An Adapting Market Realities are changing, but is still a strong market for retail deals.

Roundtable moderated by Jerrold France and Randall Shearin

hopping Center Business recently SCB: Joe [Mon- held its annual New York retail tesano], will you Sroundtable at the offices of Goul- speak to your cli- ston & Storrs in Manhattan. This year, ent’s entry into we decided to take a look at some of the Manhattan? national trends and see how they are af- fecting the tri-state area, as well as examine Montesano: We some ongoing projects. do Costco’s work In attendance this year was: Ken Bern- in North America. stein, Acadia Realty Trust; Joe Montesano, East River Plaza Northwest Atlantic Real Estate Partners; actually started 12 Alvise Casellati, American Continen- years ago for us. tal Properties; Steven Kushner, North- This project has (From left to right) Stephen Stephanou, Steve Siegel, Douglas west Atlantic Real Estate Partners; John been going along Taliaferro and Frank Shea Hirschfeld, Class Green Capital Partners; time. From Cost- Christopher Day, Coventry Real Estate co’s perspective, Advisors; Nina Kampler, Hilco Real the time to get into the urban markets is Fleishaker: Why do you have to wait? I Estate; Darren Pinsker, HSBC; Douglas now. Costco waited out the boom. They see a lot of retailers who are willing to Taliaferro, HSBC; Matthew Harding, weren’t prepared to pay the retail prices pay; they want the landlord to make their Levin Management; Aaron Fleishaker, that land was commanding in the bubble. deal now at their terms. There are a lot Fairway Stores; Patrick Breslin, Grubb & We sat on the sidelines and watched, ac- of retailers who are picking through the Ellis; Steve Siegel, Marcus & Millichap; cumulating cash while we were doing that. various vacant big boxes around the met- Kathy Crocco, S.L. Green Realty; Frank- Its balance sheet is very strong. Now, the ropolitan area and who are willing to pay lin Zuckerbrot, Sholom Zuckerbrot Re- opportunity to buy market share is there extra at the end of the lease. If anyone alty; Frank Shea, Frank Shea Consulting; because you can gain market entry at a here can figure out how to pick the bot- Stephen Stephanou, Madison Retail; and much more reasonable price. We are tom or the top [of rents] let’s stop the David Rabinowitz, Philip Herman and aggressively ramping up expansion. We meeting now and go get rich. Matt Epstein of Goulston & Storrs. are looking at every opportunity in the boroughs to see if there is a chance to Montesano: We think there is more op- SCB: There is a bring the brand and more heavily pen- portunity to come, but we are aggressively lot of development etrate the market. trying to find locations. still ongoing in the New York area. Stephanou: The larger users used to be Zuckerbrot: Aaron [Fleishaker]’s point is Ken [Bernstein], frightened by pricing here. How do you on the money. We are at discount [with can you give us an answer the question, ‘Do we wait and get rents] already. Who deserves the bottom? overview of what a better deal?’ I think that is what is getting retailers off your company has the fence a little bit. This is an opportu- been up to? Joe Montesano Montesano: We watch the markets as nity, especially for big boxes looking for much as developers watch the markets. space in the city. Bernstein: We are developing in the Ford- We look at the access ham Road corridor. We have concentrat- to capital the way a ed on high barrier to entry markets, where developer would. We it is difficult for retailers to penetrate. We are sitting back, watch- are still seeing a fair amount of pent-up ing and waiting for the demand, albeit not nearly as significant as opportunities to expose a year or two ago. Fordham Road, which themselves in the cycle. is the Number 1 retail corridor in the We think the next holi- Bronx, a retailer like Best Buy can open day season will bring and do extremely well, even in a difficult another churn in retail economy. The retail at our project is 100 space. (From left to right) Franklin Zuckerbrot and percent leased. John Hirschfeld 44 • SHOPPING CENTER BUSINESS • DECEMBER 2009 Breslin: The tax incentives are going to be disappear- ing eventually. I don’t think the city is going to be giving retail development tax incentives forever.

Zuckerbrot: Anyone who is not on a subsidized pro- gram is starting to feel the decline in real estate. It is (From left to right) Matthew Harding, David Rabinowitz a serious issue. It is an in- and Aaron Fleishaker teresting time in the city. We have these vertical big box centers, to get themselves accustomed to the New some of them with small shop space, all York way of business. open at the same time. When you look at East River Plaza, Gateway [Center] — we Rabinowitz: There are other issues that have all the big retail names testing it out come with the incentives. I think the in- right now. centives are going to continue and that is going to spark more redevelopment in SCB: Who are some of the names look- this area, as well as the boroughs and New ing or launching in the city? Jersey. With the incentives come a little bit of baggage, which is the compliance Breslin: Target, Best Buy, Wal-Mart, requirements for the retailers. They are Kohl’s — really any player that is greater all manageable. than 60,000 square feet. They are all look- ing at this market. Breslin: Even if you are not a public entity, there are a lot more people looking at Montesano: We just executed our Rego how we are doing business and the way Park deal yesterday. It was an opportunity. we do business. The Home Depot pulled away and we jumped in and took the deal. In a matter SCB: There is more scrutiny on the lease of a year, we finalized two large format side? spaces that you couldn’t have easily capi- talized on before because those numbers Rabinowitz: Because there is more money were higher. flowing in from the government, they want to make sure that retailers are incentivized Stephanou: Economically, was the deal to hire locally. There are a lot of guide- much more incentivized this go around? lines in place.

Montesano: Absolutely. SCB: There are some new retailers en- tering the market. Steve [Stephanou], are SCB: Is this true not only with big boxes there any notable new retailers to the but also with smaller spaces within the city market? as well? Five years ago, everyone at the roundtable was griping because the banks Stephanou: Nordstrom Rack did a deal in were taking all the corners. Union Square, which was its first store in . It has been looking at the Breslin: Now the banks have given up all boroughs and Manhattan for a long time. the corners! We have looked at a lot of We had looked at the deal before August corner locations over the last 2 years for 2008. It was much more friendly when a number of small users between 4,000 to we finally completed it. That is a perfect 5,000 square feet. Real estate taxes here in example of a retailer in the current climate New York are more than the base rents who will have a lot of opportunity. that landlords are asking in other parts of the country. Retailers coming into New SCB: Kathy [Crocco] Can you give us York have that issue in front of them when an update on the appetite for ground they are doing triple-net deals. The taxes floor retail space in office buildings in can be $30 to $40 per square foot. That Manhattan? goes right to the bottom line. They have

46 • SHOPPING CENTER BUSINESS • DECEMBER 2009 District. When the econo- Harding: It may also change the complex- my was great, some of the ion of those streets a bit also because of areas were more desirable. the different types of retailers who are Because of the fewer dol- making deals. lars being spent, now the more tertiary locations in Breslin: I agree with you. A few years ago the city are feeling it more if you went to a main street in Westport or so than main and main Greenwich, the landlords wouldn’t talk to locations. you if your tenant wasn’t up to their rating. Now, if your tenant is willing to pay rent, (From left to right) Darren Pinsker and Patrick Breslin Harding: In the suburbs, the landlord will talk to you. you see that with the ap- Crocco: SL Green is the largest landlord parel retailers as well. Those tenants used SCB: New York is an unusual market, com- in Manhattan. We are not a shopping cen- to fill a lot of space in shopping centers. pared to the rest of the country. Retail is ter developer, but my background is in They’ve really shut down in terms of king here. You have a lot of flagship retail leasing. Given our locations, which expansion. The exceptions are the TJX stores. Has that thought process changed? are for the most part prime Midtown and stores and other value-oriented retailers You see droves of people here. We don’t Grand Central locations, the interest still who are taking advantage of this market. know if they are spending money. Isn’t remains strong. We have one space in The guys in the 5,000- to 7,000-square the branding aspect an important part of the Times Square area that is getting lots -foot store range aren’t there. It is a tough having a store in New York City? of interest. If a space is the right loca- category to fill. tion, tenants are going to have a lot of Breslin: Retailers ambitions for that type interest in it. Stephanou: Two areas I would point to are of real estate have not changed. They all Greenwich and Westport []. want it; they all want to be here. Now it is a SCB: What streets are holding up in the The rents had gotten crazy. National ten- matter of looking at the numbers, and the economy? ants with mall and street stores were backing away from deals Stephanou: If you look at the streets that on Greenwich Avenue because have maintained significant value, I would the numbers didn’t work. Now, point to Broadway in SoHo as being the the number of opportunities best example. It has continued to have that are on Greenwich Avenue the excitement as well as the numbers. is really unfortunate. A lot of There is a lot of opportunity in some of owners bought those stores at the previously hot areas, like the Flatiron the top of the market. If you District. Retailers used to put a store on can find a tenant, frequently the the East side, then on the West side, then landlord has to subsidize part (From left to right) Matt Epstein, David Rabinowitz they would go to SoHo and the Flatiron of the rent. and Philip Herman RKF Sees Landlords ‘Waking Up’ he man whose name is on a lot of buildings around New a period of weeks or months. RKF did a pop-up deal for TYork these days says that retail is picking up because The Limited in SoHo that became a permanent store. In landlords have pulled their chairs up to the table. Southampton, RKF negotiated a pop-up location for Diane “Tenants can take advantage of rents that are a lot cheaper,” Von Furstenberg for the season. says Robert K. Futterman, chairman and CEO of Robert K. RKF is seeing lots of activity in and the boroughs. Futterman & Associates. “In some cases, rents are 50 percent The company’s landlord representation business is also work- of what they were 18 months ago. There has been a huge ing on a number of projects, including the 400,000-square-foot disconnect in what retailers can pay and what landlords had Ridge Hill project for Forest City Ratner. The company is also hoped to get in rent. The disconnect is waning; there is more leasing the Hudson Lights project for Tucker Development of a connection with some of the lenders moving in to make re- in Ft. Lee, New Jersey. alistic deals. The landlords have really had a wake-up call.” As a tenant representative, RKF is representing retailers in Activity for the firm has been brisk since August. the sporting goods, pet, electronics, jewelry, furnishings and “In August, things starting perking up big-time, and Septem- fashion tenants who are looking for space. ber and October were just on fire,” says Futterman. Futterman sees vacant space in the current market as a Futterman reports a number of deals that are in the 15,000- victim of the economy or of the lending climate. It may not to 25,000-square-foot range in Manhattan. The company is be viable for a landlord who bought high to lease for a low representing local, national and international chains in the mar- rent, for instance. ket. It recently represented MAC Cosmetics and Swarovski in “There’s a story behind every space,” he says. deals in Times Square at 1540 Broadway. Pop-up store deals are also popular with landlords and tenants to test stores for — Randall Shearin

48 • SHOPPING CENTER BUSINESS • DECEMBER 2009 numbers have gotten so out of proportion Rabinowitz: I just got a call yesterday from density. Westport and Greenwich are here compared to other parts of the U.S. a department store who wants to come to suffering; those markets are lined with Rents on Fordham Road in the Bronx New York. They are very close to making high income people. When they stop are more expensive than some of the best some deals. That makes me believe that shopping, there is an enormous dent [in real estate on North Michigan Avenue in the market is still attractive. sales]. In the boroughs, there is tremen- Chicago. dous foot traffic. Even if they are buying Fleishaker: As a retailer, it is Retail 101. less, the amount of traffic drives sales. A SCB: Are the owners still not realistic on New York City and the tri-state area will few years ago, if you had a chain that was where the market is? always be strong for us because you can’t flying high across the country, you felt you beat the density of population and spend- had to open a store here so that people Breslin: I think they would get realistic ing power. Fordham Road is a good ex- would know your business. Today, very a lot quicker, but a lot of people bought ample. If you walk out of the subway at few retailers are making branding deci- their real estate in very high times. Low 5 o’clock on Fordham Road, there are sions. Every store has to stand on its own rents won’t work on some of these proper- more people on that block than there are success. ties for some landlords. in most states in the country. It is pure Stephanou: We represent a lot of ten- ants. Most retailers will not look at this as branding. Maybe there were some deals that were done where part of the rent came from an advertising budget. But most people on the operations side would argue that the store makes money. Part of the challenge is that luxury will be shrink- ing as a category. It has rapidly expanded over the last 10 years and become a broad category. A lot of people were aspirational luxury shoppers. The moderate shopper is coming back. That’s one of the reasons we saw JC Penney open at this year.

Fleishaker: I can’t tell you how many re- tailers I deal with on a daily basis who, if they are candid with you, will say, ‘My Number 1 volume store in the chain is in Manhattan. It is my Number 743rd in profit.’ They will say it’s worth it because having that store appear in Law & Order or Good Morning America so their cus- tomers can see them. You will see bill- boards sitting empty when people were paying $1 million a month without think- ing twice about it. The stores are going to be empty because no one will have the luxury of saying that their highest volume store is not the moneymaker.

Kampler: You have the retailers who have taken the loss leader now struggling to jus- tify that while their juggling their P&Ls to make their businesses profitable. When that lease is over, if that landlord doesn’t figure out how to get the lender — that invisible third party — to agree, that store is history. When all of these leases come due, all of these retailers with these ex- pensive stores are going to take them off. They are going to realize that real estate doesn’t have to be their Number 1 mar- keting tool. There will be some opportu-

50 • SHOPPING CENTER BUSINESS • DECEMBER 2009 nity for retailers who haven’t been in New has enough stores in York. I have spoken with the C-suites of the market to know six restaurant chains in the last month. what its sales should None of them have a presence here, but be. As much as we they are ready to gobble up space. They talk about rents, you think the market has been reset. really have to start with sales. Last week Montesano: I can go to almost any other was one of the best market and do two stores for the price of for sporting goods one in New York. The retailer is really retailers in Manhat- (From left to right) Steven Kushner, Ken Bernstein looking at it from a very simple perspec- tan. You have all and Christopher Day tive: how much money can I bring to the the people in for the bottom line? marathon who have to buy last minute lenders have not been equipped to re- supplies. One of the challenges in this spond. In some cases, like securitization, SCB: How easy or difficult it is to find climate is tracking the changing shop- the lender’s clause prevented the lender financing these days? ping behavior and seeing what people from being proactive. That has only re- are buying. cently been amended. In other cases, the Harding: We recently purchased a gro- denial that some of you may be feeling cery-anchored center and found the lend- Zuckerbrot: The value players are out from the landlord is far more significant ing market to be very tight. More recently, there. We represent several companies at the lender level. We haven’t used a lot in the last 30 to 60 days, we found things who have really been sidelined over the of debt, so we aren’t stuck in this position. are loosening up a little bit. The insurance last few years. Some of them are still pretty The level of dysfunction in the lending companies, especially. strong today. Take a company like Party market is a critical issue. City. They have 1,000 stores. A store like Kampler: People need to get out and shop that is where people can go buy supplies SCB: David [Rabinowitz], have you found to change things. for a party for a value. Men’s Wearhouse owners starting to get more interested in was another one that was sidelined. They selling? Fleishaker: In the food business, volumes are looking around to see what the envi- are strong. The customers are visiting as ronment is like. Rabinowitz: You still have a disconnect often as before, but they are eating out between the prices. That’s why I don’t less. They are also trading down. They are Day: This goes back to the point earlier: think you are seeing a lot of investment buying less luxury and they are buying a perhaps there is a bargain in rent to be transactions. There’s a lot of delaying lot more staples. You have to make sure had. The third-party banker behind the and extending going on by the banks. At your merchandising meets the needs of scenes might say to the landlord that he some point that will stop and there will be the customer. That has been the biggest can’t make the deal unless they write the properties that are taken back. When the change of this downturn, and I don’t think note down, and they may not be prepared lenders get those properties, that’s when it’s going to change in the near future. to do that. you are going to have to reset pricing and you’ll see some transactions happening. SCB: Has this begun to impact retailers, Breslin: Most of my tenants are asking for a with doors closing? This has impacted non-disturbance clause. Siegel: The owners who are selling are the restaurants and apparel the most. ones who are in trouble right now. They Day: They should have the lender on the either have a loan that’s coming due in the Fleishaker: There’s no question. The fast phone making him realize that we are all next 6 to 12 months, or it is the lender casual chains have developed a dinner in this together. Why are we pretend- approaching us saying that they are go- for two package. Customers are trading ing that all the parties can’t talk to each ing to be taking the property back. We down. other? recently sold a property that had a $15 million loan. It appraised for $20 million Kampler: Starbucks has done something Rabinowitz: In all the rent relief and termi- 3 or 4 years ago. We sold it for a little interesting. Starbucks closed 600 stores nation discussions that have occurred, you over $2 million. and then looked at its remaining 10,000 or have to get the lender involved. so stores and fig- SCB: There are a lot of funds building to ured out how to Kampler: What’s happening a lot of time buy distressed retail assets. Is there going reposition them. is that if the landlord will not work with the to be a feeding frenzy? When? It was a good tenant, the tenant is sometimes forced to move. file bankruptcy. Sometimes the landlord Siegel: There is a lot of money out there. needs to realize that if the tenant fails, he The problem is that these funds don’t Shea: Today, you will have greater vacancy, which may put think the prices are right yet. The prob- have a bench- him at risk. lem with the right price is that you could mark on sales vol- previously get a 5 or 6 cap rate here in Nina Kampler umes. Best Buy Bernstein: In defense of the landlord, the New York. Now you can get a 7 or 8 cap.

52 • SHOPPING CENTER BUSINESS • DECEMBER 2009 If you buy at an 8 cap, you look at the un- want to lock-in for anything; and a sale is Breslin: A lot of the landlords here in New derlying real estate and that lease is com- the ultimate lock-in. The landlords, even York are beginning to forget percentage ing due in a year or two, and the rent is on long-term leases, still feel that the mar- rent. They want to talk about the retailer 50 percent over-market. An 8 cap all of a ket is coming back. It is hard to make a making up the money from the rent relief sudden is a 3 or 4 cap. deal when the attitude is that they will get on the back-end. a better rent in 2 years. Fleishaker: What I find fascinating on the Fleishaker: Or they will give short-term re- leasing side is that when we are negotiat- Day: If they are right, they are right to lief because they need to keep the center ing with the landlord, he will say, ‘I’m not wait. occupied for the next 2 years. going to give you that rent. Two years I could have gotten 20 or 30 percent more.’ Rabinowitz: If a tenant goes for rent relief, Harding: Why should you have long-term Well, I’m not asking for reductions on the landlord should have the right to ask rent relief when we are in a cycle? I’ve rents I signed 2 years ago. You can’t sign for a larger commitment in terms of lease gotten so many letters that all start out the a lease based on past history, but where length and have the right to adjust the term same: ‘Dear Mr. Landlord, we have thor- the market is today. The landlords do not of the period for the rent relief. oughly reviewed this store…’

Breslin: You could be like one retailer here who just mailed out his rent checks on time for amounts that were discounted 25 percent across the board.

Bernstein: Eventually, this cycle will play out and we will get to normalized rent. It may take a few years. The main problem is going to be the lenders. There is $500 billion coming due in the next few years. If it doesn’t work its way through the system, we will have $1 trillion in debt and some- one will have to figure out what this debt is actually worth. A lot of it will be worked into the market. But all of this capital that is being raised is very small compared to the total amount of debt, even if you dis- count the $1 trillion in half. $500 billion in real estate needs to be releveraged and recapitalized over the next 2 to 5 years. We have to get mentally prepared for a lengthy releveraging period. The banks are nowhere near where they were a few years ago.

SCB: Do you see owners of multiple properties becoming REITs to get away from their debt?

Bernstein: Certainly. Any company that is experiencing any capital issues is con- sidering the public market. It is a lengthy and complicated process, and it is not an easy decision, so many will choose not to go that route. Some will join other public companies. Others will go public and do a great job. Yes, there are more companies considering going public than there are companies considering merging.

SCB: As a public company, are you con- sidering acquisitions?

Bernstein: We are sitting on a lot of capital

54 • SHOPPING CENTER BUSINESS • DECEMBER 2009 so we have been acquiring and we con- if we have to have some financial induce- Kampler: The retail tenant before thought tinue to do it as long as it makes sense. In ment. Landlords are still making deci- that the co-tenant clause was a hook, but January [2009], we bought a great asset. sions based on preserving their assets. It they weren’t quite sure what the goal of Since then, we haven’t seen many good is painful when they want to sign a 25- or it was. The real goal, of course, is per- opportunities for us, other than buying 30-year lease. formance. It would make everyone more back our own bonds and debt. comfortable — the retailer, the lender and Kampler: The domino effect of dark the invisible lender — if we really say what SCB: As owners, when you see retailers stores and a dark center is huge. we are trying to achieve, which is if sales like discounters looking at your locations aren’t a certain amount, then the retailer — ones they never could have dreamed Zuckerbrot: The gym business has been will go out. If all those co-tenancy clauses of getting in the past — how do you feel a high growth business over the last year. aren’t compromised, the domino effect is about it as a long-term solution? I’m sure many of us have been involved just going to get worse. Sometimes when with projects where there are leasing re- you look at those clauses, and you see Bernstein: From my perspective, it is a strictions against gyms. At the end of the the retailers named, you realize they are case-by-case basis. There are some cen- day, to the extent they are not concerned all gone. ters where we wouldn’t consider it. The about the parking, some of these larger merchandising mix is too critical. In oth- tenants are recognizing that they want the Kushner: That is a lot harder for the ers, it won’t make a difference. Some of balance of the property filled also, so they landlord to control. You can, to some the dollar stores are doing a terrific job. are working with us. extent, control co-tenancy. You can’t We have signed a handful of deals where control sales. So if you give the retailer it won’t have any negative impact. Harding: Some of the gyms that are filling the ability to kick because they are not in these days are smaller format. They making a certain number, the response SCB: In Chicago, several landlords stated don’t make the impact that the larger from the landlord is going to be, ‘Can I they’d rather have someone in the space gyms of 30,000 or 40,000 square feet do. kick if I don’t like your number?’ and the and have the lights on than have empty We have gotten waivers from national response will be no. space. tenants. Kampler: Maybe the retailer should not Zuckerbrot: Clearly, in any property Breslin: They are legitimate, 20,000- be saying he will kick, but he has the op- where tenant mix is critical, we want to square-foot users these days. tion to go to a flat rent or percentage rent bring the tenant that is critical there, even only structure to get through the period.

56 • SHOPPING CENTER BUSINESS • DECEMBER 2009 With those co-tenancy provisions, you you be here than anywhere else.’ Montesano: As of last September, we were can only control them if their CEO hasn’t getting crushed. Every developer had the filed for bankruptcy. Kushner: Did people get religion during best product at the highest price. We sat this cycle? and we watched. You’re absolutely right, Rabinowitz: Maybe the focus should be Aaron [Fleishaker], we live in a world of on opening co-tenancy rather than chang- Fleishaker: We live in a world of cycles. cycles. The last 12 months, we are on the ing the structure. Right now, the big box retailers who have other side of the table. The shoe is on great balance sheets are looking forward the other foot. Kushner: If you are talking about a small to stepping on the necks of the landlords. specialty tenant. As far as I’m concerned, And the landlords who are getting their SCB: Does rent reduction impact the if I’m a box and I open up and I get my necks stepped on are waiting for the cycle owner in that he has to cover his loan cov- box and my parking, I don’t care if the to turn so they can step on the neck. No enants? Is there a point of no return? other tenants go out; it will create more retailer offers $16 per square foot when parking for me. But if you are a small the asking price is $12. Kampler: They won’t lose their property. tenant and you succeed because you have a jewelry store and a menswear store and a supermarket in the center, you are go- Two Large Scale Developments Highlight FCRC Activity ing into that center and paying that rent because of that tenant mix. It used to be orest City Ratner Compa- that a tenant would say, ‘If these tenants Fnies is involved in two ma- go out, I want a rent reduction or a kick- jor projects in the New York out clause.’ At the end of the day, what City area. Nina [Kampler] is saying is don’t hold Manhattan’s first Costco has East River Plaza me over a barrel just because the tenants just opened in East River Plaza on FDR Drive at . “The retailer is went out. If you have established your- a dynamic addition to Manhattan,” says Rich Pesin, executive vice president self as the best jeweler in the market and and director of retail development for New York City-based Forest City Ratner your co-tenants have gone out, but your Companies (FCRC). sales haven’t dropped 5 cents, then you The five-story, 500,000-square-foot East River Plaza is the first power center in shouldn’t be entitled to any relief. Manhattan, and it will also be home to Manhattan’s first Target, when the retailer opens a 130,000-square-foot store in July 2010. Additional retailers, which will Harding: Then the retailer says, ‘My sales open in spring 2010, include Marshalls, Best Buy, Bob’s Discount Furniture, haven’t gone down because I’ve spent all Old Navy, Kids Town and PetSmart. The project also has a 1,250-space park- this money on advertising.’ That’s the ing garage. comeback to that one. Syosset, New York-based Blumenfeld Development Group acquired the for- mer Washburn Wire Factory in 1996. In 2004, the company formed a partnership Fleishaker: As someone who has been with FCRC to complete the development. a tenant almost all my life, there should “Vertical projects like this are extremely complicated,” Pesin says. “This project be some sort of test where if Circuit City took longer than expected because of the complicated structure.” goes out of business and my sales go up, On an elevated site that runs between the New York State Thruway and that shouldn’t trigger an automatic pen- Sprain Brook Parkway in Westchester County, New York, FCRC is developing alty. You should have a lack of co-tenancy Westchester’s Ridge Hill. and a lack of sales to trigger it. The 81-acre, 1.3 million-square-foot retail and entertainment project is located approximately Kampler: We need to get smarter as an 22 minutes from Midtown Manhattan and is industry. What is good for the landlord the first open-air center in New York’s affluent is good for the tenant and vice-versa. Too Westchester County. (According to U.S. Census much rent isn’t working and not as much data, Westchester County is the third most affluent synergy between tenants isn’t working. I’m county in the nation, with nearly 1 million residents not a tenant that wants to take every last Westchester’s Ridge Hill and an average household income of $125,000.) dollar from my landlord, and the landlord “ County consumer has not that isn’t working with the tenant who is seen this type of center. This is an exciting venue and we are focused on provid- hyperventilating, isn’t helping. When the ing the right mix of retail and entertainment,” says Pesin. tenant starts doing stores again in 2011, FCRC is currently constructing 1.1 million-square-feet of entertainment and we’ll remember who the jerk was who retail space, which will open in 2011. Saks Fifth Avenue has signed a letter of didn’t help them survive. These landlords intent to open an 80,000-square-foot store. Additional anchors will include a will be blacklisted because retailers talk. 60,000-square-foot Whole Foods and a 12-screen Cinema De Lux. Tenants will The landlord needs to say, ‘We are all in include Ann Taylor Loft, Cheesecake Factory, L.L. Bean, New York & Company, this together to make money. We might and Sephora. An additional 200,000 square feet of big-box retail space is planned make a little less money than we would for the south end of the site. have, but life is still good and we’d rather — Jamie Lackey

58 • SHOPPING CENTER BUSINESS • DECEMBER 2009 Despite Climate, New Retail Opens In New York today. I had a retailer in multiple proper- ties. In one property, they were expanding uring our 2008 roundtable, there was a lot of speculation that the downturn and I got a letter saying they wanted to Din banking and Wall Street activities would slow retail and restaurant activity reduce the rent. In another one, they were in New York City. While this year has shown that to be true, it doesn’t mean really hurting and we had to deal with it. the doors are staying shut. You can’t blanket everything. “Are there doors closing? Yes,” says Stephen Stephanou, principal in the New York office of Madison Retail Group. “There are also openings. In a lot of res- Fleishaker: Some retailers are out of line taurants, business is tough. But there are still some places that are jumping.” with the interests of the landlords. They Stephanou says while there are a number of vacancies, there are retailers and are picking them off one at a time with restaurants in the market looking at the space. As usual, it’s a numbers game for a BB gun trying to make the cheapest the tenant, depending on the neighborhood. deals they can. There is no alignment of Tribeca is still very popular with retailers, as it remains the highest income per interests. Supply and demand is the most household area in Manhattan. simple law of economics. In the old days, “Tribeca is still filled with trendy restaurants that provide good food,” reports when the sporting goods stores were all Stephanou. “It is not ultra-luxury. The retail trends to be fashion-forward. Tribe- duking it out for the same space, the rents ca’s retail really serves the neighborhood versus serving as a shopping mecca.” went straight up. When there was a va- The downtown retail market had been hyped in recent years. A few luxury ten- cancy and Modell’s was the only one that ants, particularly Hermes and Tiffany & Co., had located in the area, to capitalize would take an urban location with no one on the affluence of the workers. else competing, the rents went down. “Since the [banking] crash, retail sales in the Wall Street area have really been hit hard,” says Stephanou. “Compounding it is that people who are making these Rabinowitz: I’m curious to hear what peo- big bucks are busy doing just that — they’re not going shopping on their lunch ple’s thoughts are on green development? hour. There are some big retail spaces down there that I suspect will be vacant Are you willing to pay more rent for it? for awhile.” Venerable areas like Fifth Avenue still command good prices because avail- Breslin: The laws are changing to require ability for space is low. more green methods. It will be a serious “Some of the spaces that are available, the landlords are still holding out for a industry. flagship player or a one-of-a-kind tenant,” says Stephanou. “There are a number of new tenants kicking tires around the city.” Fleishaker: All our research shows that There have been three major openings in area of Fifth Avenue around the Plaza employees want to work for a green com- Hotel in 2009. Armani has opened a flagship store at 717 Fifth Avenue; Diesel pany; the customers want to shop in a has opened Planet Diesel on Fifth Avenue; and Tommy Hilfiger has opened a green store. As a retailer, if you are not new flagship store in the area. SoHo has seen several new retailers open doors thinking green, you are missing the boat. this year as well: Hollister and Top Shop are among the new retailers there. Our stores are not 100 percent green, but Union Square is also an area that is still moving and shaking. Nordstrom Rack every method we can employ, whether it’s will open in Spring 2010 in part of the space that was, for many years, the Virgin in lighting, refrigeration, etc., we are doing Megastore. Sephora opened in Times Square, and Madison Retail is helping it. We are encouraging our landlords to the retailer scout other locations in the city. When Circuit City liquidated at the go green as well. end of 2008, several spaces around the city became available, including locations on Broadway, Fifth Avenue and Union Square. Most have now been leased to Montesano: At Costco, everything down other tenants. Borders Books also has several locations marketed for sublease to the simplest thing is focused on this. in the city. If you buy cashews that are more square The Meatpacking District, which for years thrived on its hip, out-of-the-way because they can get more cans of cashews image by being home to many local retailers and restaurants, has seen luxury on a pallet and more cans of cashews into retailers find the area. Apple has also located a store in the area. a tractor-trailer, allowing them to move “The players who are looking in the Meatpacking District now are the retailers more product more efficiently. It makes you would see along Broadway in SoHo,” says Stephanou. “The area has been total business sense from every level of the discovered by out-of-towners and has become a smaller SoHo.” business — from lighting to distribution — Randall Shearin to transportation — to go green. Costco was an innovator of using natural light in The landlord will need to have a conversa- they’d rather have someone they know in their stores 25 years ago. If you go into tion with the lender. Does the lender want the center. one of their suburban style stores, 80 that property back? No. percent of the lights are off, because they Fleishaker: But they are not helping out of are using sunlight to light the stores. In Kushner: From the landlord’s point of the goodness of their own hearts. If they Manahawkin, New Jersey, we did a huge view, you have to look at whether the re- had five guys lined up to take the space solar panel installation on the store. It is tailer is really struggling. If they are, can they would say, ‘Pay the rent or get out.’ more expensive short-term, but a good they get through it? If not, the landlord’s retailer is going to get the payback in 5 probably are more willing to help because Zuckerbrot: It is about being an operator to 7 years. SCB

60 • SHOPPING CENTER BUSINESS • DECEMBER 2009