The Real Deal New York

34th Street gets some style

October 01, 2010 07:00AM
By Adam Pincus

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In 1998, it was big news when Banana Republic opened a large store on 34th Street one block east of Macy’s. At the time, its neighbors were local outlets like Empire 34 and Blooming Boutique, along with discount clothing retailer Conway.

How the block has changed. The stretch of 34th Street, between Fifth and Sixth avenues, is now filled with far more upscale international retailers. This year, brokers say Japanese apparel store Uniqlo has been scouring the strip for multistory locations — just months after signing one of the most expensive leases ever in Manhattan farther north on Fifth Avenue.

If it does find space on the block, its neighbors will be international lingerie giant Victoria’s Secret, German-headquartered Esprit, South Korean teen clothing store Who A.U. and Spanish clothier Desigual.

The new stores are a boon not only for young, fashion-focused shoppers, but also for the landlords on 34th Street, who have seen an increase in rental rates and property values. Four stores opened this year, and two more — Levi’s and House of Hoops, a basketball-themed partnership between Nike and Footlocker — have already signed leases and could open before the end of the year.

There are 11 landlords on the block who rent to the approximately 30 retailers. And this month, with the help of data from CoStar Group and PropertyShark, The Real Deal examined records to rank the top retail owners along the still-evolving stretch.

Not surprisingly, the top two were SL Green and JEMB Realty, which own the two large properties, at the western edge of the street. But close behind were retail investors such as Jeff Sutton and longtime owners like the estate of Sol Goldman, which have both seen more action lately on their properties.

There are only a few retail spaces being openly marketed right now, including one that currently houses a souvenir store reminiscent of the old days, the site of a perfume store in the Empire State Building and a portion of the space that is home to Banana Republic.

And there’s been recent investment activity. This summer, Sutton and SL Green partnered to buy a $12 million distressed note on 11 West 34th Street, and the newly formed American Realty Capital New York Recovery REIT in April signed a contract to buy a leasehold at 36 West 34th Street for $7.5 million.

Meanwhile, retail rents have more than doubled since 2000, when the top asking rent for a ground-floor space was $200. It was $500 per square foot in the spring, figures from the Real Estate Board of New York semi-annual retail report show. Brokers say there remains a slight premium on the north side of the street, where taking rents are about $50 per square foot higher for comparable space.

While the increase in rents is a benefit across the board to landlords as they renew tenants, retail broker Jason Pruger, senior managing director at Newmark Knight Frank Retail, said the estate of Sol Goldman has benefitted markedly.

“I think the Goldman family has done the best. They are a dominant owner on 34th Street. They have upgraded from a lot of mom-and-pops to nationals,” he said, such as Bare Escentuals and Who A.U.

SL Green Realty and Sitt Asset Management (exclusive of Sutton): 128,500 square feet

REIT SL Green owns 2 Herald Square on the corner of 34th Street and Sixth Avenue, home to the Victoria’s Secret. The site is reportedly the lingerie retailer’s highest-grossing store nationally. British retailer H&M also has a store in the building, giving 2 Herald Square the distinction of housing the biggest retail footprint on the block. SL Green reported in federal filings that the combined rent for the two mega-retailers is $9 million a year. In 2007, SL Green and Gramercy Capital bought the property for $225 million and Sitt Asset Management bought the leasehold for $275 million.

JEMB Realty: 95,000 square feet

The most prominent corner on the block retail-wise is probably 1282 Broadway at the southeast corner of 34th and Broadway, but its leases are unlikely to change anytime soon given the strength of its anchor stores, brokers said. The Gap renewed its lease for 70,000 square feet in 2001 in the building, which is owned by Morris Bailey and Joseph Jerome’s JEMB Realty and is known as Herald Towers. In another space in the building, the clothing store Forever 21 signed a 15-year lease for 25,000 square feet in 2003.

Sol Goldman estate: 74,000 square feet

The estate of Sol Goldman, operating under the name Solil Management, owns a major midblock collection of properties, with nine storefronts divided between the north and the south sides of the street. The estate still leases to some of the local stores that once populated more of the block and are still common on 34th Street west of Seventh Avenue, such as Prato Fine Men’s Wear or fast-food restaurant Sbarro Pizza. But Solil Management has also signed recent deals with trendy foreign retailers. Last year, for example, it struck a deal to lease 4,500 square feet of ground-floor space to Who A.U., which stands for Who Are You. It has done other recent deals with the cosmetics company Bare Escentuals, which opened in 2009, with sources putting rent at about $400 per square foot, and with shoe retailer Steve Madden at 41 West 34th Street, with rents about $500 per foot. In addition, Levi’s is set to replace Foot Locker at 43 West 34th Street later this year, and pay about $400 per foot on the ground floor. Japanese discount clothing store Uniqlo may take the former Anne Taylor space at 31 West 34th Street, which the estate owns. However, local investors Isaac Oved and Charles Ishay control that property through a long-term leasehold.

Jeff Sutton (alone and in partnership with SL Green): 62,874 square feet

Although not the biggest landlord on the block, Jeff Sutton is the street’s dominant personality. In partnerships or through his Wharton Properties, he owns retail properties on upper Fifth Avenue, Times Square and elsewhere. Alone and in partnership with SL Green Realty, he controls one of the two largest midblock retail holdings, composed of six storefronts. Earlier this year, he joined with SL Green to buy 11 West 34th Street, the most recent purchase on the block. Sources say that building is getting about $600 per foot from House of Hoops for the ground floor — perhaps the highest ground-floor rent on the strip. At 15 West 34th, Sutton’s tenant is Aeropostale, which rents for about $500 per foot, and which moved to the block in 2009. Meanwhile, at 21-25 West 34th, Esprit opened this year in space subleased from Apple. Next door, at 27-29 West 34th Street, Sutton and SL Green are leasing to Aldo and Geox directly. Insiders say Apple, which is paying $6.3 million a year to lease 21-25 West 34th Street from Sutton and SL Green, is taking a loss on its sublease, where it had planned to built a large store. Architect Ismael Leyva revealed designs in 2007 for a tower at 21-25 and 27-29 West 34th Street, but the plans were abandoned and the two low commercial buildings were built instead.

W&H Properties: approximately 40,000 square feet

It’s not just offices over there: The Empire State Building, controlled by W&H Properties, is also home to a big chunk of retail space. But the landmark building is not considered a major player because its retail — like Men’s Wearhouse, Strawberry and Perfumania — isn’t geared toward the fashion-conscious younger set courted elsewhere on the block. Tenants include Bank of America and AT&T, but the low ceilings, difficult layouts and uniform signage keep the flashier retail tenants away. Anthony Malkin, president of W&H Properties, said the retail was the right mix for a major office building with storefronts facing the lobby as well as the street. In addition, some of the retailers have leases going back years, like Bank of America, which were signed when the tower was under the management of Helmsley-Spear. Malkin’s group took over in 2006, and has since written deals for about $200 per foot, according to sources, including one for a multilevel Starbucks. The one store that may move out is Perfumania, Malkin said.

Lloyd Goldman’s BLDG Management and Stanley Chera’s Crown Acquisitions: 15,000 square feet

Sol Goldman’s nephew Lloyd Goldman, through his BLDG Management, in partnership with Crown Acquisitions, owns three storefronts, including the northwest corner at Fifth Avenue and 34th Street, occupied by a 7,500-square-foot Duane Reade. Brokers said the drugstore, like AT&T and Bank of America in the Empire State Building, are out of place on a street geared toward young shoppers. But Goldman is not blind to the trend. Last December he signed a deal with one of the strip’s new foreign tenants that opened this year, Desigual. In addition, BLDG alone owns 36 West 34th Street, where shoe store Aerosoles pays just over $200 per square foot in rent for 2,200 square feet of retail.

Other owners

PRD Realty owns a 13-story office building at 17 West 34th Street, with nearly 30,000 square feet of retail space occupied by Banana Republic. Uniqlo had eyed the space earlier in the year, but is no longer interested in it, brokers said. One of the few spaces openly on the market, according to brokers, is the approximately 2,000-square-foot Souvenir’s on Fifth, at 32 West 34th Street, owned by Benjamin Hamuy. And one of the largest property owners in the neighborhood, Vornado Realty Trust, owns just one building on the block. Its 7 West 34th Street has 21,000 square feet of retail space, where its tenants, Express and Lane Bryant, pay an average of $185 per foot, Vornado’s latest annual report shows.

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