Thursday, February 19, 2009

Tear Down The Iron Curtain On Roosevelt Island's Main Street - Bring In A Master Lease For Retail Stores!

Image of Main Street retail corridor beneath Eastwood/Roosevelt Landings

Roosevelt Island's Main Street Retail Store Corridor has often been compared to resembling East Berlin before the fall of the Iron Curtain. According to the Real Deal:
"It looks like East Berlin before the wall fell," said Andrew Oliver, executive vice president of Cushman & Wakefield Sonnenblick Goldman. For years, there was only one chain store, a Gristedes grocery, and much of the remaining retail was service-oriented: a diner, a Chinese takeout joint and a thrift shop, among others.

Main Street Thrift Store Beneath Eastwood/Roosevelt Landings

Much of the cause for the shoddy and worn out appearance of the existing retail stores as well as the depressingly long time vacant stores can be attributed to the ownership of the premises by RIOC, a state owned corporation, that has no expertise in leasing and managing retail stores.

Main Street Orphans International store space

A previous RIOC administration admitted in this 2/24/07 Main Street WIRE article:
RIOC has long privately acknowledged that it is not equipped to handle the leasing of the Main Street storefronts. "There’s no one on staff who is a retail management professional," said RIOC spokesman Bob Liff. "RIOC does not necessarily have the expertise in-house to run the retail [element], and that’s why they’ve gone out for an RFIP," or Request For Initial Proposals
In this earlier post, I reported being told that the RIOC Board of Directors are now prepared, subject to a final vote of the Real Estate Committee and full Board, to remedy this situation by removing RIOC from the burden of leasing and managing these stores with the issuance of a Request For Proposals seeking a private sector real estate developer to take over the retail stores as a Master Leaseholder. The Master Leaseholder will then sublease the individual stores to individual tenants.

RIOC President Steve Shane responded to this post by indicating that nothing has been decided yet regarding any Master Leaseholder. I inquired of Mr. Shane what could be the possible objection to a Master Leaseholder for the Main Street Retail stores and Mr. Shane replied:
The issue is one of service to the community. Rental income to a master leaseholder(now RIOC, but in the hands of a commercial real estate operator?) is not the overriding consideration. So, retaining control of use, both kind of service and income group serviced, with rent adjustments for necessary providers not otherwise able to afford competitive rents (see, for instance, difference between nail salon servicing market rent ladies and one servicing Section 8 ladies, a bread store or a fish market probably can't make it here) (see the last big dustup over chain stores vs. mom & Pop stores), etc, etc, wherein the quality of life as perceived by the Island residents (and of course as effectuated by dedicated RIOC with the advice and suggestion of RIRA)) is the highest priority, not the return to a commercial real estate operator.

The usual market place dynamics are not applicable here because When faced with the reality that there is less than 20,000 sf of vacant space, hard to imagine the master leasee who would want this problem for the sandwich profit it might make of $1-2/sf/year. No one can break the Gristede's lease or any of the other existing leases. I doubt the community would want RIVAA Gallery to be ousted from its space. Boy Scouts, batting cage, Thrift Store, etc.

We would have to go through the same PAAA routine of appraisal and FMV determination before RFP for master leasee, with all of those conditions or others as the community would ultimately surface. Assigning the existing leases only substitutes for the existing tenant's credit and credit is not the issue. It is not a simplistic problem.
During a March 2007 interview with the Main Street WIRE, Mr. Shane had this to say on the topic of a Master Leaseholder for the Main Street retail stores:
...when you’re dealing with small merchants and the economics of collecting rent from them is miserable because they quite often can’t pay, to get them out of their space, if they choose to be recalcitrant, is almost impossible. You then run a deficit operation for a long time. You spend a lot of effort and legal fees and build up a lot of ill will. [Main Street] is not a big enough operation to support one person [on staff at RIOC to handle it]. It’s not a big enough job. It’s not a big enough deal, and yet you need that expertise to deal with the people you do have because it is an important part of life on the Island. Again, it’s a critical-mass kind of issue.

One of the reasons for Mas’s suggestion [to have one mall-type operator rent out all the spaces] is to just avoid all that. Deal with a big-time person who is experienced in that. RIOC is really not – I mean, they have a lawyer on their staff, or two sometimes, but not one of them is really equipped to go to civil court to deal with these issues on a current basis and in any way with real expertise, and it becomes a problem. That’s why one of the bases for Mas’s suggestion was to master-lease it and let somebody who knows what they’re doing do it, which is an interesting proposition. It needs to be thought about and talked about. It certainly would simplify life for RIOC. Whether it simplifies or makes better the life for residents is something else again; and that needs to be thought about and talked about....
You would thing that two years from the date of that interview is a reasonable enough amount of time to think and talk about the advantages and disadvantages of a Master Leaseholder - wouldn't you?

You would also think that the former Fish store evicted in February 2007, the former Capri Pizza store evicted in February 2006 and the former bakery evicted sometime before that would have been rented by now if an experienced private sector real estate developer with retail expertise controlled the premises - wouldn't you? Who knows when the recently vacated Flower shop and the soon to be vacated New York National Bank space will ever be rented again?

A reasonable question would be whether a qualified real estate developer would want to take over the Roosevelt Island Main Street Master Leaseholder. A reader asks about the Master Leaseholder idea:
Would be a great way to solve the problem, although with commercial real estate going in the tank like everything else who knows what developer would want to step up to the plate.
I asked David Kramer of the Hudson Companies, developer together with Related of the Riverwalk complex in Southtown, if his company had any interest in becoming the Master Leaseholder for the Main Street retail stores and he responded this way:

“The improvement and upgrade of the Main Street retail is one of the most important issues for us as developers of Riverwalk. We eagerly responded to the previous RFEI and were disappointed that it didn’t go anywhere; our excitement and interest in playing a role in Main Street retail is unchanged. We think the retail we’ve developed and operated in Riverwalk shows what is possible throughout the entire island, and we’re encouraged that the issue is back on RIOC’s radar.”
The issue is not complicated. RIOC is simply not qualified nor does it have the expertise to be a retail landlord. Turn the property over to a private retail developer who knows what it is doing and Roosevelt Island's Main Street will finally have some decent stores. That is what happened at Riverwalk Commons. We now have a Duane Reade, Starbucks, Pizza Place, Japanese Restaurant and a soon to be open Sports Bar & Grill as well as a Bagel Place. Free enterprise - Ain't it Great!