Who would be a retail broker right now?
Stores are closing, availability rates are rising and competition for deals is fierce – but some see opportunity
No deal is too small for Max Swerdloff, a retail broker at Eastern Consolidated. He trawls social media and the web for the latest food trends, and reaches out to fashion e-tailers and restaurateurs, always in the hope his efforts will result in a lease deal.
“I just love the process of dealmaking, I try to get my hands on any sized deal,” said Swerdloff, who started as a broker in 2015. “We’re seeing a lot of deals getting done downtown below 14th Street and in the East Village, and we just try to grab as many as we can.”
Swerdloff is on James Famularo’s team, a group that’s recently arranged leases for Poke-bowl restaurants, hybrid retail concepts and e-retailers making their first foray into brick-and-mortar. Often these deals are what they call “singles” — meaning spaces of less than 1,000 square feet — but the team views it as a quantity game. Small deals, if you do enough of them, are well worth the effort.
It’s no secret that retail is going through a turbulent time. Month after month, there’s another gloomy headline on what lies ahead for brick-and-mortar. Vacancies remain high across the city compared to this time last year. Asking rents in Manhattan’s main 16 retail corridors fell by nearly 9 percent year-over-year in the second quarter of 2017, according to CBRE. Tenant demand is lagging, particularly from luxury retailers, and availability increased most acutely year-over-year in Places Like Downtown Broadway, Third Avenue on the Upper East Side and 14th Street in the Meatpacking District — all of which have increasing inventory. Areas like Soho’s Broadway, Soho’s Spring Street and Upper Madison Avenue all have high rents, which is pushing tenants to give up space. Meanwhile, several established, high-end labels are working to shrink their physical presence. In April, Ralph Lauren announced plans to Shut Its Polo Flagship Location On Fifth Avenue, and two months later fashion giant Michael Kors revealed that it will close between 100 and 125 stores over the next two years. The World Trade Center Mall, which some expected to be one of the more successful retail spaces in the country, has been plagued by vacancy. And landlords are turning to short-term leases and pop-up stores to fill space. Earlier this year, developer Billy Macklowe described retail as “fucked, plain and simple.”
In light of such sobering stories, it’s difficult to imagine what would draw someone to break into retail brokering right now, or what would make someone want to stay. “I discourage all brokers in my office to work in retail unless they have an exclusive,” Norman Bobrow, founder of the eponymous Manhattan-based commercial brokerage, said last year. “It is not the place to be in.”
But many retail brokers believe the challenging market actually provides opportunities for agents to get creative and, in many cases, surge ahead of their competitors. “If you talk to nine out of 10 brokers, it’s like the world is ending,” said Ariel Schuster, of RKF, who thinks retail brokers are now more valuable than ever because clients rely on them to provide guidance. “I look at it as an opportunity.” Deals are getting done, brokers said, but it’s a matter of working even harder to make them happen.
It’s not simply about knuckling down. Industry veterans said the only brokers who can be successful in retail are those willing to crawl through a bit of glass and adapt to a changing market. Acting as “space jockeys” is no longer enough to make it as a retail broker.
“There’s so much competition for what’s becoming limited opportunity,” said Eastern Consolidated’s Robin Abrams, who became a retail broker in the late 1980s, when national and international retailers were flocking to New York and brokerages began setting up retail-specific arms to capitalize on the rising market. “There’s no two ways about it. You read every day that there are all of these things happening in regard to retailers shuttering stores. Stopping expansion. Going into bankruptcy. It is a challenging time,” she said, adding agents who are proactive and “know their stuff” will survive.
Retail brokers now need to look closely at the cap rates on landlords’ buildings, study who has the mezzanine loans, gather strong data on tenant clients and be well versed in zoning laws, insiders said. They have to know when to make a tough call and knock back business if they think a landlord or tenant won’t go the distance.
“The tools you need to do a good job in retail real estate are changing,” said David Green, who joined Colliers International from Cushman & Wakefield in November. “You need to be able to rise the challenge. It’s not just a simple, ‘I have space and I need to rent it.’”
Adaptation is the key to survival
Swerdloff and Famularo, for example, have found that zeroing in on the latest food trends pays off. In November, they found a 700-square-foot space in Soho that suited a German couple’s coffee shop/design store concept. Earlier this year, they did a deal for Black Tap, a bar and restaurant that’s become Instagram-famous for its elaborate “crazy shakes,” finding them space at 177 Ludlow Street. They may not be large-scale deals, but they are the types that are still turning over in high volumes. Restaurants are still the most active tenants in Manhattan, accounting for almost 30 percent of all deals during the second quarter of the year, according to CBRE.
”People can’t stay home and shop on Amazon or online for everything… the sky is not falling, I assure you,” said Famularo. “People live in New York City to experience different things and to go different places. And we help people find those places.”
Brokers said it can be thrilling to look for retail concepts that will be able to last in today’s market. “It’s actually an exciting time to be part of this,” said Jason Greenstone, a broker at Cushman who started in the business six years ago. “There are creative and very smart people who are taking on those challenges.” He said he tells his younger peers not to expect any results for the first two or three years in the job.
The early years are grueling, brokers said, but they often pay off. Michael Paster, who joined RKF in 2013 as a canvasser, said after working “his butt off” to prove himself for the first year, he started working on the successful Pret-A-Manger account, and began to see his hard work pay dividends. Along with fast casual dining, Paster sees opportunity in forming relationships with successful e-tailers because, as was the case with Warby Parker, Bonobos and Amazon, many are thinking about building a brick-and-mortar presence. “You look up companies like M. Gemi and Bonobos, and their competitors and you reach out to them,” he said. “A lot of the time e-retailers are scared to get into brick-and-mortar…. they don’t want to dive in. It’s about building trust.”
Not everyone has a rosy outlook. “I have a brother who wants to go into commercial real estate,” said one young commercial broker, who requested anonymity. “He had a retail leasing position lined up and I told him, ‘you don’t want to do it.’”
Some said that, at a time like this, it would be hard to be a broker at a firm that isn’t well established. “When owners get concerned about the market they turn to people they can count on,” said Brad Mendelson, of Colliers. And Abrams, who jumped from Lansco to Eastern Consolidated earlier this year, agreed that “the middle-sized firms are being squeezed a little, and it’s a little more difficult to compete.”
But others believe uncertainty can actually give brokers better access to landlords. Owners with empty or soon-to-be-vacant space will start ringing around. “Landlords are more aggressive, speaking to outside brokers and not just depending on their exclusive broker,” said Elad Dror, the co-founder of commercial brokerage PD Properties. He said that some landlords are bringing down their rents (something REBNY noted in its retail report in May), which gives newer brokers the chance to do deals if they are working with the right person.
A shifting market is a great classroom, both grizzled veterans and rookie brokers said.
“I kind of feel this way: If the market is bad and I’m really working hard now, if it gets better…. the results will pay off,” said Gino Pattugalan, who started working at Okada & Company in late April and says he makes 50 cold calls a day.
RKF’s Schuster agreed that now is the perfect time to really make a name for yourself. “In a great market if you are 23, there are 100 other people doing well,” he said. “In a tricky market, while others are sleeping at the wheel or at the beach — work.”