Is “medtail” a cure for Manhattan’s vacant storefronts?
As retail chains falter, new-age medical businesses emerge as a saving grace for New York City’s commercial landlords
As big-box retailers reduce their brick-and-mortar presence in New York City, an emerging class of tenants is proving to be just what the doctor ordered.
Empire State Realty Trust is targeting “medtail” — medical tenants in retail spaces — for its 44,000-square-foot retail condo at the base of 1010 Third Avenue.
The three-story space is fully occupied by Ethan Allen, but after the furniture chain significantly reduces its footprint later this year, ESRT plans to reconfigure it to include traditional retail on the ground and second floors and medical tenants on the third floor, adding a 1,000-square-foot ground-floor lobby and elevator.
“While we’re driven by dollars and cents, we’re trying to diversify our tenant mix,” ESRT’s Fred Posniak said.
The developer attempted a similar tactic a few years ago, when a 14,000-square-foot space at 60 East 42nd Street, vacated by Bank of America, drew only tepid interest from traditional retailers.
“Unfortunately, while we were in negotiations with some… medical tenants, [First Republic Bank] really wanted the space and the medical tenants lost out,” said Corcoran’s Paul Wexler, who is marketing the space at 1010 Third Avenue.
Now, medtail may be having its moment. As retail struggles against the rise of e-commerce, an issue only accelerated by the pandemic, medical tenants are able to provide rent and stability to landlords facing vacancies. And with retail rents reduced to more affordable rates, space that was previously out of financial reach to medical providers has become attainable.
“Landlords were considering and embracing these categories because they didn’t have a lot of the typical options such as the apparel brands, who were really not expanding during the pandemic,” said Compass’ Robin Abrams, who has represented Covid-testing provider ClearMD in real estate deals.
Cohen Brothers Realty is getting into the game, securing medtail tenants for half of a 40,000-square-foot retail space formerly occupied by a Borders bookstore at the Ritz Tower at 111 East 57th Street.
“We’ve never done medical in any building anywhere across 15 million square feet,” said Marc Horowitz, the firm’s national director of leasing. “It’s proven to work very well.”
Like ESRT, Cohen Brothers is not committing its street-facing ground-floor retail space to medtail. Horowitz emphasized the need for those spaces — leased to footwear brand Harrys of London, apparel brand Richard James and luggage brand T. Anthony — being occupied by high-end retailers that appeal to the Ritz Tower’s affluent residents.
The retail space behind the lobby, however, has been nabbed by a plastic surgeon, with other medical tenants on the two floors above and the concourse level below grade, accessed through a dedicated ground-floor lobby and elevator.
“The right tenant, in the right building, in the right location, can make or break a building,” Horowitz said. “You want to have the right look and feel. Your retail is your first impression of the building.”
It’s not just landlords with vacant big-box spaces that are signing medtail tenants to leases. SL Green Realty, Chetrit Group, RXR Realty, Thor Equities, Stellar Management and Vornado Realty Trust are all filling smaller spaces with medtail tenants like Hudson Allergy, med spa Ever/Body, dental chain Tend and Small Door Veterinary.
The patient-customer experience
The reception from landlords comes as consumers’ attitudes toward health care are changing.
Patients’ “expectations of a great in-store experience have moved far beyond what is traditionally offered in a health-care setting,” said Kira Wampler of Redesign Health, an entrepreneurial platform that launches health care companies, including Ever/Body.
Nedal Shami, CEO of dental chain dntl bar and co-founder of CityMD, expressed a similar sentiment.
“Consumers want accessibility on Main and Main,” Shami said. “They want it to be a pleasant and nice space and not necessarily the 18th-floor walkup of a tiny, tiny office [building].”
Craig Gambardella, a broker who recently joined SCG Retail’s New York City office, is developing an in-house commercial real estate site selection platform to help U.S. hospitals and health systems build out patient-focused real estate footprints.
“There’s a need for hospitals to have a retail component — the medtail component — and I think that’s going to blossom in the next five to 10 years,” he said.
As with other types of tenants, landlords look for medtail tenants with good track records and/or deep pockets.
When the co-op board at 16 West 17th Street needed to replace the shuttered Kabbalah Centre Union Square at the base of the building, it welcomed Ever/Body, a cosmetic dermatology and med spa business.
“Back in 2019, when we were looking for a new tenant, we received a number of offers,” said Harold Woolley, the co-op board’s president. “Ever/Body seemed to be well-funded and already had a successful location in New York City. In addition, their concept was one which our board members believed worked well for the building and the area.”
So far, Ever/Body — which has another location at 453 West Broadway (and an upcoming one at 1024 Lexington Avenue) — is faring well. Armed with $52 million in capital, the company plans to open 20 additional locations in the next three to five years, according to CEO Amy Shecter.
“Medtail is incredible,” Shecter said. “It is making all different types of medical practices accessible to more people. It’s less hierarchical. It’s providing luxury experiences in many cases for people who haven’t had access or maybe were intimidated by the idea of going into a particular brand-name medical facility.”
A learning curve
Not all medtail businesses are the right fit.
Corcoran’s Wexler noted that some medical tenants are not “as compatible with certain retail user groups.” Some conventional retail tenants have historically resisted being situated next to a dialysis center, for example, where patients can be sickly, he said.
But as venture capital increasingly invests in the sector, property owners are growing more comfortable.
“Landlords are enthusiastic,” said Sabre Advisors’ Douglas Jerum, who represented Ever/Body at 1024 Lexington Avenue. “Maybe early on, they weren’t necessarily convinced. That’s not the case now.”
Andy Grover, co-founder of Tend, who was head of real estate and development at OneMedical from 2014 to 2018, said he had to provide a lot more “education” to landlords about leasing to medtailers in those days than he does now.
Since 2019, he has focused on Tend, a dental business that closed a $125 million Series C funding round last year. The medtail company has 11 outposts in New York City and five in Washington, D.C., with locations coming in Boston and Atlanta.
Josh Guttman, CEO of Small Door Veterinary, acknowledged that Rudin Management took a risk when it leased to the company at 155 West 11th Street in 2018. The company now has five locations in the city, raised a $20 million Series A round last year and plans to roll out 25 additional locations by 2025. Rudin declined to comment.
“We’re very thankful that Rudin did take a chance,” Guttman said, adding that since that first deal, “It’s been easier because we have a business and a brand.”