Manhattan’s highest-grossing retail buildings

A ranking of the properties that produce the most cash for retail owners
By Adam Pincus | May 01, 2014 07:00AM

From left: Jeff Sutton of Wharton Properties, Rockefeller Center and Steven Roth of Vornado Realty Trust

The crush of tourists — often standing five deep at crosswalks in Times Square, Herald Square and on Fifth Avenue — may be frustrating to New Yorkers trying to get from point A to B, but the money they’re dropping in the city is buoying the retail in those areas and pushing rents increasingly higher.

This month, as many in the New York City retail world are preparing to head to Las Vegas for the annual ICSC retail conference RECon, The Real Deal ranked the top 20 highest-grossing retail properties in Manhattan and looked at which owners are raking in the most money from among those top-grossing assets.

To do so, we used data from the research firm Genesis Computer Consultants, which compiles information from property income and expense filings with the city, as well as from news reports and industry sources.

The ranking found that retail investor Jeff Sutton, either alone or in partnership with SL Green Realty, took in the most overall retail rental revenue within those top properties, with five assets raking in a combined $125 million. He was followed by Vornado Realty Trust, which has five properties producing $111 million annually.

Meanwhile, for individual properties, Rockefeller Center, the GM Building, a collection of Fifth Avenue buildings, and the Time Warner Center led the pack. (The ranking counted properties that were part of a mall as well as adjacent properties owned by the same landlord, as single properties.)

The large square footage that the city’s top retail players own, especially when concentrated in a single building or neighborhood, gives them enormous leverage to cherry-pick tenants and determine the future of each shopping destination.

“These guys are all, in a way, pioneers,” said Robin Abrams, an executive vice president at the retail-focused brokerage Lansco. “They had the vision and they understand retail.”

While tenants may complain about the astronomical rent increases that these property owners sometimes demand, those who own large blocks of retail space have a competitive advantage when it comes to achieving higher rental rates. That’s because they often own key properties in high-demand areas of the city and tenants have limited options of other owners to sign on with.

“You can make a market by controlling big chunks of it,” explained Robert Futterman, CEO of the retail brokerage RKF. His firm represents landlords such as Silverstein Properties, Extell Development and Milstein Properties.

In addition, controlling large blocks of retail space can be used to very precisely coordinate — or “curate,” as retail insiders say — certain types of tenants, in turn increasing the value of rents.

“If you have a one-off [tenant] with [retail] neighbors that are not synergistic, it can devalue the building,” Abrams said.

On the other hand, the sky-high revenue that those landlords are bringing in may come as a form of incentive for owners of underperforming properties nearby, said investment sales broker Adelaide Polsinelli, of Eastern Consolidated.

“The guy sitting next door maybe says, ‘I can do that,’ and will dust off the cobwebs of the old building” to try and reposition it, Polsinelli said.

Click to enlarge: Source: Annual retail revenue figures in gray are from The Real Deal’s analysis of data from research firm Genesis Computer Consultants. Figures in red boxes are from industry sources.

Click to enlarge: Source: Annual retail revenue figures in gray are from The Real Deal’s analysis of data from research firm Genesis Computer Consultants. Figures in red boxes are from industry sources.

Rolling in revenue

The New York City retail sector has never been stronger. Leases are setting records, retail condos are at the top of many investors’ wish lists, and new mega-store complexes are coming down the pike.

Compared to office leasing, the value of retail has exploded in recent decades. Average Midtown office rents have grown by only about 90 percent in the last 30 years, from roughly $35 per square foot in 1984 to $65 per square foot last quarter. But during that same time, retail rents on Upper Fifth Avenue have grown nearly 700 percent from highs of $450 per foot in 1984 to about $3,500 per foot this year, according to news reports from both time periods.

Brokers caution that there has been some pushback from tenants, and say some landlords are scaling back their high asking rents because deals are taking longer to get done.

“I think the market is very strong,” said Robert Gibson, a vice chairman with commercial firm JLL. “[Yet] people are being more careful. Retailers are just making sure. They want to come into the New York market and be successful. If they can’t, they will wait until [pricing] comes down.”

On the ranking front, Rockefeller Center, the 22-acre complex in Midtown owned by Tishman Speyer, came in as the highest-grossing retail property on TRD’s list, with roughly $96 million in gross retail revenue annually, the Genesis figures show.

The 764,138 square feet of retail space above and below ground houses more than 100 retailers, including Banana Republic, Cole Haan, Michael Kors and Anthropologie. Rents at the massive complex vary from about $100 a square foot underground to about $2,000 per square foot for prime, ground-floor space on Fifth Avenue.

Manhattan’s second-highest-grossing retail property is the General Motors Building, which rakes in $34.4 million. The Fifth Avenue tower, which is owned by Boston Properties, includes the iconic glass-cubed Apple store with 22,500 square feet, as well as toy store FAO Schwarz, which has a lease running through 2017, though it recently put the roughly 61,000-square-foot multi-floor space on the sublease market. The high-end jeweler Cartier also leases an 8,000-square-foot space on the north side of the 50-story building on a temporary basis that could be made permanent, according to news reports from last month.

Clocking in at No. 3 on the ranking is an 80,834-square-foot retail condo unit, owned by Sutton and SL Green, at 717 Fifth Avenue. Tenants in the 56th Street space include Armani, Dolce & Gabbana and Oxxford Clothes.

The same two partners also nabbed the No. 4 spot on the ranking with 720 Fifth Avenue and the adjacent 724 Fifth Avenue, both diagonally across the street from 717 Fifth. (The two buildings are occupied by Abercrombie & Fitch, and Prada, respectively.) Combined, the two buildings, with about 35,000 square feet of retail, bring in $33 million annually.

Rounding out the top five were two adjacent properties owned by the Trump Organization, Trump Tower at 725 Fifth Avenue and the Nike store at 4 East 57th Street, which brought in a combined $32 million through a total of more than 81,000 square feet.

Just below that was one of several malls on the list, the Shops at Columbus Circle, that’s part of the residential, hotel and retail Time Warner Center on the southwest corner of Central Park. The interior mall, which is located at 10 Columbus Circle and owned by the Related Companies, has about 350,000 square feet of retail space, which is structured as a single commercial condo unit. It has more than 40 tenants, including Whole Foods, Hugo Boss, Coach, J.Crew and Thomas Keller’s Michelin-rated restaurant Per Se. All together, the retail brings in a total of $31 million per year.

While it might seem counterintuitive that the Time Warner Center’s 40 tenants bring in less than the two tenants — Abercrombie & Fitch and Prada — in the No. 4 spot, insiders said that the Fifth Avenue addresses carry far more cachet.

Some said the two types of retail shouldn’t even be compared. “A vertical shopping center versus pure street retail — they are completely different,” said Joanne Podell, vice chairman at Cushman & Wakefield, noting that Fifth Avenue retail commands much higher rents.

Other notable owners on the top 20 list include Sitt Asset Management, which owns 2 Herald Square, with tenants including H&M and Victoria’s Secret. That space brings in about $24 million per year for its owners. In addition, Forest City Ratner’s East River Plaza, a 527,000-square-foot mall in East Harlem, brings in just over $21 million per year.

More competition coming

While all of these high-rent retail buildings and malls are soaring now, they will have new competition on their hands soon. That’s because four massive and highly publicized malls are slated to hit the market in the next few years, and large retail spaces on Fifth Avenue and in Times Square are getting rehabilitated.

Among those multi-story projects are the World Trade Center retail complex, which is owned by the Australian real estate investment trust Westfield Group (see related story here). That site is expected to blow all others out of the water when it comes to gross revenue, which some anticipate could hit $120 million.

The complex — which will be mostly underground, but also at-grade and above-ground — will initially be built at 365,000 square feet, but an additional 90,000 square feet will be added when 2 World Trade Center is developed.

Meanwhile, just across the street, Brookfield Office Properties’ Brookfield Place has undergone a $250 million renovation. The 200,000-square-foot retail space is scheduled to open next year, and to have a higher concentration of luxury tenants, including Salvatore Ferragamo, Hermès and Burberry.

Two other large malls are expected to be completed in the coming years: They are the Howard Hughes Corp.’s South Street Seaport in Lower Manhattan, which is under redevelopment, and the 1 million-square-foot retail complex at the Hudson Yards site, which is being developed by Related.

In addition, there are buildings being rehabbed that are expected to generate more than $15 million per year for their owners. They include Vornado’s 640 Fifth Avenue and 1535 Broadway, and a project co-owned by Sutton, Joe Sitt, Aurora Capital Associates and the Adjmi family at 529 Broadway in Soho.

All these new projects will greatly increase the number of existing properties that rake in serious cash annually.

“Each of these deals is instrumental in creating spillover value for neighboring properties,” Polsinelli said. “As they draw in more shoppers to these locations, other national brands and retailers will want to participate, thereby increasing the value and desirability of the area.”