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Ghost Town
“Can someone write an article about the businesses in Tribeca that are priced out & kept vacant for a year?” tweeted Alexis Pereira. I enthusiastically retweeted it—and then I realized I was the likeliest candidate to actually do the legwork.
I walked every street from Murray north and from Broadway west, taking photos of all the vacant storefronts. I didn’t include the ones where we know something is coming (or can assume as much, because of the work being done inside), new buildings where the amount of retail is unknown, or anything on Canal Street, because that’s an entirely different ecosystem from the rest of Tribeca (although it too is decimated, especially the north side).
I found 100. I would never have guessed there were that many—only by cataloging them can you really see the scope of what’s happening. Scroll down to see what I mean.
The sheer amount of inventory should turn this into a renter’s market, and yet we have a long list of businesses that have wanted to renew or move within the neighborhood, only to be priced out. The consensus from everyone I speak with seems to be that owners, seeing the direction the neighborhood has been going in, are willing to wait for a tenant who’ll pay for the privilege of being here. The problem, it seems to me, is that even if Tribeca continues to get aggressively developed, it will never be a high-density neighborhood when developers keep building 4,000-square-foot, single-family apartments. And the lack of corresponding foot traffic is what caps the amount of money any business can make here. You could argue that workers from FiDi will help fill the void, but there’s an obscene amount of retail coming online to the south—at Brookfield Place, the World Trade Center, the South Street Seaport, the Fulton Center, 28 Liberty (200,000 square feet!)…. That’s also where chains are going to want to be, because tourists are there, too; Tribeca, I’d theorize, then gets left to the independent businesses. Of which there are fewer and fewer….
There’s an article in Governing, sent over by Anna, which goes into possible ways to help this situation, but I’m not hopeful.
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“…[Landlords] are willing trade a short-term loss for the chance eventually to land a much richer tenant, like a bank branch or national retail chain, which might pay a different magnitude of rent. If you’re a landlord, why would you keep renting to a local café or restaurant at five thousand or ten thousand dollars a month when you might get twenty thousand or even forty thousand dollars a month from Chase?”
http://www.newyorker.com/business/currency/why-are-there-so-many-shuttered-storefronts-in-the-west-village
Oh, let’s see…because they want to be part of a stable economy? A neigborhood of human beings? A part of a fabric that serves everyone? Landlord’s and developers are the lowest of the low imho, and why NYC is, unless you like living in a sanitised bleach bottle filled with banks and transient hipsters – dead. Thank you Rudy Giuliani and the other one I can’t be bothered to type – it was fun til’ you deregulated everything. Enjoy your empty shops!
“Thank you Rudy Giuliani and the other one I can’t be bothered to type – it was fun til’ you deregulated everything. Enjoy your empty shops!”
Fun to get your car broken into? To scurry home and not get caught outside after dark? To be too afraid to go to most parks alone as a woman? I don’t like what’s happening to NY real estate either, but let’s not pretend that this was just laissez faire, instead of deliberate machination by various backdoors into government money.
DOWNTOWN DELI!!!!! NOOOOOOOOOOOOOO!!!!!!!!! BALUCHI’S!!!!!! NOOOOOOOOOOOOOOOOOOO!!!!!!
I have 3 retail location is Manhattan – Tribeca Paint being one of them. This is happening all over the city. I agree with Kyle that landlords are entitled to try to maximize their profit by renting to the highest paying tenant. However, as anyone who walks West Broadway north of Canal has observed over the last 20 years the Soho and Tribeca retail market is a vicious cycle of short term higher rent followed by empty storefronts soon thereafter as the businesses fail. Unless it is a flagship tenant I would imagine that the landlord cannot collect. Not being a landlord I cannot comment on the long term profitability only the trend.
The bottom line is that landlords should consider the long term viability of the retailer not whether they can maximize profit with a non-sustainable business model which concurrently blights the neighborhood. I fear that my business will join the list of the departed a few years from now unless I “benefit” from the inevitable correction that results from the landlord shell game. Looking forward to a bad economy in Tribeca 4 years from now :)
With that many vacancies — and how many in the last year and a half?… — one could argue things are past the point of ready recovery. Time to pack up and move; I shall avoid telling you my destination, lest you all follow and screw this ‘hood up too.
Landlords better hope the economy stays steady and we don’t go back into recession.
Excellent piece of journalism. I really hope it gets wide circulation. What is happening here in Tribeca is a microcosm of how real estate is killing the goose that laid the golden egg in lots of NYC neighborhoods.
well said!
Recently moved to the neighborhood from Gramercy and can’t get over how dead it is here, all I see are SUVs, Nannies, and Delivery Men.
The saddest street I have seen of greedy merchants is 8th Avenue in Chelsea between 14th and 23rd Streets. A formerly vibrant retail strip now a pale shadow of its former self as many storefronts sit empty with the sex shops sticking out even more than before. Few of the old restaurants and shops that made this strip fun in the past are still around. My old neighborhood is truly no more, but I’ve found a new one to love.
Sorry, but I meant greedy “LANDLORDS” and not merchants. :-)
Thanks for posting the Governing link, Erik.
I found it fascinating, and depressing, that it focused on Tribeca.
I don’t know if they coined the term “hypergentrification”, but it is a good one.
http://www.governing.com/columns/assessments/gov-gentrification-local-business-extinction.html
Jeremiah’s Vanishing New York coined hypergentrification. http://vanishingnewyork.blogspot.com
This awful situation is happening even in Midwood, Brooklyn.
I’ve been bitching for years at how stupid this new economy is, nothing but unsustainable short term greed. Carnegie and Ford never operated like this. It was people that created these neighborhoods in the first place; anyone over forty will remember what a shit show SoHo was, until artists and punks transformed it into a social experiment that was felt globally. Now, it’s a place for only the überrich and where cops arrest street artists and confiscate their works. The exact opposite of what NYC is about,… or what humanity should be about.
Personally, I really think the neighborhood needs more retail banks (in particular a TD bank) and a few more stores from the upper east side. Then and only then will the neighborhood transition be complete.
I just keep wondering when I am walking through different neighborhoods were there is a lot of construction of apartment buildings is going on: who are these apartments for? Who can afford to live in NYC anymore unless you don’t mind sharing with a lot of room mates, have a trust fund or work in finance?
International billionaires!
Moved my office to Soho recently and its a similar situation there.
The internet may be a minor factor too. Businesses need fewer retail outlets.
the first pic in this gallery was my gym. I was the general manager of the NYSC in TriBeCa and was here when we closed its doors for the last time. It was such a sad day not for just us but the neighborhood. It was my first time working in TriBeCa and I loved it so much. The community there is awesome. I would love to go back and work there some times soon. Unfortunately the rent went up double and the company didn’t want to pay it.
Thanks Mike for mentioning the gym. There was always a lot of energy emanating from inside-out as one passed by it. I belonged for a long time. Loved the spin classes. Walking by the empty dark space now makes it all the more painful.
This is New York now. That’s why I’m a New Yorker who moved to Philadelphia. And this is “High-Rent Blight.” Check out this article about the West Villiage from a few months ago: http://www.newyorker.com/business/currency/why-are-there-so-many-shuttered-storefronts-in-the-west-village
I too am a New Yorker, born and bred, who moved to Philladelphia. I grew up in Soho in the 70’s + ’80’s I can’t afford to live in the city and to be honest the city I miss doesn’t exist anymore. Hypergentrification is happening all across the country. I have lived in Tucsin, Santa Fe, Los Angeles, San Francisco and have seen the same real estate practices ducking the real out of each if these cities. Philly, right now is in the midst of a huge condo-building frenzy. The Nation is sick as far as I can see. So so depressing.
Erik,
Once again thank you for your service to the community.
We have all seen this going on for the past 1-2 years but with determination and legwork you have illustrated this in an indisputable manner.
I hope reason prevails or else “This town … is gonna be a ghost town” :(
i suspect this is the result of banking practices in the current real estate bubble. maybe someone who knows more than i do can comment on whether my theory makes sense:
1) the landlord borrows as much as the equity in the building will allow.
2) the building appraisal is made using a formula that includes the future rent roll for the retail space. the appraisal makes an unrealistically high projection for the rent roll.
3) credit line will stay high even if the retail space is unrented but if the landlord rents the space for less than the appraisal projected rent then he will have his credit line cut..
5) the landlord is trapped into keeping the space vacant because otherwise he would have to immediately pay the lender back part of the principal based on his new lower credit line, if he rented the space for below the appraisal’s projection.
just a theory…
Good thinking but doesn’t that mean in short that the landlord can’t afford to buy the building? He’s taking all the equity out for what? To purchase other buildings with? Landlords need to make money, but $60,000 a month for a little store that was just 15,000 a month is GREED.
Josh,
It’s an interesting theory and very plausible – however – the city needs to step in at this point and put financial pressure on property owners to rent out their commercial space or face a significant fine. If he made a bad business decision in terms of how much he or she borrowed and at what terms then he should bear the cost of the decision, not the community.
Kyle
Why stop there, Kyle? Fine everyone for trying to get the best price possible for their goods and services and fine workers for trying to get the best compensation!
So what you’re saying is that you’d rather Tribeca fall further into a neighborhood of vacant storefronts than to create ordinances that disincentivizes blight (which is what a long term vacancy is) and push property owners into leasing out their spaces?
Yes, you’d rather allow a neighborhood to rot away provided that nobody touches the wallets of millionaires or billionaires – the most precious special interest group in our society. Sure, we can fine property owners in suburbia for not cutting their lawn or removing graffiti but god forbid we try to incentivize building owners in Manhattan to allow stores to operate for a mere $50,000 a month when maybe one day in the distant future they could land another bank or a Duane Reade!
Landlords are under no obligation to rent their properties and forcing them to do so makes no sense. It is private property and they have the right to do whatever they want with it. Should I be able to come into your house and say you are not using your bedrooms appropriately? Perhaps you have an extra bedroom I can force you to rent at below market rates. It would only be “fair” since you have extra space. Look, I’m a renter not a property owner, but property rights are really important.
I also hardly think the neighborhood is at a risk of becoming blighted. The neighborhood is growing rapidly. Comparing forced renting of retail space to the rules that require the removal of graffiti or mowing lawns misses the point a bit. NYC already has plenty of maintenance requirements.
I also wonder what the vacancy rates have trended over time. I bet they are down significantly over the last 10 and 20 year periods,which would point to continued development, not blight.
Exactly why “there goes Tribeca.” No amenities for the multi million dollar apartment dwellers; I suppose they won’t mind, they can travel to get what they need.
Thank you.
Again, just so we’re clear – your position is that you’d rather protect the “rights” of property owners to keep a property vacant (while abusing the tax code and diminishing the vitality of the neighborhood) rather than to incentivize him to rent out the unit? Peculiar to say the least.
How would this proposal be any different from the various forms of regulation that are already applied to properties? Consider zoning regulations that limit the height of a property (which obviously diminishes the economic value of any plot of land) while other properties are regulated based on their location in a historic district or consider the fact that you can’t open certain businesses within certain districts (like adult clubs) – the common theme of all of these regulations is to benefit the community at the expense of the owner. This is why government exists to attempt to find the balance between the interests of the individual and those of the community. In this instance it appears that the tide has turned against the community and action is needed to balance out the equation.
As for the comparison from 20 years ago, it’s irrelevant – a neighborhood that was in the middle stages of redevelopment is much different compared to its current status as one of the wealthiest places on the planet. Such a place should be thriving with businesses, not vacancies. Even with that being said, my guess is that the commercial real estate environment was healthier then than now.
KC
My view is absolutely that it is within a landowners rights to keep a property unoccupied for any variety of reasons. I’m not sure how they are abusing the tax code and diminishing the vitality of the neighborhood. If they were running illegal crack dens and gambling parlors I would have a huge problem with that. Given how much growth and development there is in the neighborhood, I would bet if a landowner is not using his or her property at the highest and best use, some other enterprising person would come along and offer to buy it. I would guess you would want to force someone to sell their property as well? Maybe some sort of eminent domain for people with vacant retail space? Eminent domain never gets abused – don’t worry.
I would also contend that the governments role is not to balance the interests of the community with those of individuals. First of all the community is just individuals. So what you are really saying is that it is to take from some and give to others? I would say the role of MUNICIPAL governments would be to provide essential services like police, fire, roads, and education. The government can also help spur development in areas that really need it – not tribeca.
Tribeca is thriving with businesses. New restaurants, new stores, old stores. Normal markets have vacancy rates. This is a year old, but vacancy rates on Fifth Avenue, Madison Avenue, and other huge retail areas are all over 10%. http://www.cushmanwakefield.com/~/media/marketbeat/2014/05/Manhattan_AMERICAS_Marketbeat_Retail_Q12014.pdf There is friction as stores turnover. It seems to me you are trying to solve a problem that does not exsist
So a block full of empty store fronts is not diminishing the vitality of the neighborhood? Seriously? You truly believe that walking down a block with lively restaurants and shops is the same experience as walking through streets that look as though they’re in the midst of a depression even though they’re in a neighborhood with a Per capita income of $124,623?
Why the distinction for crack dens and gambling parlors? Why should a property owner not be able to profit off of this activity as well – do we really want the government regulating what kind of activities can occur on private property? See how this works both ways?
Regarding the government’s role, everything from speed limits to laws on environmental protection are designed to incentivize individuals and businesses to act against their own (perceived) interests (such as speeding or dumping toxins into the river rather than paying to have them removed safely) and act in a manner that benefits the whole. This is the very essence of our legal and regulatory system. If interests between the self and community didn’t conflict then there’d be no need for laws or law enforcement.
Finally, if it weren’t a problem then you wouldn’t have articles like this with pictures of over 100 vacant store fronts in an incredibly wealthy part of NYC. Granted, turnover rates are high (because of the rents) and may result in an inflated number but the general theme in the neighborhood and across the city is that of otherwise profitable businesses being closed because of the greed of landlords who believe that they can get more for their space and more often than not don’t…all at the expense of the neighborhood. What a shame.
Thank you, Kyle. For your clarity and for your stamina. Couldn’t agree more – on all counts.
Ha – you painted me into a corner. I would actually be fine with crack dens and gambling parlors so long as they are legal and pay taxes. Decriminalizing drug usage would be great. Spend the money treating the disease instead of putting kids in jail.
Entire empty blocks like Church near Chambers and Independence Plaza are getting ready for redevelopment. I’m for redevelopment. If a retail store wants to make sure they can last into perpetuity they should buy their real estate. I have a lease for my apartment. If my building wants to condo itself, I can get kicked out. If they raise rents beyond what I am willing to pay I will have to move. Why is it different for retail spaces?
The laws you point out around speeding and environmental protections speak to externalities that pose a security or health risk to other people. Having to shop at Whole Foods instead of Bazzini’s poses no such risk.
To tell if you have a problem requires more than an article with 100 pictures of empty retail spaces. BTW I am an incredibly loyal reader of the site so that is in no way meant to attack the site or the article. You would need to conduct a study of retail vacancy rates and show some sort of crazy statistical difference between Tribeca and other areas and then explain why it’s a problem. I dont think there would be a difference and I don’t think even if there is one it is a problem that won’t solve itself over time.
Again, why should we get to tell a greedy landlord what he or she can do with a property? What is an appropriate rent? How long is an appropriate amount of time to let a property sit? How long should a lease be? Questions that are best answered by a landlord, not the government.
If the landlord is really that stupid, he or she will go bankrupt and the property will change hands to someone that is better able to run it.
If you want to find a better cause to support that is causing more disruption to the NYC property market, I would point you to the very low real estate tax rates that are paid by all condo owners. The NYTimes series earlier this year pointed to examples of people laundering money and parking them in NYC condos – partly because the ease of buying with shell companies and partly because the carrying costs are so low because property taxes are so low. This distorts development into properties that are $3000 per square foot or much more and then sit empty with no residents to support the local businesses you are worried about maintaining.
Resident,
I appreciate a nice and civil debate. Completely agree with you regarding the issue of the condo market being distorted by low taxes and, of course, foreign buyers. I could go on forever on that topic as well.
My argument would be that in the aggregate a large number of vacancies does create external costs that the community “pays” for both in terms of a decrease in shopping / dining options as well as the very real notion of the loss of “life” in the area which over the long term could impact private residential property values. You can argue that the property owner need not cater to these wishes – fair enough, I’d disagree. If it were simply an issue of classic gentrification (Whole Foods replaces Key Foods – frozen yogurt chain replaces beloved diner …and then closes 2 years later) then I’d be annoyed by it but would also recognize it’s a result in the changing tastes and demographics of the area. What we’re dealing with here isn’t replacement it’s essentially eviction followed by nothing.
Regarding the government’s role, I get where you’re coming from but my response in short would be that we need to set up laws and regulations that work for the benefit of the vast majority of our citizenry and not just those who own property. Once again, I’ll point to other examples in the marketplace where the government sets standards that some might say “interfere” with the private market. Take mergers, for instance – before two large companies can merge they often have to be approved by the Justice Department to verify that the merger won’t materially decrease competition and hurt consumers (where were they when all these airlines merged?!). One could argue that they have no right to impede on two private businesses looking to maximize profit by coming together but our society has decided that the interest of the many should come before the interest of a very privileged few. My opinion is that this theory in applicable in this case as well. Does it mean we confiscate property? No. It means that as a city we dictate the arrangements in which an individual can work to obtain a profit within the framework that we decide upon via the political process – property owners who don’t like these laws can sell and try their luck elsewhere..perhaps Mobile, Alabama offers better returns, I don’t know.
Again, really enjoy a good debate and I appreciate the civility – quite rare these days.
KC
Kyle,
I don’t think laws should be set up just to appease most of the citizens at the expense of a few. Why wouldn’t we just confiscate Bill Gates’ money and hand it out to everyone else. The role of laws should be to create an equal playing field. We should be pushing for equal opportunities, not equal outcomes.
I actually think the mergers of the airlines was a good thing for the country. We had airlines that continually went bankrupt before and we now have a stable and profitable industry that has admittedly really been helped by lower oil prices. The previous bankruptcies jeopardized employee pensions and caused uncertainty. Why is it worse now? Because people pay for their bags?
An example of the government not allowing a merger resulting in less competition is in the wireless phone business. AT&T and Verizon make all the profits and TMobile and Sprint barely hang on. The government should have allowed TMobile and Sprint to merger to create a more formidable competitor to the top two.
It is a really slippery slope when you start making laws about how property can be used. So you don’t want to confiscate it, but you want to force someone to enter into an uneconomic decision? I think we are much better off staying out of it. Eventually, like Josh said, the real estate bubble will burst and more reasonable retail rents will prevail.
Great article! Seems like greed has taken over and everyone wants in. In some cases there are business that have close that were due for an update and in many other cases it’s just a shame. Seems like a lot of hope for what might be but in the end all these closures make it a less vibrant neighborhood.
Oh I dream of streets lined with Prada and Marc Jacobs and Stella McCartney, how wonderful that will be . . .
As District Leader I have been working for several months trying to get a forum down in Tribeca with Manhattan Borough President Gale Brewer to discuss the crisis of small businesses being priced out of Tribeca. We are close to arranging a September date working with CB 1 chair and David Weaver. Your photo exhibit totally proves why we are losing our dry cleaners, our low cost family restaurants, our pizza joints. Gale has some solutions she’s been suggesting to the City Council. I will update you where and when. Thanks again Erik for all your hard work. I should have day, date and place shortly. Jean Grillo,
I’ll be another reader to thank you for this thoughtful, informative article, Erik. I am so aware of this and could discuss it for hours. I will just say it’s rampant, worse than some neighborhoods than others, and I don’t see it changing any time soon. :(
In my opinion, the vacant storefront issue is due to several reasons. The main reason though is simply that Tribeca is flush with new development projects. With all this development happening it is common for storefronts to stay vacant/change tenant during this period of growth. The reason being:
1. Several buildings with vacant storefronts are about to be developed into condo or are even scheduled to be demolished for a new building. During the 1-2 years while these buildings are drawings plans and getting permits the storefront will stay vacant (even with a store for rent sign on it). And then while under construction the store will remain vacant as well. I know that several of the stores pictured above are in the process of converting to condos and I’m sure more are in the works.
2. Property owners that aren’t developing their property but are vacant tend to be asking a big jump in rent due to the changing of the neighborhood. 10 years ago a block that was filled with C-class loft styled low rise building is very different from being on a block with new luxury apartments that are now being built. Being on a block like this tends to require a different set of retail tenants with a higher rent. These blocks are in a cycle of change and it takes time for that change to happen. (as a note; the asking rent isn’t crazy – if anything its now becoming more comparable to residential neighborhoods like the UWS)
3. Most stores take a 15 year lease. Buildouts of a store can cost hundreds of thousands of dollars – sometimes more. Because of this, a store can take months (and sometimes years) to rent. It’s a huge investment by the tenant and owner. Again, with so much transition (based on point 1 and 2) it is important to remember that this transition takes time – and is not instant.
4. Lastly, to Josh’s point above, there are several properties that have been bought and leveraged by real-estate investment firms. While Josh’s case is possible there is a more common situation where these companies simply buy the property to flip in 2 years making a profit on the gain in value of the building. Investors see all the development happening and believe that the property will only gain value over a short period of time. The companies do nothing to the property and tend to keep them vacant (or even force out tenants). Flipping an empty building has a lot more value than if tenanted.
Lastly, please remember that a lot of stores that have their lease up are finishing 15 year leases. So a doubling or tripling of rent in 15 years is not that ridiculous especially in an area with so much development. How much has rent in general changed in the area since 15 years ago?
Anonymous – I would like to have more insight into the basis and motivation of your arguments. You speak of the demolition of older, low-rise buildings and their replacement by new, big luxury apartment buildings as if these were positive developments (no pun intended) and, further, that the lost small businesses and vacant commercial spaces as a natural – even beneficial – byproduct of that process.
The new development – for the most part – replaces architecture of character and historical context — the built record of the organic and storied growth of this neighborhood — with mostly cheap, fast, vulgar, poorly designed, out-of-scale behemoths. Monstrous. The cultural wealth of the community – the citizenry – drained away and all that beauty destroyed forever – so a few can make a fast buck. Dreadful loss, dreadful tradeoff.
As has been said before – Manhattan is beginning to look like Dallas or, as another (can’t remember who or would credit them) said: Dubai with blizzards.
Anne-
Do you really think the building with NY Dolls is worth landmarking? Or this gem on Church St? https://www.google.com/maps/@40.7147418,-74.0080772,3a,75y,131.59h,105t/data=!3m6!1e1!3m4!1siNgIqITT4j27vU67nsf9kg!2e0!7i13312!8i6656
Based on your logic we would have a city full of horse stables and haberdasheries.
Construction of buildings also makes a lot of people rich slowly, not just a few quickly.
That said, I do agree some of the new buildings are ugly!
although, in general i agree with anne’s comments, i also know that the tribeca we love exists because the historic washington market district was razed in the sixties. what was lost west of greenwich street is astonishing. to those not familiar with the history, i recommend danny lyons’ incredible book of photographs, “the destruction of lower manhattan.”
Anne – I wasn’t trying to make an argument, nor do I have a motivation behind it. I was simply stating why I believe there are so many vacancies right now. Debating whether development is good or bad was not the point of my post.
I was simply stating that a primary reason in retail vacancies is due to all the new construction and development happening in the neighborhood. The only other point I made is that I believe it is cyclical and that when all this new development starts to slow down, the retail will start getting occupied more and new stores will appear that reflect the changing neighborhood.
anonymous, interesting comments, especially about the real estate flipping. still, i have to say that i have been in the neighborhood since the early eighties and i’ve seen a lot of gentrification but nothing like what’s going on currently. there has never been this high a percentage of empty storefronts. not in over thirty years.
resident, i don’t think you need to fear the city forcing landlords to rent. that isn’t likely. still, there is definitely something surreal about what’s happening.
my guess is that were at the top of a really insane real estate bubble. when the bubble pops, all this craziness will stop and the market will eventually bring everything back to normal.
“my guess is that were at the top of a really insane real estate bubble. when the bubble pops, all this craziness will stop and the market will eventually bring everything back to normal.”
I’m not sure what you mean by normal. Things have changed in Tribeca over the past few years. You can’t add so many new million dollar apartments and not expect the neighborhood’s retail to change with it (I’m not sure how many new units there will be but by far the biggest addition to neighborhood in several decades).
Again, whether its a bubble pop, or simply a reduction in construction, once development slows down retail will start filling up again. However, it will be at higher prices with some changes in tenant types.
Anonymous – to your point in 4, that after 10-15 years a doubling of rent is not that ridiculous, you forget a tremendously important fact.
Those leases already have increases built in them EVERY single year. It’s not like a residential lease that has you go the length of the lease with no change. Every single year the commercial tenant sees their lease go up already, so yes, doubling the rent is simply not possible. The lease after 15 years has already had 14 rent increases.
Some landlords will obviously be learning their lesson soon. These places are staying empty. Too many are, and for really long time periods. Not because the landlords want them empty (could you afford to loose Hundreds of $K in rent? but because businesses are looking at them, at saying no thank you.
Rents will be coming down. And it will get even worse for landlords when the huge new commercial spaces open just south of us as the article points out. You’re going to have double or triple the amount of commercial space available. Landlords will be fighting for tenants. They will have no choice but to lower their prices, or remain empty with no paying tenant.
Local, to respond to your comment. “Those leases already have increases built in them EVERY single year”
Every retail lease is different. I have seen many many retail leases in NYC – they come in all shapes and sizes.
Several leases I have seen have zero increases in them during their entire term. Big name stores request these types of leases. Sometimes you have a 20 year lease, and you have a one time 10-20% increase at year 10 only. Sometimes you get 5-10% increases every 5 year only. It’s all a big numbers game and depends on current market conditions and buildout costs.
As you mentioned, there are also leases that have increases every year, but these increases are minimal. 2-3% are industry standard. Meaning for a 15 year lease 34%-55% increase during the term of the lease. This would still be significantly less than what market conditions of Tribeca have had over this time period.
Remember, 13-20 years ago, this area was struggling (whether post 9/11 or because the area just wasn’t so nice) a lot of retail tenants were able to leverage this to get leases with minimal to no increases. I know of several like this.
This is a great article and has some really good comments. I’m surprised no one has mentioned that there is a possibility that this can backfire for landlords. Granted this is Tribeca but the laws of supply and demand also apply here. There is a real possibility that, as mentioned above, the highly leveraged landlords will begin to get squeezed by a) imminent rising interest rates and b) the oversupply of storefronts. Anyone else think that this might be due not only to greedy landlords but also the looming economic woes?
Maybe the only hope for maintaining some rental stability and diversity can be found in buildings like the one I live in. It is a co-op and the co-op owns the retail space. We have a long term tenant who is paying below the “market rate” and I put that in quotes because, with so many empty storefronts, it is some kind of phantom number. We have had a good relationship with our tenant and the feeling is that we think they are paying a fair rent and we like them and we would rather have a business that has been compatible and responsible rather than trying to find bigger bucks and possibly having a long term empty commercial space. We are not being magnanimous, we are being fair and everyone is satisfied.
A few points that haven’t been brought up:
1. Not all landlords are alike. A landlord who outright owns a building, or a portfolio, can wait it out. Coops that own their ground floor probably can’t afford to wait a year for a richer tenant. I would be very interested in an analysis of the 100 storefronts above to understand the type of landlord.
2. Let’s talk sweetheart leases. Many coop buildings that converted in the 80s included a sweetheart lease for the sponsor for a period of time, such as 30 years, but can be as high as 99 years. This means that the coop’s revenue is very depressed – making small change from the sponsor who is collecting market or near market rates from the tenants. I would be equally interested in an analysis of how many Tribeca buildings still have sweetheart leases in place, and what happened when they expired.
During a recent visit to New York I thought I’d go down and see what’s happening in Tribeca. It was a short visit as there was nothing happening in Tribeca. I noticed the empty buildings, the lack of foot traffic, the experience and feel of New York. Drab expensive apartments, one after another. WHO wants to live in such an environment? Especially in New York? A previous poster also mentioned the changes that have taken place during the last two administrations and they are obvious even to a somewhat frequent visitor to your city. It just gets worse and it all comes down to greed. New York seems to have an identity problem. It’s Tribeca or the hideousness that has become Times Square. Chain store after chain store. New York used to be about variety, about choice. There are fewer and fewer reasons to come to the city. I find Philadelphia a more inviting place today. It’s a city on the move but without the intention of making the people, the stores, the very properties that make it attractive move.
2 new points:
Tribeca used to be the go-to restaurant/shopping district for those of us in FiDi where streets got dark and lonely at night, but the last time I visited I thought it felt pockmarked and empty and touristy so now I just head north to Chinatown and the Bowery or sometimes over to Brooklyn. My point is that Tribeca isn’t just about its residents, it served as a hub for all of us below Chambers, but without the critical mass of stores it will revert to a neighborhood and there just aren’t t tons of people there. I used to have a weekly Saturday gym date at the New York Sports Club — the only NYSC with child care in Lower Manhattan –with a friend followed by Gee Whiz and Farmers Market. Now I stay east of Broadway more often.
Second it might be worth exploring whether the rapid and repeated tax reassessments in Lower Manhattan are driving the landlords’ asking rents. As I understand it, the assessments are rising based on real estate values with the frequency of reassessments driven by the rate of change in values — and so Lower Manhattan dispraportionately suffers. I live in a Co-op and our taxes have risen faster vs friends on Central Park West and Brooklyn. I am not defending the landlords, just wondering if there is any data on tax increases by neighborhood and on what rents would have risen based on that alone.
Great work, Erik! As a business owner, landlord, and resident since 1990, I want to chime in with my perspective.
1. Yes, not all landlord’s are created equal. As a landlord, I (a) use one of our retail spaces for a business (est. 1977), (b) rent one to a small business that have a 4 other downtown locations, and (c) have a space on the market that is priced near the bottom of what the market is asking. As a “newer” landlord, I simply can’t afford to have our spaces sit empty while a ton of development and construction (Chambers, Hudson, Church, and Worth) is taking place. That said, most of the Tribeca landlords have owned for decades and can afford to wait for the transition to occur. They also own way more buildings and could use the losses, tax-wise. They’re also probably asking high right now only because they really just want to wait but would take on a national tenant at a higher rate if one came along.
2. The Internet is forcing some business to downsize as people tend to shop on-line rather than making an effort to support a local retailer. So the next time you get your Amazon box, just remember that it’s contributing to this.
3. As a small business owner, I don’t feel that the city supports local business. It just wants to keep taking from us and likes to target us for higher wages and more regulations.
4. Lastly, as a resident, I can’t wait for this construction and development to slow down a bit so that the dust can settle and maybe landlords and businesses can start placing their bets. When that happens, I hope all the complainers will put their money where they’re mouth is and continue to support local businesses!
Gee, guess i picked a bad time to move out of Philly. Seems like it’s full of New Yorkers. Is this the future of Philly?