Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/528948
director and REIT analyst at Sandler O'Neill & Partners. "The secret is cer- tainly out — everyone is evaluating it." How popular is street retail now? Urban retail property transactions to- taled some $13.1 billion last year, up by 60 percent over 2013, according to Real Capital Analytics. GGP has bought stakes in five street-retail properties — four in New York City and one in Miami — in less than two years. Its latest buy was its biggest: half of the 26-story Crown Building, on New York City's Fifth Av- enue, in a deal completed in April. GGP teamed up with New York City real es- tate investor Jeff Sutton, who is landlord to many of New York City's top fashion brands, in this eye-opening $1.8 billion deal. The partners will lease, expand and manage the property's 100,000-square- foot retail space, presently occupied by the tony likes of Bulgari, Mikimoto and Piaget, and will redevelop much of the 290,000-square-foot office portion into luxury residential condos. GGP will also relet the retail space at "today's rents, which significantly exceed in-place rents, and convert [some] nonretail space to re- tail to maximize value," said CEO Sand- eep Mathrani on an earnings call. Some New York City street space has nearly tripled in value over the past three years. One of the city's top re- tail landlords, SL Green Realty Corp., bought the Galeria Melissa–anchored 102 Greene St. building, in New York's SoHo district, for $32.3 million last year from investor Lloyd Goldman. Gold- man had bought it for $11.9 million in August 2012. SL Green also picked up 5,500 square feet of development rights in the process. SL was part of a con- sortium of four investment groups to pay $1.3 billion in 2013 for 650 Madi- son Ave., a 27-story tower with 75,000 square feet of retail. The retail portion represented 75 percent of the building's value, according to the group. Prime street-retail space in New York City, San Francisco and Chicago typically trades now at a breathtaking $2,000 to $3,000 per square foot, but once im- proved, the spaces can trade at between $3,500 and $4,000 per square foot in leases, Goldfarb says. And thus REITs do not balk at paying a bit more than market price. "It's so limited," he said, "that the attitude is, 'What does it matter if I pay a few hundred dollars extra?'" For comparison's sake, New York City–based JSRE Acquisitions bought the smallest retail building in San Fran- cisco's Union Square last August for $4.3 million — $2,400 per square foot. The price of the compact 1,800-square- foot, 1920s-era structure, at 69 Maiden Lane, was nearly a new per-square-foot record for San Francisco street retail, ac- cording to Colliers International. Last year REIT Acadia Realty Trust — another urban-active landlord — plunked down some $144.3 million, roughly $1,870 per square foot, for an 88 percent stake in 840 N. Michigan Ave., a prominent four-story retail build- ing in the heart of Chicago's Magnifi- cent Mile. The fully leased property is oc- cupied by a newly expanded H&M; store that is one year into a 10-year renewal, and by Verizon Destination's largest U.S. flagship store. "We remain active acquirers of these types of high-barrier-to- entry, irreplaceable assets," said Acadia CEO Kenneth F. Bernstein, speaking to the financial press. This is "where we believe we're better positioned to create outsized shareholder value over the next five, 10 and 15 years." Ahead of this urban curve, Vornado snagged the prime 655 Fifth Ave. in Au- gust 2013, paying $278 million for a 92.5 percent stake. Retail rents were already commanding north of $3,000 per square foot at this 57,500-square-foot property, which is also the U.S. headquarters of luxury retailer Salvatore Ferragamo. In January Vornado spun off of its Urban Edge Properties, which has three malls and 79 open-air centers, into an indepen- dently traded private company to focus on street retail and offices in New York City and in Washington, D.C. There are still select opportunities going forward: REITs own just 4.3 per- cent of institutional-quality U.S. street retail, according to RBC Capital, which staged its first street-retail conference call in May, predicting that the category will become an even stronger force in pub- licly traded portfolios. RBC estimates that such properties typically trade at cap rates in the 4 to 5 percent range. "Some very smart money is buying back into urban," said Paul Schlesinger, senior vice president of Buxton Co., a Fort Worth, Texas–based analytics firm that assists retailers and restaurants in site selection. "And we are definitely see- ing an uptick in [retail] clients who are interested in reconnecting with the ur- ban core." While urban retailers are pay- ing higher rents, they are enjoying tre- mendous visibility, Schlesinger says. "As the old saying goes: You're paying for footfalls and eyeballs," he said. The typi- cal Duane Reade store in New York City sees some 25,000 people pass daily on foot or by bicycle. "Few malls can claim that sort of traffic," he said. In New York City 50 percent of the residents do not own a car, and neither do some 30 per- cent of those in Seattle or San Francisco — trends that only boost street retail, Schlesinger observes. And Millennials, many of whom work downtown tech or startup jobs, as well as empty nesters, are providing street retailers with a strong consumption demographic, he says. In New York City, none of this is re- stricted to the borough of Manhattan. Retail real estate investment is spilling into Brooklyn too, in such neighbor- hoods as Park Slope. There, according to Schlesinger, "650 square feet is going to cost you a million dollars in a space few would [have wanted] a decade ago." Forest City has developed retail in At- lantic Center and Atlantic Terminal, both in Brooklyn, and also at Manhat- tan's Harlem Center and at Queens 42 S C T / J u l y 2 0 1 5