East Village store rents go north

The legendary punk-rock club CBGB closed its stage on the Bowery and was reborn as a ground-floor T-shirt shop on St. Marks Place. Perhaps it’s a sign that the East Village is ready for its retail moment.

Long a destination for suburban teens and New York University students who flock to its head shops, falafel stands and used record stores, retail space on St. Marks Place now fetches as much as $150 a square foot. The stretch between Second and Third avenues is the heart of the East Village’s retail activity and gets 24/7 traffic, though brokers say it’s still a relative bargain for commercial tenants.

Gentrification trends going back 15 years or more stripped out the worst of the East Village’s druggy, dangerous residential pockets. Emboldened developers have moved farther east into Alphabet City and transformed the area into a nexus of trendy restaurants and bars, although the higher end of the retail market hasn’t quite arrived yet.

Whole Foods on its way

That distinction may fall first to the southern stretches of Second Avenue and the Bowery just above Houston Street. Recently built luxury developments Avalon Bowery Place and Avalon Chrystie Place have transformed the neighborhood, and a springboard effect is expected from the projects’ retail space. A 75,000-square-foot Whole Foods, the first of over 150,000 square feet of commercial space in the projects, is slated to open in April.

Rents in the area don’t approach tonier downtown neighborhoods like Soho, but boosters see the possibility of increased retail prices.

“I hear of $300 and $400 per square foot in Soho, and while we would love to get there, we first have to get the sales to support those kinds of rents,” said Michael Ewing, a principal at Williams Jackson Ewing, the Avalon’s retail consultant and exclusive leasing agent.

Emphasis on local businesses

Ewing expressed a desire to maintain the neighborhood’s existing character by emphasizing local retailers and by avoiding the opening of bank branches and pharmacies, which are ubiquitous in other parts of the city.

While brokers for the Avalon say it is seeking a diverse, representative tenant mix and not only high rents, the project’s affluent residents and its unique location — between Nolita, Noho, the East Village, the Lower East Side and Soho — are bound to raise rents. If new arrivals are any gauge of the retail trajectory in the area, the current going rate of $100 a square foot on the lower Bowery and Second Avenue will surely creep higher.

A Patricia Field store opened just across from Avalon Bowery, while two boutique hotels up the block are under construction. Developer Donald Capoccia of BFC Partners, owner of a three-story brick building at 11 Second Avenue, is said to be planning to use his air rights for undetermined residential or commercial use.

The area’s progression is getting plenty of support from Yair Levy, principal of Y.L. Real Estate Developers, who with other investors bought a $93 million bundle of properties along Second Avenue between 9th and 10th streets in fall 2005.

The 257 feet of prime retail frontage is said to have nearly doubled in value in the three-and-a-half years since the properties first hit the market.

“The East Village has had lots of ups and downs and, presently, it’s starting to expand once again,” Levy said.

The East Village is hardly a monolithic enclave. It encompasses nearly 100 blocks with homeless shelters, halfway houses and large tracts of low- and middle-income housing. The corner of Second Avenue and 9th Street has a Starbucks and two banks — a North Fork bank branch on the southwest corner and, reportedly, Chase will come in across the street where the Second Avenue Deli used to be. But a hardware store and gas station are all that the market seems able to bear on lower First Avenue and upper Avenue B.

The neighborhood’s tenement architecture precludes anything but small boutiques on side streets; along many of the Alphabet avenues, a liquor license moratorium has squelched further restaurant and bar development.

On Avenue B, rents are in the $60- to $90-a-square-foot range, though without the liquor license moratorium they would be 20 percent higher, said Herb Stender of H. Stender Realty, a longtime residential and commercial brokerage in the area.

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The booze ban, scheduled to expire at the end of December, was instituted because of the community’s opposition to the proliferation of clubs and bars.

Because of local regulations — the so-called 200-foot and 500-foot rules — establishments located within 200 feet of a church or school cannot get a liquor license. The rules also mandate a 500-foot area within which no more than three businesses can obtain a liquor license.

Susan Stetzer, district manager of Community Board 3, said the distance regulations have been enforced loosely in the past, but if the moratorium lifts, stricter enforcement of them will be part of the plan.

Rising rents could hinder entrepreneurs

Beyond the late-night noise and disturbances, Stetzer believes bars and restaurants are driving up rents beyond the reach of the kind of merchants that make the East Village the East Village.

High rents will close the area to the type of individual entrepreneurship that sustained both immigrant communities in the past and the many designer boutiques running along side streets between Second Avenue and Avenue A today, she said.

Indeed, tony bars and restaurants make up about half of the inquiries Stender fields from business owners seeking commercial leases.

“I’m amazed any of us are left who are doing this,” said Jill Anderson, a woman’s clothing designer who makes her wares in her shop. Her eponymous shop, on East 9th Street between Second and Third avenues, has been a fixture on the East Village boutique scene for more than a decade.

Anderson sees more tourists and affluent residents, but says the 25 percent rent increase in her recently negotiated lease extension is outpacing sales generated by foot traffic. While more than 30 storefronts fill the block with activity, turnover has been tremendous.

“You’re seeing a lot of stores, but I’ve seen many stores change,” Anderson said. “I’m one of the oldest on the block and most of [the tenant churn] is due to escalating rent.”

The time is now for Second Avenue

Ken Kusakabe of TIC Group, which owns 10 Japanese-themed restaurants and several buildings on and around 9th Street between Second and Third Avenues, echoed Anderson’s concerns.

“More people are coming to the area, so there are increasing customers, but if a small business owner tries to open a restaurant it’s very hard.”

Rents have doubled in the past five years, said Kusakabe, and right now he’s waiting on the sidelines to start new businesses. He said he’s intimidated by the number of closures he’s seen among his neighbors.

John Cangir, owner of Taksim, a successful Turkish restaurant located in Midtown, said now is the right time to venture into the East Village along lower Second Avenue.

“I come here to dine and we have a lot of customers from this area who keep asking us to come,” said Cangir.

In December, he opened another outpost of Taksim on Second Avenue in the East Village. He said he’s encouraged by changes in the residential makeup of the area but said rents there put severe pressure on the viability of his new business.

According to his broker Carl Wunderlich, an associate with Cushman & Wakefield, he’s paying in the low $80s per square foot in rent.

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