The Real Deal New York

Retailers cautious about Lower Manhattan

More residents, few vacancies balance impact of Wall Street crisis
By Vanessa Weiman | November 03, 2008 03:31PM

Have FiDi residents — and workers — stopped shopping? The minute the stock market began sliding, the media began to wonder about the fate of the Downtown retail scene, which in the past several years has transformed itself from workaday stores serving Wall Streeters on their lunch hour to the likes of Tiffany & Co.

A spokesperson for Hermès, which opened in June 2007 at 15 Broad Street, said that it has been “bombarded by calls” in the past few weeks inquiring as to how the store is faring. She insisted that as of last month, “sales have remained stable,” but said company policy does not allow the release of numbers to the public.

According to Sam Chandan, chief economist at Reis, the commercial real estate analysis firm, the financial sector makes up 12 percent of jobs but 36 percent of wages in New York City. As a result, the recent round of Wall Street layoffs affects a disproportionate share of spending activity in the city.

Brokers say that while it’s hard to quantify if retailers are pulling back in the
Financial District yet, “caution” is the word of the day when it comes to considering store space there.

“I think most everyone is in a wait-and-see mode,” said Michael Hofmann, senior managing director for retail at Colliers ABR, who noted his clients have been back to see spaces several times. “The clients that I rep — luxury retailers — are definitely in a wait-and-see mode. They’re waiting to see if places like Tiffany and Hermès can put the numbers out.

“The events of last month have given everyone pause.” he said.

Apple, according to Crain’s, was seriously considering a lease on 50,000 square feet of space at 23 Wall Street up until about a month ago, but decided not to go forward with those plans. Neither Apple nor the leasing agent, Robert K. Futterman & Associates, could be reached for comment, but other brokers expressed surprise at the collapse of the deal. “I thought that building would have been a natural location for them,” said Michael Stone, senior director of retail services at Cushman & Wakefield.

He added, “I have heard that the space is a little awkward and very expensive. It’s a significant commitment to Downtown, and they already have three big stores in the city, so maybe they figured they have enough now, or they’re waiting for retail space at the new World Trade Center.”

Mercedes-Benz, meanwhile, denied a recent report in Crain’s that it had plans for a Downtown dealership near BMW’s 67 Wall Street space. Donna Boland, manager of corporate communications for the luxury car company, said that for the past two years, Mercedes has been looking to replace its Midtown facility with another one in the same neighborhood.

She added that Lower Manhattan wasn’t workable for the company in terms of factors like parking availability.

The population in the Financial District has more than doubled since before 2001 (from 22,961 to 56,354, according to figures from the Downtown Alliance).

With the increase in residents and businesses, the area is better positioned to weather the bad times, brokers said, noting that the streets are still teeming with people. And they say that there is a strong need for more retail to serve them.

“My recent experience is that there are the same amount of people on the street and not enough retail to support them,” said Stone.

Yet it’s possible that the residential and commercial infrastructure that now exists in the Financial District may hinder its growth in the short term, as investors who had been buying residences in the area look elsewhere.

“Unfortunately, I think that the area that will suffer most in the city will be the Financial District,” said Andrew Mandell, partner in Ripco Real Estate.

The recent round of Wall Street buyouts and mergers doesn’t bode well for potential moves Downtown for financial companies.

For example, HSBC, which was considering moving its headquarters there, has put its plans on hold, according to Mandell. And Merrill Lynch, which was just acquired by Bank of America (soon to be headquartered at One Bryant Park), could end up scaling back its space at its World Financial Center site.

For this reason, some luxury retailers may look to other parts of Manhattan when picking new store locations. “Ask luxury retailers where they look for their demographic, and they will tell you in the wealthiest areas,” said Colliers’ Hofmann.

There may be enough of an upscale demographic for Whole Foods, which opened its doors this summer at 101 Warren Street.

There also may be unexpected opportunities for some businesses to take advantage of the lifestyle adjustments some former Wall Street employees are sure to experience.

Orin Wilf, president of Skyline Developers, whose company leased space to Tiffany at 37 Wall Street, had originally planned to lease space in the building to Italian clothier Brioni, but that deal fell through about a year ago. Now C-Swing, a company that provides golf lessons, will take over the space.

“They can make it in either economy,” said Wilf regarding C-Swing. “Wall Street guys usually can go out and spend money on this kind of luxury, but now, if people are losing their jobs, they need something to do. C-Swing may be charging $2,000 a year for a membership, but joining a golf club in the area costs half a mil. I’m happy that we got that type of tenant.”

Darrell Rubens, managing director at Winick Realty, said he is still moving forward with about half of his leases in the area. “People are looking more closely, and there are often more senior people in the company examining the locations,” he noted.

Ironically, some of the new condos and other residences that have sprung up in the Financial District (and there are many of them) are also preventing certain small service-oriented businesses from taking space in the area.

Most of the newer residences have in-house amenities such as dry cleaning, so it’s unlikely that those types of businesses could take advantage of potential retail vacancies. “You already have the service industry down there. You don’t have businesses like dry cleaners opening up because newer buildings have those services,” said Rubens.

In the boom times, brokers had approached long-time leaseholders with buyout propositions so that higher-paying tenants could take their places. And according to Rubens, this tactic has been a way to get around the fact that there is also a simple lack of vacant space in the Financial District. “There’s not that much vacancy down on Wall Street — very few for-rent signs,” he said.

Now, according to some brokers, the slumping economy may present an obstacle to the buyout strategy since retailers might be less motivated to seek space.

“You’ll see less in the way of lease buyouts going on,” said Mandell. “Retailers won’t be as aggressive with respect to what they’re willing to pay. What fuels buyouts are aggressive retailers, and without that, the money just isn’t there. And the hesitant climate is not helping that.”

Chandan from Reis noted that over the past few years, New York has benefited from a boom in tourist spending, a factor he expects to reverse as the global economy begins to slow, and as the U.S. dollar begins to appreciate compared to the euro and the
Canadian dollar.

Still, some that decide to take space Downtown may have better luck than others.

“What will go right now is moderate food; it’s not a time to open a very expensive restaurant,” said Cheryl Cohen, president of Trend Setter Realty.

Several brokers insisted that now was a good time to make a deal with landlords willing to adjust to the reality of the downturn.

“A lot of landlords realize that it’s a tough time, and it may be a tough time for a while, and they’re going to have to discount their rents,” said Roxanne Betesh, senior managing director at Sinvin Realty. “Getting something is better than getting nothing, and it’s a good opportunity to open a store.”

Wilf added, “Tenants should start making deals with landlords now so they can
get a better deal now before the market
starts upticking.”

Many brokers agree that ultimately, it’s too soon to tell what the impact of the financial crisis will be, though there is some consensus that the area will ultimately rebound and that the infrastructure that now exists will aid in the recovery process. “The future is extremely bright,” said Mandell. “It’s the short term that’s worrisome.”

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