Retail sellers turn real estate buyers

Used to be, a little ownership went a long way: Saks’ vaunted Fifth Avenue building became an emblematic part of the department store’s identity. But for years, the cutthroat conditions of Manhattan retail real estate a massive influx of retailers, the need to stay ahead of soaring rents, and shifting neighborhood economics pushed companies toward securing long-term lease arrangements rather than purchases.

A few recent bold acquisitions by retailers, including Custo Barcelona and LVMH, have encouraged building owners to cash in on high prices and offer their spaces as retail condos. Historically low interest rates and fears that the era will end soon are also making it easier for retailers to be buyers of buildings.

In January, Robert K. Futterman & Associates sealed the deal on 240 Columbus Ave. for Custo Barcelona, giving the European clothier a nine-unit residential building and a prime second New York location with 1,500 square feet of retail space. The clothing manufacturer acquired the building from previous owner Del Corral Holdings, and will not be able to move into the retail space until the previous tenant’s lease expires in 2006.

“In most parts of Manhattan, it’s hard because there are fewer retail-oriented buildings,” said Barry Fishbach, executive vice president at Robert K. Futterman & Associates. “Retail is such a small part of most buildings, so it’s harder for an owner to buy.” Fishbach cited Harlem particularly 125th Street as an area in Manhattan with high rates of ownership compared to leasing.

But in the heart of Manhattan’s luxury district, the new owners of the Plaza Hotel are betting that they can find a buyer for some of the city’s most expensive retail space which rents for as much as $1,440 a square foot. As reported in March’s issue of The Real Deal, Elad Properties has discussed converting between 150,000 and 160,000 square feet into a custom- built space for a high-end retailer, though the company has not yet located a buyer. In what could indicate a trend in the making, Elad also sold a 10,000-squarefoot retail space last summer at 21 Astor Place, a new residential development. A group led by investor Eli Gindi bought the space for $13 million.

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In the luxury bracket, another major move was LVMH’s February 2003 purchase of 1 East 57th St. at Fifth Avenue, where they installed a Louis Vuitton store one of LVMH’s key brands replacing the Warner Brothers Studio store that had leased there previously. The deal, arranged by Colliers ABR, helped to reaffirm the north side of 57th Street as a luxury retail district.

Fishbach is quick to remind that national and international tenants are far from the only prospective buyers in the city. “For national tenants, it’s the exception,” he said. “But for local and entrepreneurial retailers, it’s their preference. They can build up equity in their property and be sure that their rent’s not going up. In the boroughs, it’s common.”

He cited businesses such as Jimmy Jazz and Dr. Jay’s as regional retailers who prefer to own many of their properties. “Lower interest rates have raised the price of investment properties,” said Fishbach. “It has priced many buyers out of the market. It is definitely a seller’s market, whether in Manhattan or the boroughs.”

One industry that used to account for a large number of property purchases banks has recently gone the way of the lease. With many consumer banking chains seeking to have convenient locations citywide, banks are jostling for some of the city’s most coveted retail leases. “They’re really competing over spaces,” said Fishbach. “If they were as committed to purchasing as they used to be, they wouldn’t be able to get the properties that they have today.”


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