By Dan Orlando
AvalonBay is considering a 60,000 s/f retail flagship for the base of its newest Midtown apartment tower.
The builder paid $300 million for 1865 Broadway in February and announced plans for a 300,000 s/f tower.
Speaking at a panel hosted by the Hellenic-American Chamber of Commerce last week, Martin Piazzola, senior vice president of development at AvalonBay Communities, said the retail concept made the most financial sense.
“If it’s on 5th Avenue,” said Piazzola. “The first thing that comes to mind is the retail value. Clearly that’s probably the most expensive real estate with the highest rental rates in the world is on Fifth Avenue in the upper 50’s. For us to make any sense of that, we’d have to leverage up on the retail component.”
“That’s really something that we’re doing at West 61st Street at our site,” Piazzola continued. “We would look to create a box of maybe three or four levels of retail which would help subsidize what would be a very expensive price per s/f, probably north of a $1,000 a foot.”
The comments came as part of a discussion focused on development in Midtown Manhattan moderated by Louis Katsos, president of Jekmar Associates.
At a time where major entities such as Time Warner and Time Inc. are choosing to abandon the general Midtown area, the panel was asked how they would work together to design, construct and allocate new development in the neighborhood.
The panelists — who included Jay Badame, president and COO of Tishman Construction, Faith Hope Consolso, retail chairman at Douglas ELliman, Carols R. Olivieri, Jr., senior vice president at Edward J. Minskoff Equities — were almost unanimous in their support of retail.
“This is Fifth Avenue,” said Consolo. “There’s only one Fifth Avenue. It’s the most famous shopping street in the world; it’s the most sought after street. We are in a city where I hope this year we’ll see maybe 58 million tourists. This is a city where brands are made. This is one retail corridor that maintains the value even during the downturn.” added Consolo.
“So there is no issue to attract not only retailers that are well capitalized, but you would really almost have a bidding war. With that type of platform you could do one or two retailers you could have one big specialty store, you could divide up the ground floor.”
“Fifth Avenue is a flagship location, especially in the 50’s,” Consolo said. “Not just flagships but it’s been the place where bigger is better. The interesting thing is that it’s all types of retail. I call it from denim to diamonds.”
Piazollo added, “We wouldn’t take on a million s/f of rental product there, so we would probably take it up, bring in a condo investor for the top of the building.
“Where they can get, pick a number $3, $4, $5 thousand a foot and then maybe even a hotel component because a million s/f, that’s still a lot of square footage.”
Olivieri agreed that the north end of Midtown was a prime location to invest in high-end retail, but said it should not automatically be viewed as a priority over a project’s other tenants.
“We don’t like renting our retail until we have our commercial tenants in place. Why is that? Because we’re concerned that if we bring in a retailer first, we may damage the possibility of getting a bigger office tenant.”
“The last thing we want to have, for example, is an IBM renting office space and then we rent stuff to Apple. They might not be happy about that. We’re very careful to make sure that we take care of commercial tenants first and then the last thing we rent, as we did at 51 Astor Place, is the retail.”
Olivieri said Minskoff is employing the same strategy at its newest purchase, 590 Madison Avenue.
Of the theoretical development the panelists were asked to consider, he added, “Our slice will be a commercial office building slice at the bottom. We would love to have the condos on top of the building and that would help us get the financing for the project also.”
Jay Badame, president and COO of Tishman Construction, suggested that the benefits of investing in either residential /hotel space or Olivieri’s suggested office allocations are greatly impacted by the price of materials at a given moment in time.
“If it’s an office building, it’s going to be steel. If it’s residential, it’s going to be concrete,” said Badame.
“Steel is coming down, but labor is going up. A million feet? I would automatically say it’s going to be union,” Badame said, suggesting that the price of the union labor may preclude choosing one material over the other.
“We’ll actually start with structural steel on a retail base and convert to concrete especially on a couple of projects,” responded Olivieri. “That works very, very nicely.”
“The issue that we’re facing today is that it’s going to go union,” he continued.
The panel agreed that should they choose to include a retail component in their development, bringing on a name brand architect is likely wise, despite the increase in costs.
“We have all these buildings being designed with very elaborate exteriors,” said Consolo. “The retailers today are much more sophisticated.
“Retailers want one thing. They want visibility and at these numbers at these rents they want to be sure that their store can be seen.”