Brooklyn or bust

From left: Virginia Pittarelli, Ken Schuckman, Jared Epstein and Joseph Colista
From left: Virginia Pittarelli, Ken Schuckman, Jared Epstein and Joseph Colista

National retailers are waking up to what residential brokers and developers have known for several years: Brooklyn can no longer be ignored. The borough has seen an explosion of critically acclaimed restaurants in the last few years, as well as locally made products from pickles (McClure’s) to chocolate (Mast Brothers). Many national retailers have been slower to commit to the borough, but that has begun to change over the past year.

In this month’s Q&A, The Real Deal talked to retail brokers and landlords about the most recent uptick in interest from national stores. That interest, they said, is being driven by players like Swedish clothing brand H&M, which just opened a store on Fulton Mall in Downtown Brooklyn; J.Crew, which is moving into Court Street in Cobble Hill, and the popular grocery store Whole Foods, which is finally nearing its Gowanus debut. Sephora and others are also opening in the borough.

“National retailers have a tendency to follow each other like schools of fish,” said broker Kenneth Schuckman of Schuckman Realty. In the past, he noted, major retailers in Brooklyn flocked to malls like Caesar Bay in the borough’s Bath Beach section, and Atlantic Terminal. But now, he said, they are forging into neighborhoods once occupied primarily by local players.

In addition to stronger “co-tenancy” options — having other national chains to park their stores next to — retailers are being lured by new residential and commercial developments, including the new Barclays Center. But while that project and others are bringing more retail space to the market, there are still challenges in finding stores large enough to accommodate national chains. And not all Brooklyn neighborhoods are seeing the same amount of interest from national tenants.

For more on how national chains are impacting Brooklyn’s retail rents, local property owners and the borough’s burgeoning artisanal movement, we turn to our panel of experts.

Jared Epstein

principal, Aurora Capital Associates

There’s a lot of Brooklyn retail activity right now. H&M just opened in Fulton Mall, the borough’s first J.Crew is coming to Court Street in Cobble Hill. What level of retail interest are you seeing in Brooklyn now, and how does that compare to the last few years?

Brooklyn is finally getting the attention from retailers it deserves. As the fourth largest city in the U.S. with approximately 2.5 million residents, many wonder why it has taken so long. Like all for-profit companies, retailers seek out growth opportunities … and [some] retailers have maxed out their growth potential in every viable Manhattan neighborhood.

The local/artisanal movement has received a lot of attention, but it seems like there is now a national wave of retailers breaking into Brooklyn for the first time. Which players do you expect to break into the borough next?

I believe over the next few years we will see major expansion on the strongest thoroughfares in Brooklyn by mainstream retailers including Victoria’s Secret, Express, DSW, Urban Outfitters and T.J. Maxx. J.Crew’s first store on Court Street will be a success and [will lead to] several additional J.Crew stores throughout Brooklyn. It’s my understanding that Apple may be behind the redevelopment of the Salvation Army store at Bedford Avenue and North 7th Street. Whether this will be the first Apple location in Brooklyn doesn’t matter — what does [matter] is that Apple will be coming. Coach, Tiffany and other brands will likely follow.

Which areas of Brooklyn are strongest for retailers right now and why?

Downtown Brooklyn, [because of] its strong density of office workers. Fulton Street continues to evolve into one of the greatest retail streets in the country. Atlantic Avenue has experienced a massive spike in interest due to the success of the Barclays Center and the redevelopment of Atlantic Terminal. Williamsburg’s residential community, which has been growing since the waterfront was rezoned in 2005, has spurred the demand for retail. Park Slope continues to be a great location for small retail shops. And Red Hook will see more interest from big-box tenants.

What are you seeing in terms of retail rents in Brooklyn right now and how does that compare to the last few years?

Bedford Avenue in Williamsburg was roughly $50 a square foot [three years ago], but is now $150 to $250. Atlantic Avenue was roughly $40 a square foot [five years ago] and is now $125 to $175.

How competitive is it to buy retail property in Brooklyn these days?

Once one developer proves that a neighborhood is ripe with opportunity and yield, others quickly follow and pounce on any viable opportunity. This very quickly drives up land and property values. Brooklyn and its best neighborhoods are no longer a secret. Values have soared.

Kenneth Schuckman

CEO, Schuckman Realty

What level of retail interest are you seeing in Brooklyn?

Brooklyn is hot. Up until this recent retail expansion, Brooklyn shoppers had limited options. National retailers are watching the trends and the changing demographics and are waking up to the fact that this area can no longer be overlooked. With Brooklyn having one of the lowest supplies of retail square footage, space is at the highest demand we have seen. With thousands of housing units planned and being developed, the demand will only increase.

Which areas of Brooklyn are strongest for retailers right now and why?

National retailers have a tendency to follow each other like schools of fish. In the past, chains followed traditional, safe models [by being located] in Brooklyn shopping projects like Kings Plaza, Caesars Bay, Atlantic Center and Gateway. They typically stayed away from local neighborhoods since the buying patterns of those consumers were not understood. Neighborhood shopping areas like Fulton Mall were dominated by local tenants, who were making fortunes filling the void that national tenants were not satisfying. That is no longer the reality. Neighborhoods that were “too local” for national chains, like Cobble Hill, Boerum Hill and Fort Greene, can now barely accommodate the demand for retail space.

What are you seeing in terms of retail rents in Brooklyn and how does that compare to the last few years?

Since the beginning of the recession until today, rents have skyrocketed. A perfect example is Atlantic Avenue at Fourth Avenue across from the Barclays arena. [Our firm] spearheaded the assignment for the corner in 2010. We were able to overcome a major hurdle of finding a bank able to pay over $100 per foot; we successfully secured Bank of America, which is currently open. Three years later, with the Barclays arena open, rates per square foot have now risen to over $200 in the same market. Our experience on Court Street in Cobble Hill was very similar. We are now seeing rent rates in a number of areas that rival Manhattan occupancy.

What challenges are retailers facing in Brooklyn?

One of the biggest, if any, is finding locations for tenants of 10,000 square feet and up. Also, unless there is easily-accessible mass transit, retailers must depend on density and the driving consumer.

Which parts of Brooklyn are you expecting to see the most retail growth in the next five years?

With Whole Foods intending to open before Thanksgiving this year, I believe there will be significant growth in the Gowanus area. Lowes Home Improvement and Pathmark have been located there for quite some time, and the neighborhood has been seen as an opportunity for big-box development. [Our firm] recently put together a project with national tenants where leases are subject to Whole Foods opening their doors for business.

Joseph Colista

first vice president of retail leasing, Massey Knakal Realty Services

What level of retail interest are you seeing in Brooklyn these days?

Interest in Brooklyn is at an all-time high. Brooklyn has been, for many years, a hotspot for entrepreneurial and creative retail. But the past year has seen a massive increase in interest from large, national credit, and high-end tenants.

Which national retailers — or types of retailers — have most recently shown interest in the borough?

Apparel and specialty food. … Specialty food is, in particular, a natural fit because Brooklyn has been at the forefront of a national movement towards locally sourced and produced food.

What are you seeing in terms of per-square-foot retail rents in Brooklyn?

Rents are up across the board. Traditional Brooklyn retail corridors that intersect with Atlantic Avenue and Flatbush from the East River to Grand Army Plaza are seeing rents well above $100 a square foot, with some recent leases signed north of $200.

What is the biggest challenge in getting retailers to come in to Brooklyn?

A big challenge for many retailers looking to expand into Brooklyn — particularly in brownstone neighborhoods — is the size of available spaces. It’s tough for larger, national tenants to find space to house their operations in neighborhoods in which the inventory is dominated by 20-foot-wide buildings that offer little more than 1,000 square feet of space.

Which parts of Brooklyn are you expecting to see the most retail growth in the next five years?

I expect continued national growth in Williamsburg, Downtown and the north ends of Cobble Hill and Park Slope. [Also, I expect] the movement of creative, Brooklyn-based retailers into Bedford-Stuyvesant, Bushwick and Gowanus. Of all of those, I think Gowanus is a good bet to experience the most transformative growth within the next five years.

Noel Caban

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head of Long Island division, Winick Realty Group

What’s going on with Brooklyn retail?

There is renewed retail interest in key Brooklyn markets — mainly in the more affluent ones like Downtown Brooklyn, Fulton Street, the Barclays arena market and Dumbo. But in my opinion, not all of Brooklyn is experiencing that growth. In the markets that are growing, what makes the difference is that new inventory has been created in the last few years. Existing city buildings have been converted to retail spaces, old gas stations have been sold and rezoned, and some old mainline retailers have gone out, providing opportunities for more national tenants.

Where are national retailers showing the most interest?

The national retailers are not going in where the artisanal movements are taking place. They are two very separate movements. By and large, artisanal stores, like restaurants and clothing boutiques, are going to markets where the rents are a little softer. For example Smith Street, Court Street, the fringes of Park Slope, Williamsburg, Bushwick, Clinton Hill and Fort Greene. You see only a select handful of nationals in those markets.

Which areas of Brooklyn are strongest for retailers right now and why?

The strongest areas for retailers are where the development [is taking place]. Most of that is in Downtown Brooklyn and the ancillary markets. You’re seeing residential projects that stalled in 2008 now pick up momentum in markets people really didn’t live in before. A good example is the new towers on Flatbush Avenue Extension, Livingston and Willoughby streets. We’re currently working on a project at 388 Bridge that’s one of the largest residential developments in Downtown Brooklyn, with close to 51,000 square feet of retail.

Which areas are weakest when it comes to attracting retailers right now?

I don’t believe there are weak areas in Brooklyn, [but] I do believe there are concepts that will not work in certain markets. For example, everybody knows Roberta’s. It’s probably one of the most popular artisanal restaurants and it’s located in Bushwick. If you drive around Bushwick looking for national tenants, you may not find them. That said, Roberta’s is packed every night, along with every other artisanal restaurant in that market. Does that make Bushwick a weak market or a strong market?

What are you seeing in terms of per-square-foot retail rents in Brooklyn?

Where the national retailers have a foothold, like Downtown Brooklyn, retail rents have climbed. For example, where Trader Joe’s opened, on the corner of Atlantic Avenue, rents have soared. [A few] years ago, I did a deal with Barneys New York around the corner from where Trader Joe’s is now. I don’t think that same deal could have been completed in today’s retail climate. It would be too expensive.

What’s the biggest challenge in getting retailers to consider Brooklyn?

The biggest challenge is co-tenancy. A decade ago, when I would go to ICSC [the retail conference] and talk about the boroughs, the first question I would get is, “Who are the co-tenants in that market?” and that would make it a more difficult sell. Now that a few trailblazing retailers have broken that barrier, so to speak, it is much easier to sell the Brooklyn mystique.

Virginia Pittarelli

principal, Crown Retail Services

What level of retail interest are you seeing in Brooklyn these days?

Brooklyn is one of the most under-stored areas in the country. The level of retail interest has increased substantially over the past few years, especially by the national brands. Fulton Street has become akin to 34th Street in Manhattan, with a well-established and very successful Macy’s and an influx of national tenants like H&M, Raymour & Flanigan, Express, Target, Armani Exchange, T.J. Maxx and Nordstrom Rack.

Which areas of Brooklyn are strongest for retailers right now and why?

One of the strongest is Downtown Brooklyn and, in particular, the Fulton Street corridor. … The other important change is the new growth of available retail product to fill the needs of these major national chains, like City Point, 490 Fulton Street and 505 Fulton Street. Williamsburg is another area receiving a great deal of attention, with a new Whole Foods entering the market as well as Urban Outfitters. Many of the fashion retailers are looking to enter there. Areas like Park Slope, Bay Ridge and Bensonhurst remain strong for neighborhood shopping. [Also], I see some of the big-box or power centers like Caesar’s Bay and Gateway Plaza getting an awful lot of attention. Caesar’s Bay is a fantastic center. It’s not glamorous, but it’s strong.

Barry Fishbach

executive vice president, RKF

Which national retailers have most recently shown interest in Brooklyn?

It’s a variety of some bigger box stores as well as some strong apparel tenants. It’s not only the nationals: it’s entrepreneurs opening up boutiques. It’s chefs who worked at restaurants in Manhattan who want to open their own restaurant.

A few years ago, there were still a lot of Manhattan retailers reluctant to invest in Brooklyn. Is that still the case?

I think a lot have already recognized the strength of Brooklyn. A lot of retailers have opened up or are opening their first Brooklyn store: Lululemon on Smith Street, J.Crew on Court. [The clothing store] Splendid is coming to Court, Panera Bread opened up Downtown. A couple of years ago I [worked on the deal for] the Shake Shack on Fulton Street.

Who has the upper hand on the Brooklyn retail scene, landlords or retailers?

It’s pretty even. There is an influx of new tenants. Tenants are considering neighborhoods they never would have considered five to 10 years ago. So there is a transition. There are a lot of landlords in new emerging neighborhoods that are receptive to negotiating with national tenants. The landlord is benefiting not only from getting a better tenant financially, but also because their rents have increased significantly. This creates activity in the sales market as well, because there are many owners who are motivated to sell because of new values of their properties.

What’s going on with vacancy rates in Brooklyn retail today?

Many spaces are getting leased even before the current tenant’s lease expires.

How competitive is it to buy retail property in Brooklyn these days?

It’s very competitive because there aren’t that many retail properties for sale. When there are, there are always multiple offers.

Timothy King

managing partner, CPEX Real Estate

What level of retail interest are you seeing in Brooklyn these days?

The current retail interest and activity in Brooklyn is the strongest I have seen in my four decades in commercial real estate. National tenants of all types are scouring Brooklyn for opportunities. Taxpayers [buildings that exist simply to cover tax payments], strip centers, and other retailer-intense properties are in huge demand. It is possibility the tightest market I have ever seen.

Which areas of Brooklyn are strongest for retailers right now?

The strongest areas include the neighborhood surrounding the Barclays Center, Williamsburg and Dumbo. A few years ago, only visionaries would consider the area near the arena.

What are you seeing in terms of retail rents and vacancy rates in Brooklyn?

Rent levels vary widely but are increasing at an unprecedented pace. Vacancy rates are at historical lows.

How has business changed for you as a retail broker in Brooklyn in the last year?

The biggest change is the increase in business and finding space to meet the increased demand.

What’s going on with retail commissions in the Brooklyn market right now?

The biggest change is getting small mom-and-pop owners comfortable with the concept of having to pay a commission-and-a-half [giving a full commission to the tenant broker and half that to the landlord broker]. Tenant representative brokers getting a full fee is still a foreign concept that many owners struggle with.