With building prices still near historic highs, landlords are taking the money and running, a decision that often affects small businesses. With condos replacing mom-and-pop shops on many street corners, The Real Deal asked brokers, property owners, city officials and preservationists: What city businesses are most vulnerable to buyout offers from developers?
Not everyone agreed on the answer, but most conceded that, like it or not, the majority of small-business owners—be they proprietors of bars, parking garages or Laundromats—can be hard-pressed to justify staying in business when a check for several million dollars is enticing them to shut down.
“It’s like winning the lottery,” said John Reinertsen, a commercial broker at CB Richard Ellis. Reinertsen, who works mostly in Queens, explained that when an area is rezoned from commercial or manufacturing to residential, the property value multiplies dramatically. And, as he put it, “It doesn’t make sense to make luggage if you can make $22 million to sell the building.”
With jobs going overseas and developers wanting to “build, build, build,” Nancy Ploeger, president of the Manhattan Chamber of Commerce, said that manufacturing has been hit particularly hard by the real estate boom. But, she said, “I really don’t think you can come at it from the perspective of what industries are being targeted. It’s not like developers are going around trying to buy up all the dry cleaners or bars in Harlem and buy them out.”
Bob Knakal of Massey Knakal agreed that for the most part, it doesn’t matter whether a business faced with a buyout sells records or serves beer. “The key consideration is, ‘Can I move the shop? And if not, am I ready to retire?'”
In part, businesses facing a buyout have limited options. “Mom-and-pop businesses very rarely successfully relocate,” said Michael Weiser, executive vice president of GFI Realty Services, a commercial brokerage and subsidiary of GFI Capital Group. “And some people, this is all they know how to do.”
Alan Miller of real estate investment firm Eastern Consolidated emphasized that land sales in Manhattan were breaking records last year. He points to the August sale of 510 West 21st Street, a former manufacturing site bought by a group of developers backed by entertainer Jay-Z for more than $50 million. Miller said that although sales volume has been down since the summer’s subprime debacle, prices are still high for now.
“The credit crunch will definitely have an effect,” said Miller, who credits, among other things, foreign money with keeping the market afloat. “More equity is required to do these deals now. So far pricing isn’t affected, though the transaction volume has slowed a bit.”
Still, said Knakal, “someone who wants to keep their business going is less likely to sell than someone who is ready to throw in the towel. I’ve seen guys who are more content pouring beer than they would be taking the money and retiring.”
That may be because many of their businesses are family-owned and have been passed between generations. Often, those properties were purchased years ago for a fraction of what they are fetching now.
The family that owns Houston Street’s longtime fish emporium Russ & Daughters isn’t certain what their great-grandfather, Joel Russ, bought their building for in the 1940s, but they are certain they aren’t selling.
“We get three to five calls every week asking if we want to make a lot of money selling our building, but we don’t even entertain the offers,” said Joshua Russ Topper. “Right now, there’s no possibility of selling, and I don’t see it happening in my lifetime.
“This is our family’s history, and it’s a landmark in New York and the country. It’s an important part of society, and that’s important to us.”
Artist Shalom Neuman feels the same way. Neuman’s Fusion Arts Museum, a non-profit gallery and workspace on Stanton Street, has been the target of developer interest for years, but he isn’t budging. Another of the lucky few who actually owns his building—he bought it in 1984 for “less than a square foot is going for these days”—Neuman said he constantly gets calls and mailings offering upwards of $10 million to buy his three-story building.
About five years ago, Neuman leased what used to be his workshop to Apizz, an Italian restaurant. That, he said, is as commercial as he’ll go.
“My life is about art,” explained Neuman. Holding on to his building, which he hopes to one day turn into a nine-story interactive museum, is Neuman’s way of doing his part to keep his neighborhood culturally rich.
But unlike Apizz, which is lucky enough to have a landlord who is committed to staying put, businesses that lease their space usually have no say in whether the property owner decides to sell. One example: In July 2006, the Perry Street Theatre shut its doors, much to the dismay of director David Elliott.
“Quite simply, you cannot compete with real estate – and unfortunately, smaller theaters, like the Perry Street Theatre, historically an essential part of the Off-Broadway landscape, are disappearing,” he said.
Andrew Berman, the executive director of the Greenwich Village Society for Historic Preservation, pointed to several other downtown playhouses, including the Variety Theatre in 2004, that have been forced out to make way for condos and other high-end housing.
“It’s almost an epidemic of losses in our neighborhood,” said Berman. “If you’re a non-profit theater, it’s hard to turn down $30 million. And in the case of the Variety, ultimately, they’re in business to make money. For the property owners, it just wasn’t in their best economic interest to keep the building as a theater.”
Elliott conceded the point. “For many building owners, the square footage of large performance spaces are worth so much more to commercial developers, and in our case, to wealthy homeowners,” said Elliott, who now runs the Perry Street Theatre out of a Midtown office.
“I suppose it is hard to blame them for recognizing the opportunity. It is just a blow to the arts, and really to the city, that the Village is now a place of expensive homes, high rents and boutique shops, rather than a place that might also attract New Yorkers and tourists for theater, music and art. But times change, he said.”
Anna Rhein, a broker with Picken Real Estate, a brokerage that specializes in bars, restaurants and nightclubs in New York City and the Hamptons, said that in the past year, she’s seen more and more landlords putting “demo clauses” into the leases they have restaurant owners sign. That way, said Rhein, “if a developer comes up to buy the place, they don’t have to wait out the lease.”
This new kind of clause puts business owners in a bind, said Rhein, making it harder for them to make the kinds of improvements to the space that might bolster business.
Still, said Sofia Kim, vice president of StreetEasy.com, the bottom line isn’t industry, it’s circumstance.
“I don’t think there are any particular businesses that are targeted by developers,” said Kim. “It’s really the location, the price tag and economic climate that will attract developers.”
But “selling out” isn’t always a bad thing. Herb Glaser, owner of Glaser’s Bakery on the Upper East Side, said that he and his brother John may well cash in once they decide to retire. Both men are in their 50s and don’t have children who are interested in running the business.
Glaser said his grandfather bought their building nearly a hundred years ago for less than $30,000, and judging from the going rates in the neighborhood, he expects he’ll get close to $5 million for it now.
“When you hear the numbers and figure what you’ll end up with, it’s tempting, especially as we get older. It’s hard physical work what we do here,” he said. But Glaser isn’t without regret when he considers life without the bakery.
“It’s sad,” he said. “But that’s progress, I guess.”