Supermarkets snub developers

New York /
Jun.June 27, 2008 03:29 PM

 
Neighborhood supermarkets are a vanishing breed in New York City, and developers are having a tough time wooing them back.
 
Several real estate professionals said operators of chain grocers are turning down offers for ground-floor retail space, particularly in new luxury high-rises and emerging neighborhoods.
 
John Catsimatidis, the billionaire developer who owns the Gristedes supermarket chain, said developers are asking for too much rent, leaving grocers with only two choices: raise prices or turn down spaces.

“You have no choice, it’s a matter of existence,” Catsimatidis said. “Supermarkets are a business like anything else.”
 
A third of the city’s supermarkets have closed over the past five years, many torn down for new construction, according to a recent Department of City Planning study, which declared a citywide shortage of at least 100 stores. Elected officials have called the problem a crisis.
 
On the economic front, the city concluded that grocery stores increase property values within a five-block radius and attract other retailers.
 
Developers are keenly aware of this. Robert Greenstone, CEO of Greenstone Realty, said finding a supermarket for the 1,350-unit luxury condo development The Edge, under construction in an industrial section of the Williamsburg waterfront, is a top priority. But so far, he’s made little headway.
 
Retail rents per square foot at The Edge range anywhere from the mid-$80s to $100, an eye-popping figure for many grocers, who typically operate on a narrow 3 percent profit margin.
 
Compounding the problem, real estate professionals said landlords are stubborn about lowering asking rents.
 
“It’s very hard to put supermarkets in space where you’re asking several hundred dollars” per square foot, said Frank Terzulli, executive vice president of Winick Realty Group, of Manhattan.
 
He added that with asking rents are so high, “It’s hard to do a supermarket, and I’m speaking for all five boroughs, where you’re looking to be in the bottom of a high-rise luxury building. If you’re looking to do just ground-floor space, it’s virtually impossible to do.”
 
Particularly in Manhattan, Terzulli said supermarkets are increasingly renting a minimal amount of ground-floor space for an entryway, with most of the store occupying far less expensive sub-level or second-floor space.
 
Ohad Tabari, a commercial broker at Living Real Estate Group, said he recently closed a deal for $28 per square foot for 10,000 square feet of lower-level space in Midtown, at Fifth Avenue and 29th Street, with a Brooklyn-based gourmet market.
 
“They’re more reluctant [to lease] in far-off places,” he said, referring to the new waterfront neighborhoods under construction.
 
Although some 3,000 apartments are in the pipeline within a few blocks of The Edge, the chance many may sit vacant concerns retailers, who depend on foot traffic and rarely take risks.
 
“I haven’t seen a lot of supermarkets rush to open in new areas,” he said, putting the value of The Edge’s supermarket space at $25 to $40 per square foot.
 
Catsimatidis is developing a 660-unit project on Myrtle Avenue with a supermarket, which would replace the Associated Supermarket demolished to make way for the development.

Winick Realty Group, which is marketing Catsimatidis’ retail space, confirmed it has an offer from a supermarket there for $45 per square foot.

Last year, Gristedes became the first full-service supermarket to open in the Financial District’s expanding residential community. Catsimatidis said his chain pays about $65 per square foot at 90 Maiden Lane, between Pearl and William streets.

At One Brooklyn Bridge Park, residents are expected to move into the 449-unit development any day now — closings began last week — and retailers by the end of this year. Ian Levine of developer RAL Companies & Affiliates was starting to sweat not having a supermarket confirmed until one finally expressed serious interest last month.

He declined to divulge the asking rent or the store’s name since the deal is not finalized, but said it’s much lower than $80 per square foot.


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