For those who might have expected the Related Companies to build on its major stake in music retailer
Virgin Megastores, the new owner now seems to be singing a different tune: edging the retailer out the door.
The Related Companies, which bought its majority stake last year, has put the music retailer’s huge 57,000-square-foot Union Square space on the market.
The fate of Virgin Megastores, which has 11 U.S. locations that sell CDs, books and T-shirts, is as murky as Related’s plans are unclear. Business at music retailers has been declining over the last few years as CDs have been steadily losing sales to digital music.
Related took a 51 percent stake in the company, and Vornado Realty Trust took 49 percent. The two real estate companies, among the city’s largest, are currently collaborating on the massive Moynihan Station/Penn Station project.
Presently, the Union Square location, a two-level space that is located on the corner of Broadway and East 14th Street in a Related-owned building, is being shopped around by Winick Realty Group, a New York-based commercial firm.
Its purchase of Virgin Megastores isn’t Related’s first foray into retail. In 2006, the company bought Equinox, a nationwide chain of upscale gyms, for $505 million.
Though ground-level retail space facing Union Square Park commands $400 a foot, the Virgin Megastores space could fetch even higher prices “since it’s an aberration in terms of location and size,” said Benjamin Fox, Winick’s president.
Any new tenants could subdivide the space, which has huge floor plates, or
add new entrances to the 14th Street fa & Ccedil;ade, he added.
While Virgin Megastores could still downsize at the same address, relocate or close altogether, existing space will likely contain new tenants by this time next year, Fox said.
Virgin Megastores did not return a
call for comment. Related declined to comment.
Swapping out Virgin Megastores for another tenant or tenants could be advantageous for Related, as commercial rents in the revitalized and fashionable Union Square neighborhood have soared since the retailer debuted there in 1998.
For the retailer’s part, a move could also
be financially beneficial, as a shutdown would let it avoid having to break a lease, which could require a crippling payout, brokers said.
“There are clear advantages for both sides,” Fox said.
While Vornado owns Virgin Megastores but not its Union Square building, which is topped with luxury rentals, it would seem to still have some fingerprints on the deal.
That’s because stretching back decades, Vornado has a history of buying struggling retail companies to get a hold of their undervalued real estate, particularly with shopping centers.
It’s a key reason some brokers are waiting to see what happens with Virgin Megastores’ other Manhattan property, a 60,000-square-foot three-story space at 1540 Broadway in Times Square, near West 45th Street; it’s located inside a Vornado-owned commercial condo.
So far, that space is not on the auction block, according to a Vornado source who asked to remain anonymous in step with the company’s longstanding policy of not speaking to the media about specific properties.
However, two other spaces in the Vornado-owned portion of 1540 Broadway are on the market.
The first is a 20,000-square-foot two-level berth that once housed Bar Code, a video-arcade-cum-restaurant. The other is a 40,000-square-foot below-grade movie theater that used to be run by Loews. It’s being shopped as an entertainment space.
Leases for both spaces are “now under discussion,” said the source, who would not comment on asking rents.
Average street-level store rents in Times Square are now close to $800 a square
foot, according to the Real Estate Board of New York, though non-ground-level spaces would probably be a few hundred dollars less, brokers said.
In Union Square, music lovers will likely bemoan the loss of yet another place to buy recorded music, and others might miss a place to keep warm while waiting for movies to start at the 14-screen theater next door.
Yet community leaders seem to be taking the change in stride, pointing out that retail spaces, even large ones, don’t sit empty for long here.
“The transformation of the 14th Street corridor has been nothing short of astounding,” said Jennifer Falk, executive director of the Union Square Partnership, a combination business improvement district and development corporation.
“In the last few years, Whole Foods, Trader Joe’s, DSW, Puma and a host of
new restaurants have opened,” Falk said, “and the neighborhood continues to be an in-demand location for national retailers and eateries.”