Local Law 50, which prohibits large hotels (150 keys or more) from converting more than a fifth of their rooms to residential units or other non-hotel uses without city approval.

Both measures are perceived by many observers as meant to preserve the interests of the influential hotel workers’ unions and potentially damage the city’s future hotel supply. In the case of the zoning proposal, it will make it harder for developers to find parcels to build on and likely subject those projects receiving a special permit to higher-cost union labor requirements; in the case of Local Law 50, its preservation of existing hotel rooms would dampen the need for new supply in the interest of preserving existing hotel jobs.

According to Hakim, some of the developers behind the current supply pipeline—such as prolific hotel builder Sam Chang of McSam Hotel Group, a client of Eastern’s—are operating on the “thesis that hotel values are going to go up significantly in the next few years. The inventory is going to stabilize, and once it stabilizes, the theory is that you won’t be able to build new ones.” (Chang did not return a request for comment.)

“Twenty-four months from today, in 2020, I think your pipeline of hotels is going to drop to pretty close to zero,” Hakim added. “From there, you’ll see an increase in [room] prices.” But he was also critical of the influence that the current regulatory environment has had on exacerbating this dynamic. “I believe markets should correct themselves properly; you have a lack of [financing], and that’s a correction you’re seeing. But public policy and zoning laws being arbitrarily changed—that’s not how it should work.”

The de Blasio administration, for its part, does not think the proposed zoning regulations will negatively impact the flow of new hotel projects in the city. “We don’t believe the proposed rules will hinder hotel development across the city, which remains strong,” a mayoral spokeswoman said in a statement. “But we do aim to prioritize manufacturing businesses in the zones specifically designated for manufacturing. While hotels have a lot of options for where they can open and operate, these industrial firms don’t.”

The impact of all these various influences could start making themselves felt sooner rather than later, sources said. C&W’s Kelso said that the brokerage believes New York City room rates could start ticking upward as soon as the fourth quarter of this year, while Hochberg said Lightstone projects RevPAR “to be flat to slightly increased in 2018.”

That would be good news for hotel operators in the city—and a testament to its voracious appetite for hotels. Despite all the new supply, the city’s churning economy and robust tourism sector seems to always make room for even more places where people can stay.

“It’s a cultural mecca for the world,” Born said. “Every 14-year-old lives on a handheld device, looking at all this and dreaming of coming to New York, whether you’re in Oklahoma or Bangladesh, to live, work, study and visit here. It’s always going to be a dynamic place for tourism—the issues are going to be the costs of operating and the supply. But we do live in the greatest tourism market in the U.S. and in the world.”

Source: commercial

Slow Season: NYC’s Investment Sales Brokers Are Optimistic Despite a Challenging 2017

Two thousand seventeen “was still good—it just wasn’t great.”

Those are the comforting words that Aaron Jungreis, the co-founder and president of brokerage Rosewood Realty Group, offered to Commercial Observer last week when asked about the state of the New York City investment sales market.

Yet one could be forgiven for considering that a rather optimistic assessment, given how the numbers depict a commercial property market that has experienced a significant downturn since the halcyon days of 2015.

Two years after eclipsing an all-time high of $80 billion, total commercial real estate investment sales in the city fell just shy of $35 billion in 2017, according to a recent Cushman & Wakefield report on the state of the New York City real estate market. Transaction volume (the total number of property sales across the city) fell more than 30 percent in that time, and perhaps most damningly—after nearly a decade of unrepentant property value appreciation in the wake of the Great Recession—the average price per square foot for Manhattan commercial real estate sales (excluding the blighted retail market) fell for the first time since 2010, to the tune of 5 percent.

Even the outer boroughs—which have emerged to an unprecedented extent as viable markets in their own right—saw a 17 percent decline in the number of properties sold and a 27 percent dip in dollar volume (albeit from a record high of $18.2 billion in 2016) to $13.3 billion, per the C&W report. And while property values in the boroughs continued to climb last year, Robert Knakal, C&W’s chairman of New York investment sales, warned of “contagion” from the slipping Manhattan market leaking into the property markets of Brooklyn, Queens and the Bronx.

Numbers aside, talk to the commercial real estate brokers who are taking the calls and making the deals, and they’ll virtually all agree that the market for New York City real estate simply isn’t anywhere near the frothy peak of a few years ago, when one could procure buyers galore for virtually any parcel or property that hit the market. But despite this slowdown, most investment sales brokers are trying to paint a more positive picture of a market in a state of correction—with property values and transactions still at relatively high levels historically and signs of strengthening conditions heading into, and during the early part of, 2018.

“It’s still a good market,” Jungreis said. “The fundamentals are still strong, and people still want to come to New York. I just think we’re so spoiled with the market having gone up and up. I’m really not that concerned.”

Jungreis and other brokers who are active in the multifamily investment sales market attributed lower deal and dollar volumes to headwinds that have hindered investor appetite for both rent-regulated and market-rate residential buildings, as well as development sites that would have proven attractive for ground-up residential projects in years past.

Rent-stabilized properties have long been considered among the safest investments in New York City real estate due to their high occupancy rates and embedded upside once units become deregulated and landlords are able to charge higher, market-rate rents. But thanks to the de Blasio administration, multiple sources said, a more stringent regulatory environment has made it increasingly difficult for landlords to realize that upside and has consequently dampened investor enthusiasm for the asset class.

“De Blasio has won; the perceived upside is locked, and [property] taxes are going up every year,” Marcus & Millichap’s Shaun Riney, one of the brokerage’s leading Brooklyn-focused investment sales brokers, said of the market for rent-stabilized multifamily properties. “To keep up with the Joneses, you have to vacate units. That’s the dilemma [investors] have—you have to believe people are going to leave [their units] unless you’re a long-term investor, and long-term investors aren’t the ones paying 20 times the rent roll [for buildings].”

Chad Sinsheimer, a senior director at Eastern Consolidated, echoed the sentiment—noting that prospective buyers have become “a lot more passive and cautious in buying stabilized properties” due to regulations that have made it harder for landlords to approach tenants about buyouts and “unlock that upside” at rent-stabilized properties. “With all these tenant harassment lawsuits and headlines, there’s a little bit of fear on behalf of these landlords now,” he said. “They don’t know how long they’re going to be stuck with these tenants.”

While describing rent-stabilized assets as “still the darling of the market,” Bestreich Realty Group Founder and President Derek Bestreich cited the “administrative burden” of landlords having to deal with “layers and layers of government bureaucracy overseeing everything you do.”

“For owners, it’s like you’re guilty until you’re proven innocent—it’s evolved into a ‘gotcha’ type of environment where owners are on the defense, even if they’re operating their buildings admirably. It puts a bad taste in investors’ mouths,” the investment sales broker said. “People want to be able to grow the value and make a return, and I think there’s less confidence in their ability to do that nowadays.”

Beyond heightened regulatory scrutiny, Bestreich pointed to shifting fundamentals that have meant “cap rates have gone up, prices have dropped and there’s less demand [from buyers] than there was in the past” for multifamily assets. “Five or six years ago, I’d have 100 buyers wanting to buy a rent-stabilized building, while today I’d have 20,” he said. “There’s far less demand, but still enough that prices haven’t come down a whole lot.”

But like other brokers, Bestreich stressed that the market is still performing well overall despite having lost some steam. “We’re coming off a period where rents grew for so many years and interest rates dropped, and that combination led to really high property values,” he said. “Today, property values are still high; rents have dipped in a lot of areas from their peak, but there’s been such tremendous rent growth over the last seven years that, for rents to pull back 10 percent, I don’t find that to be an earth-shattering thing.”

Flat to falling rents are arguably the biggest issue facing the city’s market-rate rental properties—a condition exacerbated by the sheer number of free-market units that have arrived across the city in recent years, through developments like the swaths of luxury high-rise buildings that have cropped up in neighborhoods like Williamsburg and Downtown Brooklyn, in Brooklyn, and Long Island City, Queens.

As Jeffrey Levine, the chairman of Douglaston Development, told CO, the city is now experiencing a market-rate rental supply glut that was partially exacerbated by developers rushing to take advantage of the 421a tax abatement prior to its expiry in 2016.

“You had an abundance of product going into the ground, primarily in Downtown Brooklyn and Long Island City, and that product is now being delivered to the market and creating a real distortion in the marketplace,” Levine said. That dynamic, coupled with high construction costs and land prices that “have not yet fallen sufficiently,” has made it “very hard to pencil new [rental] development in the five boroughs,” he added—even with the new Affordable New York housing plan designed to replace 421a.

Landlords are now resorting to handing out tenant concessions, such as months’ worth of free rent periods, to attract renters to their buildings, further affecting investor appetite for market-rate properties as well as development sites that would house ground-up rental projects.

“There are a lot of amenitized buildings [on the market], and there are only so many young people who can pay $6,000 a month to split up a three-bedroom [apartment]. That’s why you’re seeing these concessions spike,” Sinsheimer said of the luxury rental space, noting that it’s not uncommon to see landlords dole out two to four months of free rent at some buildings, depending on the length of lease.

As such, developers are now targeting certain asset classes that are perhaps underserved in certain areas of the city. While the ultra-luxury residential condominium market’s recent travails have been well documented, brokers are finding strong demand for condo projects in outer-borough neighborhoods like Williamsburg and Long Island City—traditionally rental market strongholds with relatively low for-sale inventories, and areas where condos would sell at a price point more reasonable than that of, say, Billionaires’ Row in Midtown Manhattan.

Marcus & Millichap broker Jakub Nowak said that his team has seen an increase in land sales in Queens driven by “a surprising uptick in activity” from condo developers. “Any residential development site that my team is selling in Long Island City at the top level, the bidders are all condo developers,” Nowak added.

Bestreich, meanwhile, cited a similar trend in areas of Brooklyn: “Well-located development sites in Williamsburg, we can’t keep that stuff off the market,” he said, pointing to “seven to nine” parcels sold by his firm in the north Brooklyn neighborhood in the last several months that he said will virtually all become condo projects. “There’s so much concern over the L train shutting down, but condo developers are saying, ‘Let me buy something now, and when I’ve built it in two years, the L train won’t be an issue anymore.’ ”

Across other asset classes, the retail apocalypse has been highlighted ad nauseam, while the market for trophy office properties has also taken a hit in the wake of the record-breaking deals for Class A Manhattan properties seen in 2015 and 2016. On a recent conference call discussing Cushman & Wakefield’s 2017 real estate market statistics, Knakal noted that declining retail property values have made it difficult to find buyers for mixed-use properties with a retail component. His colleague Douglas Harmon—co-chair of C&W’s capital markets division and one of the city’s top brokers in the market for major trophy properties—pointed to a lack of such major deals in 2017 as a key contributing factor to the investment sales market’s declining dollar volumes.

But other asset classes, such as industrial properties, are booming to an unprecedented extent. Industrial assets are in enormous demand given the rise of the increasingly influential e-commerce sector and the relative scarcity of warehouse and manufacturing properties remaining in the five boroughs (particularly in more central, well-located areas with access to bridges and highways).

“Industrial has probably been the most exciting asset class in the past year and a half,” Eastern Consolidated Senior Director Andrew Sasson said. “There’s not a ton of industrial buildings in the city that have 25-foot-high ceilings and that are being kept for that use, or can be repositioned as distribution centers.”

Likewise, Marcus & Millichap’s Nowak noted that as “so much of the legacy industrial space in New York City has been repurposed in recent years”—usually either redeveloped as loft-like office and light manufacturing buildings targeting creatively minded tenants or razed to make way for new residential projects—the supply-constrained industrial market has “benefited tremendously.”

All things considered, investment sales market participants are now dealing with an altogether spottier market than they have in recent years. But overall sentiment is the market remains in a position of strength, with many noting a pickup in activity toward the end of 2017 and macroeconomic developments—particularly the passage of the Trump administration’s business-friendly tax reform bill—as reasons for optimism.

“In December of 2016, I was not enthusiastic about 2017,” said David Schechtman, a senior executive managing director at Meridian Investment Sales. “In December of 2017, I felt excited to get back to my desk on the 2nd or 3rd of January, and I haven’t been proven wrong.”

As Schechtman pointed out, the market may very well be getting its legs back as property owners come to terms with the correction that has taken place, and as the discrepancy between the prices that sellers seek and prospective buyers are willing to pay—commonly cited as another reason for the drop-off in investment sales—is reconciled.

“It’s a very difficult environment when, each day for several years, you’re reading as an owner that your property is worth more,” he said. “It takes time for an owner to recognize that they may be selling below the zenith. Not every deal is going to set a new benchmark—for many assets, the high-water mark has been hit—and as long as the seller is willing to receive below that, there will be a buyer.”

Source: commercial

Achieve Your Dream with a Vision and Plan. (There’s a Difference.)

Successful people think big, set challenging goals and develop clear plans to achieve them. With 2018 less than a month old, now is an opportune time to plan for the future.

Thinking, setting goals and planning for the future necessarily requires change, and as we all know from experience, change is not easy.

A great way to approach change is through a “Force Field Analysis” developed by Kurt Lewin, the father of social psychology. In Force Field Analysis you assess your current state (where you are) with your future state (where you want to be). For example, your current state can be having one client meeting a week, and your future state can be having three client meetings a week.

The next step is to identify the forces that are driving change (e.g., you want to make more money and increase client retention) and the forces that are restraining change (e.g., I am too busy to leave the office). During this phase you need to think intentionally and with immense focus about how to reduce the restraining forces.

In the example above, you can delegate to a peer any issues that come up while you are out of the office or choose to do work during your commute. Additionally, it is critical to drill down into the driving forces to increase their motivation. You can specifically define why you want to make more money and how achieving that goal positively impacts the people on your team. The more they buy into your plan, the more activated they will be as well.

Next, lay out all of the specific steps necessary to ensure you meet your dream. Why did I call it a dream? Because any concept that takes longer than a month to achieve is not a goal. Goals are tactical. To be achieved, goals need to be short term and backed up by action steps. (Dreams are the desired vision we have of our future.)

This is the area where most people fail. They are well intentioned but don’t have the necessary action steps. The lack of persistence is often rooted in the reality that the plan was impulsive, rather than inspired by a long-term vision. But when the vision is there, the little steps along the way help bring us closer to achieving our dreams.

So let’s go back to the example of wanting three client meetings a week. What are the specific actions required?

First, identify and list the clients you want to meet. Next, prepare for the call by choosing two to three dates and times within a two-week window to actualize the meeting, a restaurant or other appropriate location for the meeting, and crafting the conversation. Keep the call short and direct. Create a simple script. For example: “Jane, it has been a while since we spoke and would love to catch up and see how your business is going. Can you do lunch on Tuesday or is the following Monday better?” 

Action is the driver of achievement, so give yourself a short-range, achievable deadline to begin reaching out to schedule the meetings. When you schedule a lunch meeting, immediately send either an email or calendar invite confirmation and place it on your calendar, along with a reminder to confirm the day before. Finally, make a reservation at the restaurant under your name.

Since the action steps are the most important part of the plan, it is important to lay them out with the granularity you see above. Dreams and goals rarely fail for reasons other than lack of following through on an action plan.

By turning your dreams and goals into action, you can make 2018 your most successful year ever!

Source: commercial

Eastern Consolidated Retail Pros Jeff Geoghegan and Ravi Idnani Move to RKF

Eastern Consolidated food and hospitality retail experts Jeff Geoghegan and Ravi Idnani have joined RKF’s New York office as directors, Commercial Observer has learned. They commenced on Jan. 17

At RKF, they both will continue to focus on tenant and landlord representation in the New York metro area.

“I chose RKF because of the company’s successful track record and leading position in the industry,” Idnani said in a statement emailed to CO. “I’m incredibly excited to be joining the team.” (Geoghegan declined to provide a comment.)

Geoghegan, a broker, and Idnani, a salesperson, worked on James Famularo’s retail leasing team at Eastern Consolidated since the company launched the division several years ago, as CO reported in January 2014.

“People come and go in this industry,” Famularo said of the duo’s departure. “I enjoyed working with them and wish them luck at their new company.”

Geoghegan, who specializes in the Hell’s Kitchen, Chelsea and Upper West Side neighborhoods, has represented owners and developers. Within an 18-month period, he helped find the PokéSpot’s first location at 120 Fourth Avenue, which opened in August 2016. Then he negotiated a second lease for the tenant at 25 Cleveland Place (it opened in April 2017) followed by a space for an affiliated retail concept, Project Cozy, on the ground floor of New York University’s dorm at 398 Broome Street. That opened in summer 2017. Last year, he helped arrange a lease for celebrity chef David Chang‘s Momofuku Nishi at 232 Eighth Avenue.

Idnani is a pro in the restaurant and fashion industries. His recent deals include leases for Eat Club at 109 West 27th Street in NoMad and YokeyPokey, a virtual reality arcade, café and bar at 537 Atlantic Avenue in Boerum Hill, Brooklyn. He also represented celebrity fitness trainer Tony Molina in leasing a 1,550-square- foot fitness center on the top floor of 56 West 45th Street and arranged a 9,000-square-foot lease for Kiddie Academy at 282 South 5th Street in Williamsburg, Brooklyn, in July 2016.

“We are thrilled to add Jeff and Ravi to our New York team,” Robert Futterman, the chairman and CEO of RKF, said in prepared remarks. “Both have a track record of driving growth and strengthening relationships between landlords and tenants, especially in the restaurant space.”

RKF is bolstering its ranks. Earlier this month, long-time Winick Realty Group broker Darrell Rubens joined the firm, as CO previously reported.

Source: commercial

Rabbis Org and Reform Pension Board Separate Midtown East Offices

The Central Conference of American Rabbis (CCAR) has signed a 7,600-square-foot deal at the Rudin Family’s 355 Lexington Avenue to relocate its offices within the tower from joint offices with the Reform Pension Board, Commercial Observer has learned.

CCAR, an organization that supports reformed rabbis with education and published works, will be moving to a section of the eighth floor in the 22-story building between East 40th and East 41st Streets. Asking rents in the Midtown East building range between $55 per square foot and $62 per square foot.

The group is relocating in the second quarter of 2018 from the 18th floor of the building, where it shares the entire 8,790-square-foot floor with the Reform Pension Board.

The Reform Pension Board, a separate organization that provides professionals in the Reform Movement with pension plans, has signed a 4,000-square-foot lease for new offices on a portion of the fifth floor of the building. It also plans to relocate in the second quarter next year.

It was not immediately clear why the organizations were splitting their offices apart, but the tenants both wanted “renovated space elsewhere in the building,” according to Rudin Management Company’s Robert Steinman, who handled the deals in-house, via a spokeswoman.

“These new leases are a testament to our relationships with CCAR and RPB, two organizations that we have housed for nearly two decades,” William Rudin, the co-vice chairman and chief executive officer of Rudin Management Company (which manages the Rudin Family’s assets), said in prepared remarks.

The groups did not have brokers in the transactions, and representatives for the CCAR and the Reform Pension Board did not immediately respond to requests for comment.

Other tenants in the 250,000-square-foot building include brokerage Eastern Consolidated, law firm Gordon & Silber and research agency TNS Custom Research.


Source: commercial