Mass market for Meatpacking
The trendy area is seeing more mainstream tenants and more available retail spaces, sparking debate on how much properties are worth and where the neighborhood is headed
In the late 1990s, Jeffrey Kalinsky, a former Barneys shoe buyer, started scoping out the Meatpacking District to find a home for Jeffrey, his high-end clothing store. At the time, the cobblestone streets were lined with meat purveyors and art galleries; retail rents were in the mid-$20s per square foot.
When Kalinsky opened his 12,000-square-foot shop, a mini department store carrying exclusive brands, at 449 West 14th Street in 1999, he accelerated a fashion domino effect that soon turned the Meatpacking District into a trendy see-and-be-seen neighborhood studded with designer boutiques and late-night restaurants.
Today — with retail rents 10 and 20 times higher — the area is undergoing another sea change. Just as Jeffrey acted as a pioneer for the neighborhood’s haute couture crowd, a recent flurry of leases is signaling a new direction for the area’s retail — one geared toward the mass-market customer, retail brokers say.
Five stores have recently inked deals on 14th Street just west of Ninth Avenue, with three — outdoor retailer Patagonia, comfort shoemaker UGG Australia and yoga retailer Lululemon Athletica — unequivocally recasting the stretch away from high fashion.
In fact, sources say, the northern portion of the district may come to look a bit like a suburban mall.
The area is transitioning from luxury fashion to more mainstream fashion, said Lisa Rosenthal, a managing director at retail-focused brokerage Lansco. “Particularly on 14th Street, which is the gateway to the High Line,” she noted. More fashion-focused tenants are preferring instead to sign new leases just south of there in the Meatpacking District, she added.
Others that arrived on 14th Street in the early 2000s, when rents were much lower, are abandoning the neighborhood entirely. For example, women’s clothing designer Yigal Azrouël, which opened its flagship at 408 West 14th Street in 2003, closed last month (and is reopening on Madison Avenue this month), while designer Stella McCartney relocated to Soho in January.
“Like … likes to be with like. Fashion tenants that want to be in the Meatpacking District are going to go to Washington [Street] and further south to 13th, Little West 12th and Gansevoort,” Rosenthal said.
The impact of new tenants is a hot topic among brokers and investors who are trying to gauge how much buildings in the Meatpacking District should be trading for.
What’s more, tens of thousands of square feet of vacant ground-floor space is being added to the market in the coming years, which will likely keep downward pressure on rents in an area already faced with a 34 percent availability rate.
“The entire neighborhood is in a state of complex change,” said Jared Epstein, vice president of Aurora Capital Associates, which owns 21 Ninth Avenue, home to makeup chain Sephora and trendy seafood restaurant Catch.
Developers need retail rents to be north of $1,000 a square foot to justify their acquisitions to investors, he added.
“Buyers are overpaying, in my opinion,” Epstein said. “Sellers are taking advantage of the insatiable appetite that developers and investors have for this neighborhood.”
This month, The Real Deal took a closer look at the quickly changing retail of the Meatpacking District, where the new Whitney Museum outpost is slated to open in 2015 and is expected to add even more tourists to the High Line destination. We analyzed which new tenants have signed for space there, broke down property owners by how much retail space they own and ranked brokerages by the amount of retail space they represent.
“Meat” the owners
While it may be tough to get a membership at the Meatpacking District’s famed Soho House New York, it appears to be even harder to join the club of real estate players that actually own property in the neighborhood.
City records show there are currently 31 firms that own the approximately 70 properties in the eight city blocks that TRD analyzed between Gansevoort and 14th streets, and between Ninth and 10th avenues. The area has a total of 395,738 square feet of ground-floor space currently in use or available. Most of the area is within the 2003 Gansevoort Market Historic District, which restricts development, but several high-profile developments and potential development sites are outside that zone.
Much of the property is under the control of just a few under-the-radar, family-run companies, such as the estate of William Gottlieb, Romanoff Equities and Meilman Family Real Estate. But there are also owners who are better known in real estate circles, such as Joseph Sitt’s Thor Equities, Ronald Burkle’s Yucaipa Companies and Robert Cayre’s Aurora Capital.
By far the most dominant owner in the area is the Gottlieb estate, now controlled by the late investor’s great-nephew Neil Bender. The estate owns 64,000 square feet of ground-floor space — or 16 percent of the total in the eight-block swath. In addition, it owns another 24,000 square feet of potential ground-floor retail on 10th Avenue at a vacant parcel and some empty buildings.
Gottlieb, a big-time New York City property owner, picked up his meat-market properties (among scores of others) between 1980 and his death in 1999.
But many of the neighborhood’s “meat” families bought buildings in the neighborhood long before that.
Russian-born Nat Romanoff, for example, entered the meat business in the 1930s, and his family later launched meat companies including Nebraskaland, a major distributor that’s still in business. He and his descendants, who today run the real estate firm Romanoff Equities, began buying property in the neighborhood in 1944, and are now one of the largest owners in the area.
At one point, the family’s holdings were even larger, but they were divided in 1999 between Nat’s sons Michael and Gerald. Romanoff Equities — headed by Michael and his son Darryl, owns 38,789 square feet of existing or proposed ground-floor retail.
The company’s holdings include the series of nine buildings that occupy the entire east side of Washington Street between Gansevoort and Little West 12th streets. The firm’s retailers include clothing designer Ted Baker at 34 Little West 12th Street, designer Vince at 833 Washington and the label Zadig & Voltaire at 831 Washington.
The firm also owns a vacant development site at 860 Washington Street, outside the Historic District, where it’s planning to build a 10-story office building with two floors of retail. (The site faces the Standard Hotel and is next to fashion designer Diane von Furstenberg’s building at 874 Washington Street.)
Gerald, meanwhile, unloaded his properties through two sales. In 2004, he sold a large parcel to Andre Balazs, the developer of the Standard Hotel, for $18 million. And in July, he sold his other property at 55 Gansevoort through a friendly foreclosure to DelShah Capital. However, his son Robert and other investors are currently contesting the transfer in civil court.
The Meilman family, which also worked in the meat industry, owns the high-profile strip of buildings from 413 to 435 West 14th Street as well as a building on West 13th Street. It purchased its properties in 1956 and 1964.
On the nonmeat-family front, Burkle bought 430 West 14th Street, which includes the entire blockfront along Washington Street where apparel store Scoop is located, as well as the Soho House property at 33 Ninth Avenue (which he co-owns with Joseph and Michael Cayre of Midtown Equities). Meanwhile, Thor Equities owns 446 West 14th — currently occupied by designer Krizia — as well as the large development site the firm co-owns with Taconic Investment Partners at 837 Washington Street, where it’s planning a 55,000-square-foot office and retail building.
Thor has been active buying and selling. It unloaded a condo at 413 West 13th Street for $34 million in July 2011, after leasing it to mainstream clothing retailer All Saints.
Other small investors include a company controlled by Isabel Litterman and Fred Tate — which favor restaurants and bars. They acquired their parcels in 1982 and have 10,300 square feet of ground-floor retail. They lease to the nightclubs Revel and Cielo at 10 and 18 Little West 12th Street, respectively.
Brokers get busy
As with many other elements of the Meatpacking District, the battle to represent landlords does not fit the typical pattern seen throughout the rest of Manhattan. A decade ago there was virtually no space to fight over. Now it’s one of the most dynamic markets in Manhattan.
While many of the borough’s most active firms — such as Robert K. Futterman & Associates, CBRE Group and Winick Realty Group — have a strong presence representing property owners, so do lower-profile retail firms Lansco and Ripco Real Estate.
In addition, some large owners such as Meilman, Romanoff and Thor generally represent themselves.
Other companies spread the work around. The Gottlieb estate hired Ripco at 72 Gansevoort, but CBRE for the more high-profile 405 West 14th Street (formerly Son Cubano restaurant), which leased to UGG.
Thomas Elghanayan, chairman of TF Cornerstone, said he interviewed several brokerage firms before settling on RKF to represent space at 95 Horatio Street, a large rental building with retail fronting Washington, Gansevoort and West streets. (The firm signed a flurry of leases over the past year and a half to tenants such as clothing store Intermix, women’s designer Jay Godfrey and Swiss lingerie designer Hanro.)
“They convinced us they were the best to attract the kind of high-end tenants that we are looking for,” he said.
Indeed, RKF represents the most available ground-floor space in the district (among third-party brokers) with 50,150 square feet, including a large development at the site of a former gas station at 461 West 14th Street, with 15,055 square feet available.
The brokerage is marketing two spaces at TF Cornerstone’s building: One, with an alternate address of 90 Gansevoort, has about 9,130 square feet, and the other, with an alternate address of 525 West Street, has about 8,340 square feet. RKF’s Karen Bellantoni is representing a 4,000-square-foot, vacant ground-floor space owned by Premier Equities at 22 Little West 12th. The building, which is net leased from the Gottlieb estate, is currently being upgraded. The landlord there wants a “dry use” tenant, not a restaurant.
Meanwhile, Lansco represents Greenway Mews, a major property owner with two available spaces — at 19 and 27–29 Little West 12th.
“[27-29] Little West 12th will be a perfect fashion use, but we also have the capability to vent for a restaurant, and 19 Little West 12th Street, with its 15-foot ceilings, is perfect for a women’s footwear or accessory use or possibly a men’s haberdasher,” said Lansco’s Roger Eulau, who is representing the space with Lansco colleague Roger Cohen.
Winick’s Kelly Gedinsky compared the Meatpacking District to Soho, which has national brands concentrated on Broadway and smaller retailers in the interior.
“I am noticing more boutique and luxury on 13th Street,” she said.
“There is a different market for users on Broadway versus Greene and Mercer. Similar to that trend, I’m seeing the side streets fill up with luxury and couture,” she added.
Her firm represents two locations in the area: the 3,600 square feet at 420 West 14th, where the Heller Gallery has a lease expiring next year, and a smaller space at 414 West 13th.
But even as tenants have been actively making deals, not all leasing efforts have been successful.
Thor High Street Advisors (a brokerage arm of Sitt’s Thor Equities) was seeking $4 million annually for the prime corner occupied by the Gaslight Lounge at 400 West 14th, which comes to about $600 per square foot for the ground floor. The lounge has three years left on its lease, and the listing late last year was seen as an effort to test the strength of the market. But no one took it, and insiders blamed an overly aggressive asking rent. Other spaces, like the new construction at 450 West 14th Street, which RKF once represented, have also sat empty.
The Gottlieb estate, an enigmatic owner infamous for leaving buildings empty or underperforming for years, controls the biggest currently undeveloped parcels. But insiders are crediting Bender — who is heading the
estate after years of family litigation — with changing the firm’s direction, and being more aggressive and opportunistic in his management.
“I think the redevelopment of his land is going to be the key that dictates the outcome of the Meatpacking District,” Aurora’s Epstein said, explaining that the estate owns a lot of space with untapped potential.
Real estate pros differ widely on what rents landlords will be able to extract from tenants over the next decade. (Sources said the highest rents ever paid in the area have been about $425 to $450 per foot during the real estate boom. Today, rents have fallen and are about $290 to $350 per foot on 14th Street and the northern portion of Washington Street and about $100 less on the side streets.)
Some see rents doubling in the area.
Marc Watkins, executive vice president and head of acquisitions at investment firm DelShah, predicted that on prime 14th Street and on Washington, rents
will surge to $800 per square foot within two to four years.
“I would not take all the vacancy as a bellwether or [landlords] not being able to lease,” he said. “I would take that as an indication of the confidence in the upside.”
But Epstein doesn’t think rents on 14th Street will break $500 per foot in the near future, partly because of the new product coming to the market.
The decline in rental prices — which comes despite higher foot traffic from the High Line — is a clear result of the tough economy. But adding more pressure to the situation is that retailers must sell enough merchandise to justify the rents. That’s unlike Fifth Avenue and other locations where a storefront is also considered an advertisement.
Sitt said the moderate decline was part of a natural “digestion process.”
“Look at rents 15 years ago,” said Sitt, who is currently asking about $600 for the ground floor at 837 Washington. “The increase has been tremendous.”
While bullish on rents, he noted another trend that could push ground-floor prices down — the popularity of second-floor retail, especially for restaurants, such as Catch.
For his part, Bender is currently rehabilitating a portion of the mostly vacant stretch on the south side of Gansevoort between Greenwich and Washington. With the Whitney kitty-corner to that stretch, Gansevoort could soon become a gateway to the museum, brokers say.
Insiders say Bender plans to put in a farmer’s market in the coming months at 52 Gansevoort, but the block has some development restrictions put in place by the city to help preserve the meatpacking industry.
Investors are also watching to see if Romanoff goes through with plans to build a 10-story office building at 860 Washington.
And aggressive landlords are trying to figure out how to add more retail space to the market.
For example, an office tenant currently occupies the ground, second and third floors of 412 West 14th Street. Premier Equities and Thor Equities bought the commercial condo for $18 million in April 2012, but can’t lease the retail until they get the tenant out. Sources say the tenant wants $10 million to leave.
Meanwhile, insiders are debating whether any of the world’s largest retailers will ever come to the district.
No megatenants like the Gap or Uniqlo have opened stores in the area. Cliff Meilman, of the Meilman family, said that’s because of the neighborhood’s focus on niche markets.
“That is why you’ll find ‘concept’ stores for these kinds of brands opening down here — Puma Black Station, Levi’s selling vintage jeans and a Sephora build-out unlike any of their other stores,” said Meilman. “They know they need to be here but understand they’re talking to a different audience.”
But Epstein said a massive, mainstream retailer might try to take the plunge.
“I think you could see larger users like an H&M or a Zara come to the market. And I [also] think there is a real opportunity for an influx of luxury tenants through the redevelopment of the vacant parcels. It could be luxury retail. It only takes one Louis Vuitton,” he said.