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LOA supports strategic development and leasing efforts for Bedrock Management and Midwood Investment and Development

As the world of retail continues to change, cities, downtown organizations, and private developers alike are trying to make sense of all the different shifts in consumer preferences, living arrangements, and even employment patterns that impact tenant mix and retail sales. 

This past Spring, LOA worked closely with real estate developers to conduct customized retail market research and analysis in support of leasing efforts in downtown Detroit and Studio City California. In order to make strategic leasing or investment decisions, developers are increasingly relying on a wide range of data to investigate market conditions. Data is critical for developers to convince other stakeholders including potential tenants, city agencies, and investors, that the development project should be permitted, funded and/or leased. In close coordination with clients, LOA continues to tailor industry research and key metrics based on project site, geographic location, and demographics. 

Client: Bedrock Management Services

In March, LOA conducted a like-district analysis for Bedrock Management, a full service commercial real estate firm with a portfolio totaling over fifteen million square feet in downtown Detroit and Cleveland, to better understand the opportunities and challenges Detroit faces in becoming a world-class downtown. Following the City of Detroit's lost bid to host Amazon HQ2 in 2017, LOA was tasked to provide one of the city’s largest downtown property owners a critical understanding of Detroit’s workforce and resident populations, as well as tenant mix, in comparison to ten other comparative emerging and well-established downtown markets shortlisted by Amazon. The like-district analysis, using mixed methods, compared data from cities across the country including Baltimore, Atlanta, and Portland. 

This exercise was intended to help Bedrock Detroit confidently market and sell their downtown properties with impactful data and to scout potential tenants in comparative markets. 

Bedrock Detroit will continue to use the analysis to inform its downtown property management

and leasing strategies.

Client: Midwood Investment and Development

LOA also worked with Midwood Investment and Development, a real estate developer and investor with a diversified portfolio comprising of retail, office, residential, and mixed-use properties. Midwood owns over 125 properties with a development pipeline of several million square feet, including signature projects One Bromfield in Downtown Crossing, Boston, Spring Street in SoHo NYC, and Center City Philadelphia. 

To support Midwood's leasing efforts at its latest lifestyle retail development in Studio City, The Shops at Sportsmen's Lodge, LOA conducted a comprehensive market scan that provided key insights on residential, worker and visitor demand. The analysis was intended to support the merchandise plan for the property, which included over 100,000 SF of eclectic culinary offerings, high-end fashion, and modern essentials (and not forgetting the Equinox gym and organic supermarket!). The findings were also designed into a compelling marketing brochure used by the leasing team at one of the country's largest retail trade shows, International Council of Shopping Center's Annual RECON in Las Vegas.

LOA hopes to continue bringing our expertise to bear support to retail planning at various phases of decision making by providing clients with market-based development strategies for successful ventures. 

Join LOA Principal Larisa Ortiz for a Discussion with Alan Mallach, Author of "The Divided City: Poverty and Prosperity in Urban America"

Discussions about poverty are never far from the work that we do at LOA, especially when working in distressed urban communities where jobs are few and far between and where business owners struggle to make ends meet. Despite these challenges, we are always inspired by the communities where we work, and in particular the residents and community leaders who continue to take action and find ways to make their neighborhoods better places. So what are the challenges and solutions to persistent poverty at the neighborhood level? And is "gentrification" a red herring that keeps us from recognizing the mounting problems of communities that may never see the arrival of higher income residents? These are questions with which we grapple on a daily basis. 

This is why I am particularly excited to join author, advocate and Professor Alan Mallach to discuss his new book, The Divided City, Poverty and Prosperity in Urban America on June 25th at the Century Foundation in Lower Manhattan. Other speakers include Professor Laura Wolf-Powers of Hunter College's Department of Urban Policy and Planning and Joseph Della Fave, Executive Director of Ironbound Community Corporation in Newark, NJ. 

As I dig into this book I found it to be a great read, offering historical context and deep insight into the urban challenges currently facing many post-industrial cities. For those looking for solutions to the challenges facing "magnet" cities like New York, Washington DC or San Francisco, cities that often dominate the headlines with concerns about the rapid influx of high income residents displacing those with lesser means, look elsewhere. This book is about "legacy" cities like Youngstown, OH, Trenton, NJ and Buffalo, NY, where job growth and economic development continue to lag - and where persistent and concentrated poverty continues to relegate generations of poor (often black and brown) people to cycles of poverty from which escape is increasingly unlikely. These places also happen to be places where we have worked and partnered with Community Development Corporations, Community Development Intermediaries, and local government to identify asset-based solutions to neighborhoods that struggle to retain jobs and businesses for local residents. It promises to be a lively discussion so I hope you will join us!

For tickets please click here. This event is sponsored by the Regional Plan Association and  The Century Foundation. The event will be held at 1 Whitehall Street, 15th Floor, New York, NY 10004 on June 25th from 5:30 - 7:30 pm. 

Is Your Post Office Being a Good Neighbor?

In many communities, the local Post Office remains a critical Main Street anchor. Often located in the heart of a community, it drives visitation and pedestrian traffic throughout the day. As a result, the condition of the local post office can play a significant role in how a district is perceived. Post Office assets are often imposing civic institutions. Maintaining these key assets and ensuring they have a positive impact on local business districts is often a key component of successful community and commercial revitalization efforts.

About a year ago we completed an assessment and corridor plan for Mermaid Avenue, in Coney Island, Brooklyn, funded by the New York State Governor's Office of Storm Recovery (GOSR) . Mermaid Avenue, the business district that serves this vibrant community, had been severely impacted by Hurricane Sandy and even years after the storm the repercussions were still being felt. A relatively low-income community, Mermaid Avenue had a few clear nodes of business activity that needed some TLC. Our plan, developed with architecture firm WXY, laid out a clear plan of action for the Alliance for Coney Island, the non-profit entity formed to manage, maintain and advocate for the area.

The Post Office along Mermaid Avenue, Brooklyn, NY
Photo Credit: LOA

One key opportunity was the local Post Office, located immediately adjacent to one of the primary and most robust commercial nodes. The Post Office was clearly a destination driver in a community with very few options for secure package delivery. Yet the conditions of the building left much to be desired. Frankly, it was hard to even tell whether the Post Office was even open. Rusted gates over windows, graffiti, dead trees, litter, and weedy tree pits all contributed to a prevalent sense of insecurity for residents and visitors alike. While it is highly likely that some of these conditions were due to the storm, the opportunity for small scale improvements here was clearly evident. 

These kinds of partnerships with the local Post Office are not uncommon. In Jackson Heights, Queens, a local volunteer-led non-profit, The Jackson Heights Beautification Group, led an effort to improve the weedy, overgrown landscaping in front of the Post Office. Led by Len Maniaci, a long-time community advocate, environmentalist,  and former JHBG President, the group used volunteers to develop a design, and paid for both landscaping and a new irrigation system of the "curbside garden" that would ensure the survival of the perennials that are sure to have a big impact on the corridor. All for less than $10k.

The Post Office along 37th Avenue,
Jackson Heights, NY
Photo Credit: Len Maniaci 

The differences between these two Post Office assets could not be more stark. Clearly, community advocacy plays a role in advancing corridor improvement efforts. Along Mermaid Avenue, the Alliance for Coney Island is an excellent position to be that advocate and now they have a blueprint for action and a set of starting points from which to work. We are thrilled by their efforts and look forward to chronicling the implementation of the corridor plan over time, especially in partners with the Post Office.

Neighborhood Change and Why Public Participation Matters

We have a problem in this country. While some urban communities are facing unprecedented growth, the benefits of this economic development success are not necessarily being spread evenly around. More to the point, as cities like New York continue to grow and attract residents and investors, those who have weathered the ups and downs - both residents and small business owners - are increasingly finding themselves at risk of displacement. Frankly, this should come as no surprise. The market pressures to find higher paying tenants (both residential and commercial) and the rewards for finding loopholes in the rules that protect residential tenants in particular have never been greater. (See this fantastic series in the NYTimes that discusses the many challenges tenants face).

We are a victim of our own success. The problem is that none of this is in the long term best interest of our urban places. A city where those who provide critical services are unable to get to work without a long commute, or crippling transportation expenses that rob them of time and ability to manage their homes or finances, all while incurring child care costs that they can already ill afford, is a city that squanders the resources of its citizens. Not only that, but the situation deeply undermines their ability to participate in the very decision making process that affects the urban investments that potentially impact and improve their daily lives.

Our client, Livingston County, NY gathered hundreds of residents to discuss downtown recommendations in November 2017. Great staff, long-standing community relationships, and strategic outreach were key to ensuring that a broad section of residents were in attendance. For those unable to attend, the County issued an electronic survey to get additional feedback.






Why does this matter to our work? 
In our analysis of place we lean heavily on both qualitative and quantitative data to inform our assessments and recommendations. But what happens when only a small segment of a community participates in that process? People who are barely making ends meet don't have time to participate in most community planning efforts. Too frequently, the plans that inform resource allocation and public policy are not necessarily reflective of the community as a whole, but rather a small subsection of those who have the time, resources and inclination to participate. For those of us engaged in community planning efforts, we must do better and we must explore innovative ways to engage communities on their terms, not ours. It is hard work and sometimes the budget to engage communities and residents is simply not there.

Another challenge, particularly for the work we do along commercial corridors, is that the success of a business is inextricably rooted in market realities that are hard for us to change. With higher income residents come opportunities for both existing and new businesses. Generally this is good news for businesses who now have more customers with more discretionary spending. But in some markets, "improvements" come at the expense of those living there. As rents and property values increase, neighborhoods inevitably change. In New York City where I serve as one of thirteen City Planning Commissioners, I witness firsthand the skepticism that many community members bring to their public testimony - concerns that improvements that accompany rezoning efforts are precursors to displacement. The question that is often posed is "why didn't we get park improvements or streetscape improvements or really any kinds of improvements BEFORE?" As a result, residents often find themselves in the strange position of rejecting improvements that they themselves acknowledge would make their communities and lives better. But what good are those improvements if they are no longer able to afford to live there? That is the rub.

As we think about rapid changes in technology we have new opportunities to challenge our methods of engagement and explore ways to ensure that community planning is more effectively than ever before. Some great best practices can be found in the annual awards given by the American Planning Association. Making sure these great examples are not simply the exception to the rule will take time and resources - but most off all it will take a commitment to participatory planning that to date has been in limited supply.

For Upstate NY Practitioners: Small Scale Real Estate Development Workshop

If you plan to be in the Syracuse area on June 27th, this looks like a great day-long session designed to introduce the principles behind neighborhood based real estate development projects. Small scale development is a an important community development strategy - but it requires small developers!

The workshop is conducted by the Incremental Development Alliance, a national non-profit that works to build local wealth in neighborhoods through ground-up real estate development.

********

Small Scale Real Estate Development Workshop

WHEN: Wednesday, June 27, 2018 8a-5p
WHERE: Hotel Syracuse, 100 East Onondaga Street Syracuse, NY, 13202
COST:

• Early Bird Registration Rate ($170) open until Friday, June 8 
• Regular Registration Rate ($200) open until Monday, June 25 
• Last Minute Registration Rate is ($230) 

Register today at http://www.incrementaldevelopment.org/events/syracuseworkshop

Apply for a scholarship here

The workshop offers specialized training about how to create small projects, like 1-3 story buildings with less than 20 units, which are residential, commercial or mixed in use and 1,000-12,000 sf in size. The course assumes you know a lot about where you live, but not necessarily much about the real estate process or building development.

Through presentations on finance, design and site selection, a hands-on practice exercise, and networking with local like-minded people, this workshop is the first step to becoming a small developer yourself or creating a supportive ecosystem for small development in your city.

Who Should Attend?

• Individuals in construction, design, planning or real estate looking to either enhance their current practice or make career transition 
• Volunteers or professionals in business associations, main streets associations, historic preservation groups and neighborhood improvement groups looking to champion incremental development in their communities 
• Public sector professionals in city management, economic development, planning, and related agencies who are looking to make it easier for small development projects to occur in their town 
• Professionals in non-profit development organizations, churches, and community development or housing development organizations who need new strategies for small lot development 
• Private banking professionals specializing in mortgages, commercial real estate loans or SBA loans and professionals as at Community Development Financial Institutions and Community Foundations who want to become more effective investors 

Round up: State of the Cities 2018, classic American main street, free legal services, gender-free retail, steakhouse local

Scott Landfried is Operations Manager at Larisa Ortiz Associates

National League of Cities: State of the Cities 2018

Based on content analysis of 160 mayoral speeches between January and April 2018, this report breaks down the top ten major topics and discusses five subtopics of each major topic.

What a steakhouse can teach us about walkable neighborhoods

The concept: restaurants, and the like, built into mixed use residential environments become an extension of the resident's house and guarantees a reliable customer base. It is just another demonstrated point in the walkable/human-scale oriented versus auto-oriented debate.

Quantifying the death of the classic American main street

Main street is struggling under the pressure of chain stores and shifting economic forces. Among helpful tips to counterbalance this trend, the story discusses eight core characteristics of the classic main street.

NYC to offer free legal services to small business owners

Giving mom-and-pop stores some much needed help against the many forces against them with much deeper pockets, NYC Department of Small Business Services is offering up to 40 hours free legal services to small businesses with issues regarding their leases.

NYC retailer offers gender-free experience

Possibly a first - a retailer offers gender non-binary shopping experience. The retail space also includes a juice/coffee bar and community space - an experiential space of sorts.

Asset Driven Revitalization Strategies at Play in Newark's South Ward

Beth Israel Medical Center is centrally located in Newark's South Ward
and is seeking strategies to support improved corridor conditions. 

Economic development, particularly in lower-income communities, is frequently fraught with challenges that quickly connect to a complex set of social issues. Such was the case during a recent site visit to the South Ward of Newark, where LOA is developing an economic development strategy for the Bergen-Lyons-Clinton (BLC) Partnership, so named for the three principle streets where our efforts will be focused. It should come as no surprise that during focus groups with residents, as well as conversations with city officials, merchants and anchor institutions, the conversation quickly turned to public safety concerns, high rates of unemployment, drugs, homelessness and prostitution. One might assume these issues are beyond the scope of an economic development and small business strategy, but they clearly relate to the quality of the business environment and the ability of local businesses to survive and thrive under challenging conditions. While physical improvements to public realm, a mainstay of many corridor strategies, are important, they are wholly insufficient in this context.

A former bank located at a prominent intersection was recently purchased by investors who are interested in rehabbing the building. Will the BLC Partnership be able to influence the owners decisions regarding who leases the space? What carrots can be used to encourage the investor to turn this eyesore into a point of pride for the community?

The work is being funded in part by RWJ Barnabus, a regional health care service provider and operator of Beth Israel Hospital, located in the South Ward. The hospital is an anchor with a deep interest in addressing the holistic needs of the local community. We were thrilled to use this planning opportunity to explore how RWJ, together with LISC Newark, can marshal resources and advance advocacy for improvements that go beyond the look and feel of the corridor.

In many ways, our mission was one of identifying assets – many yet untapped – that could be put towards the complex challenges at hand. Early discoveries included a local church with surplus land on the main corridor and a desire to put it to work in service of community youth; LISC, a community development intermediary with deep expertise in affordable housing development and finance; Beth Israel, a hospital with a keen interest in a deeper level of community engagement; property owners willing to engage the BLC Partnership in discussions about development plans; and a public administration with a desire to see economic development activity spread more evenly across the City. These were all signs of starting points, opportunities to develop a comprehensive asset driven community development strategy that leans heavily on a set of place-based interests and resources, all unique to this particular neighborhood at this particular point in time.

An abandoned building located along Bergen Street
and controlled by the local Baptist Church.
Is this a development site with potential? 

These conversations were merely a starting point. As our work progresses, we look forward to a deeper exploration of solutions that get at the root of the challenges facing small businesses and the communities they serve. 

Larisa Ortiz is Principal of LOA. 

Pedestrian Malls - Getting it Right

Nur Asri is an Associate at Larisa Ortiz Associates

Main Mall, Charlottesville VA

It’s been almost sixty years since the first pedestrian mall in the US opened in downtown Kalamazoo, MI. Designed by Victor Gruen, the father of the suburban shopping malls of America, the Kalamazoo mall has since been opened to one lane of traffic after forty years of being completely pedestrianized. The fate of the Kalamazoo mall is unlike that of hundreds of other counterparts across the nation. In fact, according to one study, pedestrian malls in the United States have an 89% rate of failure.

Pedestrian malls are often characterized as being public streets designated for pedestrian-only use and closed to vehicular traffic. The predominantly downtown feature rose between the 1960s and 1980s as an attempt to attract shoppers back to downtown cores following the flight to suburbia. Since its heyday, over 170 pedestrian malls across the country have been completely removed, combined with transit, or continue to struggle.

The Problem with Pedestrian Malls

Since its inception, pedestrian malls have posed several issues for downtowns including crime and safety, low retail visibility, and lack of customer convenience. Collectively, these issues have resulted in a less attractive shopping environment, lowering foot traffic and customer dwell times. When these patterns emerge, the retail mix also starts to shift away from comparison and destination goods and services, and vacancies become a common sight.

In Poughkeepsie NY, for example, the Main Mall which was in existence from 1973 until 2001, failed to stop the decline of the downtown due to growth of immediate suburbs and shopping malls, and also  the rise of vagrancy problems on the mall. Following the opening of the Dutchess County Department of Social Services nearby and the lack of assistance and programming on the mall in the 1980s, Poughkeepsie began to attract loiterers and transients on the Main Mall and was no longer a preferred shopping destination amongst County residents.

Third Street Promenade, Santa Monica CA

Too often the design of pedestrian malls often neglects heightening visibility of stores to various types of customers. Since malls are closed off from the rest of downtown, enhanced store signage and increased wayfinding is needed to direct customers towards businesses on the mall. Blade signs, A-Frame signs, large fonts, and clear logos were often left out of consideration. Placement of signs at every entrance to the mall was often disregarded and ended up leaving those customers driving in cars around downtown out of the picture.

Finally, the lack of convenient parking spaces and well-maintained pedestrian pathways to parking structures or transit stops on the periphery of downtown drove customers away from pedestrian malls (no pun intended). Even business owners operating on the malls found their operations disrupted as they often no longer had a dedicated, convenient spot to load/ unload goods. Accessibility of the downtowns became disrupted as a result of pedestrian malls.

Getting the pedestrian mall right

Despite these potential problems, some pedestrian malls have managed to survive and continue to be attractive environments for shopping downtown. And as we’ve found, there are a myriad of factors that enable these malls to be successful.

• Co-locate the mall near large anchor institutions and attractions

16th St Mall, Denver CO

Having institutions and anchors such as universities, hospitals, museums, convention centers, and stadiums/arenas, ensures that there is a constantly high flow of pedestrian traffic year-round in the downtown that is likely to spill onto the pedestrian mall. The City of Denver’s 16^th Street Mall, for example, sees large numbers of pedestrians annually thanks to its close proximity to the Pepsi Center (home to national hockey team Colorado Avalanche), University of Colorado, Denver Performing Arts Complex, Colorado Convention Center, and Coors Field, home of the major league baseball team Colorado Rockies. Last year alone, the Colorado Rockies saw close to 3 million attendees to their games for the season.

• Build a captive downtown audience

Upper floor housing on 2nd St, Santa Monica CA

The visitors to attractions and destinations are still quite temporary – there are ebbs and flows in their movements. However, residents and workers have a more consistent daily pattern of movement and they’re likely to pass through the pedestrian mall at least once a month, if not a week. In a survey conducted in downtown Santa Monica, 82% of residents were found to visit the Third Street Promenade at least once a month.  Furthermore, making dense downtown housing available not only creates captive shoppers for businesses, it also ensures that residents have their eyes on the mall at night, creating a safer environment for shoppers.

In the 1950s, Santa Monica’s Third Street Promenade mall failed because most stores closed by 5pm when no one lived in the immediate area and there were no late-night entertainment options and few restaurants. Today, there are mixed-use residential buildings on adjacent streets, numerous hotels and office buildings in the area, creating a strong day-to-night captive audience for the pedestrian mall.

• Ensure active ground floor uses

AMC Theater Third St Promenade, Santa Monica CA

To ensure the pedestrian malls are active and safe 18 hours of the day, ground floor uses should be zoned for active uses that cater to a wide range of audience. Operating hours of retailers and services on the ground floor should be long and late-night hours should be maintained for a sizable portion of ground floor uses. This is easy to get at when there are restaurants, bars and entertainment venues along the pedestrian mall – just like Pearl Street Mall in Boulder CO. Santa Monica also successfully achieved this with a 21-screen cinema on Third Street (and zoning out cinemas from other nearby areas – an extreme solution).

• Keep length of mall short

Of the 11% of pedestrian malls that have survived since the 1960s and continue to thrive, a hundred percent measure between one and four blocks in length – and no more. The short blocks allow ‘minimal disruption to traffic circulation and permit cross-traffic to pass through the mall’, solving for issues that may arise around convenience and accessibility for shoppers and businesses.

• Mitigate traffic diversions and design the pedestrian experience from afar

If a mall is to be located on a street that already experiences high levels of vehicular traffic, some traffic diversion will inevitably occur and this may potentially result in the loss of customers who are driving to the area and who are seeking convenient parking.  Measures must be taken to mitigate such impacts and may include clear signage to guide drivers to the nearest available parking lots and to guide visitors between the mall and parking areas, well-lit and well-maintained pathways and alleys connecting the mall, distinctive entrances to the mall, and large and varying store signs.

In addition, two-way roads should encircle pedestrian malls (instead of one-way roads) to make adjacent roads safer for pedestrians and easier for driving customers to turn around on.

• Maintain and program

Busking on Bourke St Mall, Melbourne (Australia)

Finally, pedestrian malls that have continued to thrive have been consistently clean and well-maintained. This ensures that visitors are welcomed by an inviting public realm. Programs and events such as busking and festivals have also been carried out throughout the year at successful pedestrian malls in order to build experiences for shoppers who are seeking more than just physical products.

Having a centralized, coordinated management group for the pedestrian mall enable smooth operations and program delivery and can really contribute to the overall success of a mall.

Just a Word of Caution

Although the above factors laid out here may help you implement a robust and integrated pedestrian mall, the mall does take a lot of stakeholder engagement, rallying support, and A LOT of capital before it can succeed. Remember – of the approximately 200 pedestrian malls built in the 60s and 80s, only 11% have been successful and even then many had to re-invest and re-strategize their malls over the years.

Pedestrian malls aren’t for the faint of heart.

Vacant Spaces: Blame it on the Bubble?

Dan McCombie is a research associate at Larisa Ortiz Associates

In my last blog post, I briefly discussed how in a down market some building owners choose to hold their retail spaces vacant, holding out until the market rebounds rather than get locked in to an agreement with a lower asking rent. I closed the post by saying that regardless what tool is used to address vacancies (whether that’s through a vacancy tax, a pop-up model, or through some thoughtful rejiggering of lease structure) the important point is that something gets in the space for the overall health of the district. But is this too simplistic? I wanted to dig a bit further. In particular, I wanted to better understand more of the reasons behind vacancies, especially when there are so many ways to temporarily activate the space and earn a rent roll without getting locked into a long-term deal. 

In an article by Konrad Putzier and Marker Maurer, writing for The Real Deal, the authors discuss how lease agreements can be structured in many different ways with varying impacts on rents. They give the example of a 27-story office building at 650 Madison Avenue. Despite soaring property sales citywide, the ground floor retail tenant of this building had a long-term lease with a below market rent. This below market rent held resulted in a lower net operating income, and therefore a lower perceived value for the entire building. If the property owner wasn't looking to sell, it wouldn't be a problem. But in actuality, the owner was looking to take advantage of a strong real estate market. What could they do? 

What they did was renegotiate the terms of their lease such that the retail tenant would pay a higher rent in exchange for cash payments from the owner. With the building showing a higher rent roll, it was able to command a higher value on the open market—eventually selling for a 91 percent premium over the cost of the original acquisition. And the buyer was made fully aware of the arrangement between tenant and landlord regarding the cash payments. 

650 Madison Avenue
Source: Google street view, Oct 2017

Another negotiable concession are tenant improvements (TI). The authors of the article describe a situation where a building owner providing substantial TI is akin to the tenant taking out a low interest loan from the owners instead of seeking outside financing with a less favorable rate. In that regard its win-win. 

The article goes on to state that this practice is not limited to retail. This is something I know to be correct, having shopped for a rental apartment and seen the offers boasting “first month free.” In these lease agreements, the tenant is essentially agreeing to pay the same annual rent, but spaced over 11 larger payments instead of 12. It works well for transient tenants like students or young professionals that don't typically sign for longer than a year, and allows the building owner to show a higher rent roll. 

This all answers to some degree the question why retail rents might be a bit "sticky" and cause vacancy rates to rise, even as news of the retail apocalypse echoes overhead. Lowering retail rent represents a direct hit to the value of a much larger asset. Except the practice can perhaps buoy rents beyond what retailers are willing to pay. Today a growing number of larger retailers are realizing their rents are not pegged to anticipated sales. The following quote from the article sums it up:   

It was in March of 2017 that Urban Outfitters' CEO Richard Hayne first likened the retail environment to the housing bubble, apportioning much of the blame in store closures to eCommerce and the burden of real estate oversupply. Putzier and Maurier differ in that they see a stronger parallel between the inertia of untethered optimism in housing values, and what had been longstanding optimism in retail rents. But there are myriad ways the current retail moment and the housing bubble are different. The housing bubble burst because of the securitization of subprime mortgage debt, not because everybody discovered they could now buy their homes from Jeff Bezos. What I mean to say is we still consume housing in basically the same way as we did before the bubble. But contemporary retail consumptions feels to be a bit more avant garde with more showrooms, less inventory, rapid fulfillment, and everything in between.   

Are we seeing a correction?

In Cushman and Wakefield’s most recent retail market report for Manhattan (Q1 2018), they identified three recent trends:

1. Almost all retail sub-markets posted reduced asking rents due to additional stores coming to market with lower asking rent (the only exception being the Meatpacking District).

2. The SoHo sub-market recorded its eighth consecutive quarter with a drop in asking rents

3. Announcements of new pop-up store openings have slowed down, signaling the trend may be losing some of its steam.

Source: Cushman and Wakefield, Marketbeat Manhattan Retail Q1 2018

Is this a correction? Are we seeing retail rents align with a more realistic market value? Is there a direct correlation between pop-up shop announcements and retail rents? Difficult to say. It does seem to say that property owners are becoming more inured to a condition they thought would be temporary. But an article from The Real Deal out today tells a different story, of rising rents in Brooklyn corridors where new development is taking place. Their narrative is one that says it's mature (and more competitive) markets that have had to adjust their rents while retail pioneers seem to still be doing alright. 

What does this mean for district managers?

It's important to think strategically when approaching vacancies. If you observe a high rate in a district, you might now wonder if it stems from a lack of customer demand, or determine if there is simply a mismatch between asking rents, the tenants who can pay those rents, and if those specific tenants are in demand. Are local property owners institutional investors, or are they longstanding residents with no debt on their property? And of course, there may also simply be an issue with the individual operator, which is a whole other discussion. These are all good and necessary questions to ask oneself. Without asking them we cannot hope to arrive at good and necessary answers for addressing vacant spaces.

Thanks for reading!

Food Hall Site Selection

Nur Asri is an Associate at Larisa Ortiz Associates

Earlier this month, Cushman & Wakefield released a report titled, “Food Halls of North America”. Since their first report on the trend in November 2016, food halls have grown exponentially all over the country, and especially in New York (see #5 of our 2018 trends list).

The report lists twenty five different food halls in New York City (we’ve left out Essex Street Market because it’s an institution we’re more familiar with as a public market, more on this in a previous blog) but guess where they’re mostly located? That’s right, Manhattan. 

80% of the city’s food halls are located in Manhattan.

Source: LOA

Drawing a 5-minute walking radius around each of the food halls, I took a closer look at the demographics and worker populations surrounding these food halls to figure out why Manhattan is continuing to draw this attraction.

Source: LOA

When compared with food halls located in Brooklyn and the Bronx, those in Manhattan were situated in neighborhoods with higher population density, higher median household incomes, higher educational attainments, and higher proportions of Millennials aged 25-40. These are unsurprising facts for anyone who lives in the city but if you’re elsewhere looking to attract a food hall operator; these are just some of the criteria your downtown or neighborhood may need to offer.

The psychographic tapestry segments that dominated the food hall neighborhoods in both Manhattan and Brooklyn were ‘Laptops and Lattes’, ‘Trendsetters’, and ‘Metro Renters’ . These groups, as you can imagine, are all made up of high-earning, well-educated young professionals who are socially and environmentally conscious, technologically savvy, and enjoy discovering local art and culture and dining out.

Given that food halls are highly-curated cultural hubs for new and old restaurateurs to test food concepts and set trends, having an educated audience that seeks this type of experience and is hyper aware of the nutritional value of their food would be highly beneficial and complementary to the mission of food halls. These are the same customers that will likely come in to a food hall and Instagram their meal and night out, driving greater marketing and sales.   

Speaking of dining out – I also found that residents living near food halls in Manhattan spend more eating out annually than those in the outer boroughs. The exception lies in DUMBO, Brooklyn where the upcoming Time Out Market is slated to open later this year. Within a 5-minute walk of the soon-to-be-opened food hall, households are spending an average of $6,091 annually on eating out. This is even higher than those residents living near Canal Street Market, American Market by Todd English, and Gotham West Market!

The high density of worker populations is another trait food halls seem to prefer. All the food halls located in Manhattan have between 20,000 to over 100,000 daytime workers within a five minute walking radius. In comparison, the food hall with the greatest day time worker density in an outer borough is Gotham West Market at the Ashland (Brooklyn) with only 16,353 workers within a five minute walk.

Photo: Lou Stejskal  (Flickr)

Meanwhile, in Manhattan, the top three food halls with highest worker population densities are all located in and around Grand Central Station (Urbanspace at 570 Lexington, Urbanspace Vanderbilt, and Great Northern Hall), where there is a strong cluster of banks and financial services offices and over 100,000 daytime workers. Furthermore, most of these workers earn more than $3,333 per month, indicating strong spending potential particularly during lunchtime and after work.

Even within New York City, there are nuances with where food halls are growing. Food halls in the west side of Manhattan– from Chelsea up to Midtown West – appear to be riding on the wave of high population growth rates. Populations around Gotham West Market and Hudson Yards Food Hall, for example, are expected to grow between 14-15% in the next five years (some of the highest rates in the city!). And the same can be said of the growth in food halls in the outer boroughs. Aside from Industry City, all the food halls in the Bronx and Brooklyn are located in neighborhoods with rates of population growth higher than their respective County levels.

So it appears that even if your downtown doesn’t quite have the traits that we’ve seen with the food halls in Manhattan (i.e. high population densities, high worker densities, etc.) but is undergoing a renaissance and seeing an impressive development pipeline of residential homes and offices, then maybe attracting a food hall operator is not completely out of order.

Like attracting all other tenants, however, it is crucial to first consider the types of residents and workers that will be entering these new developments, what their spending patterns are like, and if these align with the traits that food halls are craving.

Are their disposable incomes high?

Are they trend-seeking consumers?

Are they younger, digitally-apt customers that will continue to support and market the food hall?

After all, as we’ve seen, the food hall is not for everyone. And it’s certainly not for every neighborhood.

Retaining "Mom-and-Pops" in the New Retail Reality

Dan McCombie is a research associate at Larisa Ortiz Associates

Lots of rumblings lately about the statement New York Mayor Bill de Blasio made on local radio WNYC, wherein he spoke about his receptiveness to a commercial vacancy tax to address rising vacancy rates in the city. The issue is decisive to say the least. Certainly we don’t need to go into detail about all the reasons why retail vacancies are problematic (apologies if you’re new to CDA). Nor should we fail to recognize that using public policy to regulate private property is nothing short of a perennial third-rail. What’s the right move?

My purpose in this blog post is not to wade into the vacancy tax debate. It's a complicated issue. Yes, vacancies are problematic and in many instances can create a chain reaction to eventual blight. But policy prescriptives, even with the best intentions, can also be clumsy tools. You want to save mom-n-pops so you tax the vacant space. But if the landlord decides to swallow the cost, or brings in a Verizon Store instead, what did you really solve for?

Photo: essygie

For me, the interesting part of this debate is in understanding how developers and property owners are exploring how to tenant retail spaces with local and regional independents instead of nationals. Why? Because these classes of tenants are typically less "credit-worthy" than your Bank of Americas, Verizons, and Dunkin Donuts, and therefore carry more risk for investors and owners. But they also  have the capacity to bring much more in the way of unique character to a commercial district. So what can be done to mitigate against the credit risk? I found the following example telling...

The Market Line – Lower East Side, MH

The following statement came from Essex Crossing marketing material and can also be found on the Market Line website:

“Anchored by the new Essex Street Market, The Market Line will extend three full blocks from Essex Street to Clinton Street. With over 100 vendors and 150,000 sf of gross floor area, The Market Line will be one of the largest markets in the world, reminiscent of iconic locales like Boqueria, Borough Market, the Grand Bazaar, and Pike Place Market. While there will be an unparalleled collection of prepared foods, this will not be a food hall, but a market. The Market Line will be a microcosm of the Lower East Side with an eclectic mix of local food purveyors, artists, gallerists, musicians, and designers…” (emphasis added)

The emphasis on the local independent tenant mix is worth noting. The other day I spoke with an individual with some knowledge regarding the tenanting strategy for the Market Line, and I posited the question: “How does one tenant a space with local and regional operators when many investors perceive them as carrying more risk?” The response was fairly simple:

1. Provide smaller floor plates with shorter-term leases
2. Partner with architects/designers to create and curate attractive turnkey spaces
3. Seek out tenants with a proven record of success

Again, none of this feels surprising. But it helps to contextualize these tenanting strategies within larger trends. Retailers across the board are right-sizing into smaller spaces, which may be more costly on a PSF basis, but cheaper on the whole. And a whole new industry is sprouting up around the design, buildout, and brokering of flexible pop-up spaces. The Market Line seems to demonstrate how these play out at the ground level. Yes, having a short term lease may be untenable for many, but the property owner can certainly mitigate against this by providing more upfront support through tenant improvements so the merchant doesn't feel like their throwing their money away on the build out. To understand this further let me present two more cases...

Photo Credit: The Market Line

Williamsburg, BK

Consider the case of the impending L-Train subway shutdown and the Williamsburg neighborhood in Brooklyn. Fears are that without a direct link to Manhattan, merchant performance is going to take a hit during track work, and so many of them have left or attempted to negotiate lower rents. Rather than bring down rents to offset the hit, some landlords have opted instead to weather the storm until the work finishes, believing an empty storefront is preferable to signing a long-term lease with a myopic rent. As a result, the retail vacancy rate in the neighborhood was recently reported to be at 13%, which is definitely cause for concern. Are the property owners right to hold tight until business as usual returns? Next example...

The Shay – Washington, DC

A relatively new mixed-use retail development in the Shaw neighborhood of DC, “The Shay,” has also been struggling with retaining retailers. The primary reason for this is that the tenanting strategy from the outset was admittedly a risky one. Jay Klug, executive vice president of retail at JBG Smith (the developer), confirms that instead of focusing on restaurants and national chains (low-risk) they would seek smaller stylish brands looking to expand into the DC market. In order to entice these tenants, the developer negotiated percentage rent agreements. Steve Gaudio, VP at JBG is quoted as saying “There was a risk that their percent of sale would never be that high, so there were different flexibilities for both the landlord and the tenant to determine, if this didn’t work out, that they could walk away.” As might be expected, many tenants didn’t hit their marks and did walk away. But notably, many of those tenants were soft-goods brands like Kit and Ace and Steven Alan, and were subsequently replaced by businesses like “The Shop” hair salon and “Turning Natural” smoothies shop. This is not to imply that soft-goods and apparel/accessories can’t survive; the Shay also houses the first DC location of Warby Parker and the fourth Bonobos location in the region, both of which have been said to be performing at a high level. What it says to me is this development may want more high-end neighborhood-serving uses and less comparison goods. In any event, the mix needed to be tweaked a bit, especially for a new concept still establishing an identity.

Photo Credit: The Shay

The Takeaway

The Market Line tenanting strategy has flexibility built into both the lease and the space itself so that if a tenant isn’t working out, the arrangement can be modified expediently. The Shay, adopting a similar tenanting strategy, uses a different mechanism with percentage rent agreements. In Williamsburg, some owners are simply holding their breath. Are any of these success stories? Hard to say. The Market Line hasn’t opened yet, and The Shay is still struggling with vacancies. Both are big (150K SF and 120K SF, respectively) and have the benefit of a single entity curating the space, and lots of design muscle behind them to make the spaces attractive to tenants. And even Williamsburg is a bit of a snowflake; it's an iconic neighborhood so it may be able to hold on after all. For that reason, I caution against making too hard and fast a conclusion. But the one thing that seems to have unanimous consent these days is that retail has changed, and likely changed irrevocably. As a result, we need to be creative with how we tenant spaces and not be afraid to tweak not only the mix, but the way spaces are constructed and agreements are negotiated. And there’s no way to know what works when the space is empty. 

Thanks for reading!

Related blog posts:  
The Original Food Hall
Here's What to Expect in 2018 and Beyond
When Skyrocketing Rents Don't Always Mean the Death of Small Business

HOW TO: Retail in Public Spaces

Nur is an Associate at Larisa Ortiz Associates.

In a previous post I talked about the benefits that parks and retail may stand to gain from being co-tenants. Today, we look at specific ways in which retail has been incorporated into our parks and open spaces. Depending on the size of your public space, you may decide to incorporate permanent retail spaces or temporary, seasonal ones that can easily be taken down to make room for more pedestrians and park users. Either way, these additional retail spaces can be great opportunities for local businesses and entrepreneurs to test new markets, if made convenient and affordable.

Case Study 1: Times Square Plaza

Vendor: Coffeed, a NYC-Based coffee chain

Space: 100SF, in the center of Manhattan's most trafficked area.

Leasing: The Times Square Alliance, the local non-profit BID, designates an area within Times Square for interested vendors who are then required to build their own structures. Electricity, rubbish removal services, as well as security are provided by Times Square Alliance.

Estimated Rent: $20,000/ month with a revenue share of 8% of sales. Times Square Alliance leased the space via Appear [here], an online listing platform that matches temporary, pop-up retail spaces with creative brands and entrepreneurs.

Added benefits to the vendor: Co-branding and promotional opportunities with the BID on its social media platforms and through other initiatives that the Alliance provides to the tourist, business and residential community.

Case Study 2: Astor Place

Photo: The Village Alliance

Vendors: La Newyorkina and Astor Plate, NYC- based businesses that both had existing storefronts in nearby neighborhoods like Greenwich Village and TriBeCa

Space: 110SF (La Newyorkina) and 200SF (Astor Plate)

Photo: The Village Alliance

Leasing: The plaza in which the kiosks currently sit is property of the NYC Department of Transportation (DOT). However, the local Business Improvement District (BID), the Village Alliance, has a contract with DOT to maintain the plaza. Kiosk vendors contract directly with the BID.

The procurement and bidding process of kiosk operators was a long process, according to William Lewis, Marketing and Events Director of the Village Alliance.  The BID wanted to ensure that they were tapping into existing local businesses and building kiosks that were respectful of the surrounding environment and community. Not only did the BID strive to keep local favorite, MUD coffee, being served at the kiosks, the BID also ensured the design of the kiosks were contextual. For example, the kiosk on the south end of the plaza is a metal structure that reflects the style and aesthetic of  the famous Alamo sculpture (the Cube) and the kiosk design of La Newyorkina on the northern end of the plaza features a hand-painted mural that reflects the local neighborhood.

Like in Times Square, selected operators built their own structures but worked closely with the Village Alliance to finalize designs.

Ensuring success: According to Will (Village Alliance), the kiosks are really popular and doing very well a year since their opening. Their success lends itself to creative menus, a variety of products, a strong daytime population, and of course strong connections to the local neighborhood.

The location of the public plaza by new office developments and the Cooper Union School ensures that the kiosks get strong foot traffic throughout the day. In addition, the BID arranges outdoor tables, chairs, and parasols (like in Times Square!) to support the congregation of large groups and encourage outdoor dining in the warmer months.

Case Study 3: Hunters Point South Park

Vendor: LIC Landing by NYC-Based COFFEED features a healthy selection of locally-sourced food offerings, craft beers, fine wines, and specialty coffees and teas. COFFEED is also a charity-minded café known for donating a percentage of its revenue to local charities.

Space: 1,500 SF, at Hunter’s Point South Park, Long Island City’s waterfront recreation destination.

Leasing: The concession spaces was designed and built during the initial development of the park. Bids were later put out for operators by the NYC Parks department.

Case Study 4: Union Square Park

Market: UrbanSpace has operated the Union Square Holiday Market for over two decades

Space: 30,000SF with about 100 vendors, of which 75% are NYC-based. Individual booth sizes range from half-booths (50SF) to double booths (200SF)

Leasing: The market is made possible via a five-year agreement with the Department of Parks and Recreation negotiated with the market’s operator and founder. The Parks Department opens a round of competitive bidding, issuing a detailed request for proposals and site visits for prospective bidders.

Selected market operators then hold open application calls for interested vendors online.

Estimated Rent: Vendor spaces average between $6,000-$18,000 per vendor, depending on location and size of booths. Each year, UrbanSpace has netted around $2.7 million in vendor fees and compensated the City over $1.5 million.

Case Study 5: Downtown Detroit Parks

Market: Winter in Detroit is sponsored by Bedrock and Quicken Loans Family of Companies. Detroit Downtown Partnership collaborates with the nearby property owners to organize the seasonal markets.

Space: 130SF, pre-fabricated glass structures designed by Philadelphia-based Groundswell Design Group

Leasing: The market operators hold open application calls for interested vendors online. Vendors are selected based on unique and creative retail concepts, quality products and packaging, design of booths, and originality of brand

Estimated Rent: $1,000 for the season (inclusive of electrical, lighting, heating, and security) According to reports, the 38 selected businesses generated more than $2 million in sales between November and January.

Regardless of retail model and leasing structure, we must remember not to get carried away with commercializing parks and public plazas whose first objective is to provide spaces of relief from urban living and circulation opportunities. There is always the potential that highly-curated retail experiences with higher price points may indiscreetly exclude a segment of the population that has less disposable income and therefore is less likely to enjoy a costly park retail experience. 

Incorporating free experiences with the retail activities may alleviate such impacts. Last season, at the Union Square Holiday Market in NYC, for example, there were free goodies and interactive photo booths open-to-all. Candy and cups of hot chocolate were distributed for free to all visitors- thanks to sponsorship by Citibank. These goodies were handed out at the sponsor's booth, where free mobile device charging stations and warming stations and lounge seating were also offered - much needed respite from the cold of winter.

As the weather clears up in the coming weeks *fingers crossed*, keep your eyes peeled for the growing trend of retail concepts in your local park and let us know if you think it's a much-needed public space activation strategy!