Jones Lang LaSalle

Developers put focus on retail

Move to maximize store space, court top chains; sell off leases as packages

By J. Alex Tarquinio
Published on April 03, 2006


Developer Joe Moinian is looking for a few good retail tenants to occupy 200,000 square feet in his residential tower on the corner of West 42nd Street and 11th Avenue. What's unusual about his quest is that the building doesn't exist yet. Mr. Moinian, who just bought the site last year, doesn't expect to complete construction until 2008.

In New York's superheated retail market, however, developers aren't taking any chances. Retail space, once little more than an afterthought, is being marketed early and aggressively. Additionally, developers are putting more time and money into the space's design to enhance its appeal and maximize rentable areas.

Mr. Moinian's building will have not one floor, but three levels of retail.

"Demand is so great now that we'll go above and below ground," says Daniel Gohari, director of commercial assets for the Moinian Group. At blended asking rents of $75 a square foot for the project's retail triplexes, the packages of basement, ground- and second-floor space could generate a cool $15 million a month in rent.

To tap into that gusher, developers have elevated their marketing efforts.

"They're getting better at communicating the value of a neighborhood, the pedestrian traffic flows, the trendiness," says Gene Spiegelman, a retail broker at Cushman & Wakefield.


Long-term relationships


National chains are the holy grail for landlords. Such tenants have impeccable credit ratings and can be counted on to stick around for the entire lease term--something that can't be assumed with independent retailers or restaurants.

"Once a bank, a Starbucks and a drugstore take a block-front, you're done," says Gary Trock, a retail broker at CB Richard Ellis. "It's gone for the next 15 years."

Those high-grade, long-term leases are so attractive that some landlords are packaging them for resale as turn-key retail condominiums. Pension funds and foreign investors have been active buyers.

"For an investor, owning a retail condo that's leased up for the next 15 years--that's almost like clipping coupons," said Jeffrey Roseman, a retail broker at Newmark Knight Frank. And it's a quick way for landlords to convert an asset into cash that can be plowed back into the next project.


Marketing to investors


The luxury condo high-rise that Clarett Capital finished last year at 2770 Broadway, between West 106th and 107th streets, is a classic example. Clarett leased out all of the retail space--about 7,500 square feet--to Bank of America and Lenscrafters for about $150 a square foot. Clarett then turned around and sold the package as a retail condominium for $18.6 million to an unnamed private investment group in Atlanta.

Rents have risen so much, so quickly, that landlords are marketing space that's already occupied. For example, the Moinian Group is shopping around part of the cavernous, 50,000-square-foot Bank of New York branch at 530 Fifth Ave., at West 44th Street, even though BoNY has almost three more years on the lease.

"The bank doesn't need all that space," says Mr. Gohari, who has cut a deal with BoNY: It gets to reduce its space, and Moinian gets to lock in years of income at today's stratospheric rents. The landlord will ask for a blended rent of $200 a square foot for space in the basement and on the ground and second floors.

"The timing is impeccable, if we find the right tenants, to do something with this space now," Mr. Gohari says. He notes that the high-end shops--and rents--that have long flourished along Fifth Avenue north of Rockefeller Center to Central Park have been inching south in recent years.

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