Northeast Real Estate Business

NOV-DEC 2015

Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.

Issue link: http://northeastrealestatebusiness.epubxp.com/i/610971

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www.REBusinessOnline.com Northeast Real Estate Business • November/December 2015 • 61 Visit us at Booth #124 Leaders in Real Estate Development, Construction, Leasing and Management 1414 Atwood Avenue • Johnston, Rhode Island • 401.273.6800 • www.CarpionatoGroup.com GROUP Chapel View Lifestyle Center size is, that's the hardest part. Then you can go online and get the pants in three other colors now that you know that you like them. Kampler: There are retailers that have fgured out how to turn their e-con- cepts into physical retail space. There are many of these examples, like Warby Parker and Birch Box, and it's only growing. Even companies like Restoration Hardware and Macy's are experimenting with various venues for their omnichannel presentations. At the end of the day, what this is go- ing to translate into is much smaller footprints even for retailers that are taking Fifth Avenue space. As a result of that, it is going to contribute to the compression which is going to change the economics of what these build- ings are being traded for and what the groundfoor spaces are being rented for. It's inevitable. Brian Cohen: What's interesting about that, and it was mentioned in the beginning when we were discuss- ing the unbelievable expense or in- creasing rents on high streets like Fifth Avenue, is that you have new devel- opment on one hand, and then you've got the repositioning of older build- ings on the other. Given the way that retail is being restructured in the way that you articulated, so are the repo- sitioning of buildings to create more value. The least expensive offce space is the second foor. By creating these types of retail experiences where you have maybe a narrow store front but you can expand into the less expen- sive space, it allows the developer, the acquirer, the equity to get more value and more dollars out of space and re- position space. What I'm fnding with a lot of our clients who are buying re- tail condominiums and investing in offce product, is that they're looking at the kinds of dynamics that you have articulated as a way to make sense of these crazy low cap rates. They are thinking about how they are going to reposition the retail to squeeze more juice out of the lemon. Rabinowitz: I think Brian is right, I was negotiating a lease for a restau- rant chain downtown and we wanted a renewal right. We got something but it was only if they weren't in ne- gotiations with adjacent space, which really didn't give you that much space. I was thinking of the pizzeria that was right next door, they wanted to combine it, so when we got into it, we were actually thinking up, into the second foor space. Brian Cohen: One great example is the repositioning of 666 Fifth Avenue, which right after the crisis was a real challenge. There was so much tremen- dous value in retail, but remember what happened with Uniqlo on that corner. With prior ownership, it was Brooks Brothers on the corner on just the ground foor. With the expansion, they took out the second foor of offce and allowed Uniqlo to expand into that at the darkest part of the market. That, in part, was what really created the value in that retail to help that building to a more healthy position. When you look at it from the perspec- tive of a bank that would refnance, they are seeing more and more value and their exit strategy, if the market were to turn again. It is that second- foor retail — and the same thing with basements and sub-basements. NREB: One thing that we have not talked about is food. We've talked about grocery, but food is obviously one of the biggest tenants out there right now expanding. What kind of trends are you seeing in this market? Brad Cohen: When they converted the lower level of the Plaza Hotel they had Todd English with his food hall there. Todd English was just knocking stuff off the wall, and they said this has got to work for other food. The food hall concept has been replicated throughout the city. You look at Go- tham West. They could've put anyone in there — credit, high rents, a bank, drugstore — but they opted to make something special and unique, and now they're replicating that in Brook- lyn. Stephanou: You've got the Gan- sevoort Market in the Meatpacking District. Brad Cohen: UrbanSpace just opened up on 45th and Vanderbilt. Stephanou: Eataly is going to be do- ing 30,000 square feet at Tower 3 of World Trade Center. Brian Cohen: Food entertainment, to me, is what's really going to save the suburban malls. To be able to get the kids off their couch and shopping at the mall is going to be food and enter- tainment because everything else they can do from home. Breslin: At Patriot Place, they said food and entertainment was the only way that they were going to make it. Brad Cohen: And you mentioned ear- lier you can't virtually order a glass of wine, or a meal, although we are seeing concepts emerging like Blue Apron and Maple. In this market they're claiming to deliver to you via a mobile application a Michelin-star meal for $15. Kampler: At the end of the day, we're humans, and our DNA wants us to socialize, so we're getting off of our couches, but we no longer have to get off of our couches to work and we no longer have to get off our couches to invest, and we don't need to get off of our couches to shop. We do need to get off of our couches to interact with people. You want to interact with people when you're being fed, that's how we socialize, and are enter- tained. When you look at American Dream, there's 3 million square feet, 1 million is retail, 2 million is enter- tainment. Get your arms around that. Whether it's LegoLand, or the obser- vation wheel, there's dozens of these concepts. People are going to put their kids in the car on Saturdays and Sun- days and drive there so the kids don't make them crazy. It's going to be interesting to see how these new 100,000-square-foot bazaar concepts are going to affect the food court world in shopping centers. — Victor Menkin, President, Menkin Realty Services "Overall, New Jersey is healthy — There's competition, rents are up high and new concepts are coming to the area," says Danielle Brunelli-Albrecht.

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