World Trade Center’s retail lineup revealed

As the city waits for the new World Trade Center development to open and begin pulsing with office workers, tourists and residents, big egos are clashing behind the scenes over what stores will occupy the massive retail complex.

Brokers told The Real Deal they expected Westfield Group’s 365,000-square-foot, multi-level mall in Lower Manhattan to be a success. But with deadlines nearing, the project is pushing to recruit more high-end tenants, even as some retailers have balked at being underground or expressed concern about a key design feature of the retail space.

The jewel of the massive retail project is a spiny, ethereal-looking Santiago Calatrava–designed structure that will undoubtedly become an iconic addition to the Lower Manhattan landscape. The retail complex includes aboveground space, but the majority of the shopping will be below street level at the 16-acre site.

“I have heard some European retailers don’t want to be underground,” said Robert Gibson, a vice chairman at commercial firm JLL. Nevertheless, “I think it will be very successful.”

To help drum up interest among posh stores, Vogue editor-in-chief Anna Wintour has reportedly been using her status as the grand dame of luxury fashion to convince designers to take space at the project. Sources told TRD that Wintour — whose parent company Condé Nast will be anchoring the office component of 1 World Trade Center — has been making calls and joining tours to convince retailers to sign on for space. Vogue declined to comment.

Despite Wintour’s endorsement, insiders say that some high-end retailers are not biting.

Computer and iPhone giant Apple — which is expected to take space in the project — was frustrated by the giant “ribs,” or columns, that Calatrava included throughout the underground portion of the site. The arching structures are spaced roughly 11 feet apart along the front portion of each store, which has put off some retailers who want to use that space for signage, branding or product display, sources said.

Apple even sought a design variance, but was turned down, said one retail source, who asked not to be identified.

“Do you think [fashion designer] Karl Lagerfeld will be ok with playing second fiddle to an architect?” another retail insider said. “It is all about clashing egos. Those brands [that object to the columns] are not going to open a flagship Downtown and have Santiago Calatrava’s ribs obstructing the view.”

This month, TRD assembled the most comprehensive-to-date list of tenants expected to take space at the project. We also obtained maps of the full retail complex indicating where retailers are likely to plant their flags.

Westfield has been involved in the center since it signed a 99-year lease in July 2001 to control what was then called the Mall at the World Trade Center (see related story here). Analysts expect the new retail space to bring in $2,000 per square foot or more annually, well above the $900 per foot the predecessor mall took in, and putting it among the top-grossing malls in the world.

While brokers said Westfield would not have a problem filling the space, questions remain about what type of tenant mix the project will ultimately achieve, and how much money it will generate for its owner. The firm is currently assembling what insiders say is a solid group of tenants. But so far, brokers said, it lacks the depth of luxury brands amassed by the neighboring Brookfield Place. Still, it remains to be seen how critical luxury tenants are for the project.

Ultimately, Westfield’s goal is for the mall to be “relevant” and a destination in the same way Soho is, said a person familiar with the marketing plans, who noted that the firm wants to draw New Yorkers, tourists and commuters into the complex.

In addition, some said, the tenants at the World Trade Center and at Brookfield Place may actually help one another.

“Collectively, [Westfield and Brookfield] have got to have a broad array of stores, and not every one is going to be a luxury brand. Not everyone can afford a Brioni suit,” said Richard Hodos, an executive vice president of retail at CBRE Group. “The fact that Westfield is going to have some moderately priced tenants is not a bad thing.”

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Scoping out stores

Westfield, a public company, has said it expects to have 150 brands at the World Trade Center site mall.

TRD identified approximately 60 tenants that have signed leases, inked letters of intent or are in late negotiations with Westfield. In addition, the magazine also uncovered the location they’re expected to take in the project.

Westfield declined to comment or confirm any of the information, which came from industry insiders, who keep close tabs on who takes space so that they can get a feel for the mix of tenants, as well as from marketing plans created earlier this year and recently obtained by TRD.

Sources say Westfield’s reluctance to talk is twofold — partly related to the fact that it’s a public company that is expected to announce its important information on earnings calls, and partly out of deference to the National September 11 Memorial & Museum, which is set to open this month.

The retail complex has four main shopping areas. The first is above ground in 3 World Trade and 4 World Trade along Church Street. But the heart of the retail complex will be Calatrava’s so-called “Oculus,” a two-level, oval-shaped shopping gallery. Two bi-level concourses, one dubbed the West Gallery, and the other called the South Gallery, will branch off of the Oculus.

As TRD reported last month, designer Tom Ford, jeweler Tiffany & Co., and one of the Giorgio Armani fashion brands are expected to take three of the project’s four street-level stores. Tom Ford is likely to take a two-level space in the base of 4 World Trade, and Tiffany and Armani are expected to take two-level locations in the base of 3 World Trade, next door. All three sites have frontage on Church Street.

But some sources told TRD that not all retailers are comfortable with the non-World Trade Center tenants — including Burger King and discount clothing store Century 21 — that are near the project’s street-level space. While the neighborhood is rapidly changing, typically luxury brands do not want to be near brands outside of their peer group.

Most of the retail in the World Trade Center is below ground, where rents range from about $300 per foot in very large spaces in the branches to $500 for space in the Oculus. Brokers said rents a block away on Broadway have doubled over the past year, with ground-level deals now being completed for more than $500 per square foot.

As TRD reported last month, the shopping experience in the Oculus is likely to have more than a passing resemblance to the mix of stores in Soho. The space, which will have approximately 40 retail destinations, will include Kate Spade, Zadig & Voltaire, Cole Haan and Apple — all of which have Soho outposts.

Zadig & Voltaire said in a statement that it wanted to be part of the project because of its significance to both New York and the world. “Also, it is an emerging shopping area that, aside from Century 21, doesn’t have many other retailers, and the area has a lot of traffic with the tourists and the Financial District,” the company said.

In addition to Zadig & Voltaire and the aforementioned brands, the Oculus will also be home to the watchmaker Breitling, pen and watch manufacturer Montblanc (which closed its Soho store in 2011) and Swedish clothing designer the Kooples.

Meanwhile, Westfield is trying to give each area of the retail its own distinct personality.

In the South Gallery — which stretches for slightly longer than a 200-foot Manhattan street block before making a sharp turn to the east — Westfield is bringing together retailers that are at a lower price point than the Oculus tenants, but that still carry brand influence. On the lower level, that includes clothing maker Lacoste, cosmetics retailer Sephora, sneaker manufacturer Asics, luggage maker Tumi and Manhattan-based juice maker Organic Avenue. Also on this strip is Victoria’s Secret, which is expected to take one of the largest shops in the complex, with nearly 17,000 square feet.

The upper level of that branch has a greater focus on food and impulse purchases, with Brooklyn-based chocolatier Nunu; the shoe designer Dune Group; skin-care retailer Kiehl’s and soap and lotion purveyor L’Occitane.

Meanwhile, the West Gallery (which heads toward West Street and connects to the underground entryway to Brookfield Place) also includes apparel and impulse-purchase retailers, as well as children stores. Sources said this area is completely leased up. On the lower level, which connects to the PATH trains, tenants are said to include Disney, Lego and Godiva.

Other tenants are the Victoria’s Secret cosmetics brand, sunglass chain Solstice and crystal gift-seller Swarovski. On the upper level, Duane Reade is expected to inhabit a more-than-6,000-square-foot space.

Target practice

The retail leasing process is almost always drawn out at malls because of the tricky interconnections among tenants, but insiders said the World Trade Center is even more complicated because the high-profile nature of the project that puts every detail under a microscope.

One of the first steps any mall takes is to create a merchandising plan or site map. That map includes tenants that have actually locked in space, as well as “aspirational” tenants — tenants the owner wants to go after. Within the industry, using these types of maps is controversial because it can leave retailers and their brokers under the impression that a certain tenant is on board, when in fact it might not be.

That merchandising plan is part of the quiet dance between the mall operator and scores of tenants, each jockeying for the best financial terms and the best retail neighbors, or co-tenancy.

“They have to put names on [the merchandising plan] to target, but the plan changes a thousand times,” one broker said.

But some sources said Westfield has not been completely frank when dealing with retail brokers since it began the leasing process. However, they noted, that other large landlords are no different.

Westfield “tells you the status of all the retailers you value,” said one tenant-rep broker. “You can choose to believe them or not.”

In addition, Westfield wields enormous power because of its ownership of malls all over the world. Multiple sources said the firm has tried to put pressure on tenants to take space in the World Trade Center by making contingencies for deals in another Westfield property.

However, sources said Westfield was not unique in that regard, either. In fact, brokers said the same happens sometimes with powerful New York landlords.

Luxury wars

Despite all of the tenants that have signed on, brokers say that on the whole, Westfield has lost the luxury battle with Brookfield Place, which landed a slightly wider range of high-end tenants, including Burberry, Salvatore Ferragamo, Hermès and Diane von Furstenberg.

Yet late last month, a retail source told TRD that Westfield may have high-end designer Prada lined up, so no one is counting Westfield out.

The project’s distinct architecture alone is expected to draw droves of tourists into the building, even though the columns that are part of that design are turning off some retailers. A few have pointed out the irony that above ground, the office-leasing brokers are selling the World Trade Center towers as engineering marvels that are nearly column-free.

Several tenant brokers said their clients have balked at the columns, but Westfield has attempted to counter that by showing tenants potential store designs that are not impeded by the columns and that allow them to effectively brand their spaces.

The Calatrava columns aren’t the only issue. Some retailers are simply uncomfortable with being in an underground mall, and are taking space in Brookfield Place or on Broadway, both locations where they can be above ground. For example, Zara recently leased a three-level space at 222 Broadway, and the Gap took space at 170 Broadway, according to news reports.

Sources say that the project is also dealing with the challenge of finding retailers willing to spend money on expensive build-outs. That’s because Westfield wants flagship-quality stores at the project. Though it’s unclear how much Westfield is chipping in with construction costs as incentives for those build-outs, building in the World Trade Center is two or three times more expensive than a typical store construction, insiders said.

“They are putting together a great co-tenancy,” said one broker who is negotiating with Westfield on behalf of tenants. “I just think it’s taken a little longer and been a rougher road than they expected. But I think it will be world-class.”

JLL’s Gibson echoed that point.

“I just don’t think everybody wants to be in a transit hub,” said Gibson, who would not comment on specific deals. “But I think it will be successful. The commuter traffic is off the charts.”