By Sarah Trefethen
Homeownership is as American as apple pie, but when it comes to commercial space, businesses in this country tend to rent rather than buy.
But in New York’s red-hot retail market, some brokers say, grandpa’s admonition to own, not rent, could apply just as well to a storefront as a house.
“A lease depreciates to nothing,” said Adelaide Polsinelli, senior director at Eastern Consolidated. “At the end of a lease, you have nothing. At the end of your mortgage debt, you have an asset.”
Buying real estate is not something a retailer should jump into quickly, warns Marilyn Kane, president of Iridium Capital.
“They have to know that it’s a real estate play rather than a marketing play,” she warned. “Do you want to be a landlord? Do you want to invest in real estate, or are you a retailer? I think someone has to decide how many hats they’re wearing.” But Polsinelli and other brokers argue that with retail rents in some Manhattan neighborhoods clocking in over $1,000 psf, it might be time to try on another hat.
“Retail condos are traditionally thought of as opportunities for real estate investors, but I think it’s an even better idea for owner-operators, though for a long time that’s not been the trend in New York,” said Michael Rudder of Rudder Property Group, a brokerage that specializes in commercial condos.
“For a 10-year period of time or longer the cost of owning is much lower than the cost of leasing, so it’s a financial no-brainer, and there’s tremendous financing available,” he said.
Financing may still be tight for speculative real estate investments, he said, but for buyers looking to operate in their space, the market is the best he’s ever seen.
“Businesses we represent are getting 90 percent financing at historically low interest rates,” Rudder said.
Pricing may be the biggest obstacle, but Polsinelli argues for looking at the upside of an up market, and points out that retailers have more to gain than investors by buying in a hot market like the Meatpacking District, or SoHo.
“It’s going to serve as two things for you,” she said. “You’ll have the location that’s strong and it’s going to generate business for you, and you have the asset that’s going to appreciate.” There are 250 ground-floor spaces listed on CoStar in New York right now, according to Rudder.
“I don’t know that these opportunities suit every retailer’s needs, but if there are 250 listed, there are two to three times that amount that are not on the market, that would be available if the owner knew there was a retailer interested to buy,” he said.
Posinelli says her advice is specific to New York City, where she sees a critical mass of public and private stakeholders in a position to weather market cycles and protect the city from the kind of boom-and-bust phenomena that might plague other markets.
“When there’s real investment in an area, it’s not going to be bubble-like,” she said. “I don’t see the Meatpacking District folding up its doors and going back to being a meat packing district.”