LOIS WEISS: Leave Retail Mix To The Free Market

Calls by politicians for retail store rent caps, rules that a new lease must be provided and other market-limiting schemes should be sent back into Pandora’s Box.

Many times when new politicians or City Council members are elected, they get a sense of entitlement, puff up their chests and demand changes that pander to voters. Those that stay in office for a while sometimes figure out that there must be some taxpayers left to support voters but others never quite get that association.

In 2012, while still a councilwoman, Manhattan Borough President Gale Brewer helped push through a zoning change that limited the size of stores on Upper Broadway, Columbus and Amsterdam avenues. She was concerned there were too many banks and drugstores occupying long swaths of sidewalks and not enough mom-and-pops selling candy. She missed her childhood.

All the stores in the area are now limited to 40 feet in frontage — the width of about two townhouses — while banks on Broadway were reduced to 25 feet.

“We did that by amending the Zoning Resolution to keep banks and chain drugstores from combining retail spaces and pushing out the little guys,” Brewer wrote recently on her website. “Now store frontages are limited to maintain the hustle and bustle of Broadway, Amsterdam Avenue and Columbus Avenue.”

Not everyone is benefiting.

“I believe it will have a reverse effect and affect investment in real estate,” Avison Young Executive Managing Director Jedd Nero said. “To limit what an investor can get on an asset is going to be a disadvantage and will have a negative effect on property values.”

Indeed, Eastern Consolidated Vice Chairman Robin Abrams said she had bank clients look at a storefront with 32 feet of frontage, and they couldn’t do that deal.

“It wasn’t enough space for them, and that’s why Broadway is empty,” Abrams said.

In June, Brewer began worrying about the loss of supermarkets in Manhattan as several were being replaced with drug chains that could pay more for the spaces. Of course, Manhattan supermarkets are also generally larger than the 40-foot width now allowed by that Upper West Side zoning. You simply can’t limit the size of stores, then cry because there is nowhere to buy a large variety of food cheaper than the local bodega.

It’s no wonder many apartment dwellers have fresh food delivered from far-flung warehouses. In June, Brewer had staffers count vacant storefronts along 244 blocks of Broadway from the Battery to West 220th Street. The nearly 13 miles of thoroughfare had 188 vacancies.

Considering there are two sides to every street, and every story, that’s not even one per side of the block, but one for every two and a half blocks. Not so terrible considering many could be in negotiations or already leased and awaiting permits.

Others? Well, there are always building owners who keep spaces dark or just can’t seem to make a deal with anybody.

“Building owners just have to be reasonable and understand what a retailer needs to do to survive and make a living,” Nero said. “What we are experiencing right now is a necessary change in the market.”

We can all wring our hands over the end of the 10-cent subway fare, but that train has left the station.

Why should we then expect that the green grocer, hand laundry, egg man and candy store still be in the same storefronts at the same rents they occupied on Broadway or on East 169th Street in the Bronx when a subway ride cost a dime?

Yet Google Maps show an eerily similar lineup in the Bronx with a deli/grocer, a barber, a beauty supply and a laundromat, and you can bet they are paying more than the rents in the 1950s and charging more for their products.

Certainly, there were no cellphones or multiple competing stores that sold them in every neighborhood when Ma Bell ruled the land.

“I’ve always been an advocate that there is a natural progression and believe that New York City retail is cyclical,” Abrams said.

Building owners, retailers and brokers often have ongoing discussions about what is appropriate for their spaces and block fronts to create a sense of neighborhood and community, and what will serve the tenants in the building, whether residential or office. Although neighborhoods need certain services, through the years, the blocks and buildings manage to adapt.

Bodegas now sell a variety of items from candies to cigarettes, onions and canned tuna, to lottery tickets and the prayer candles needed to help win the prize. The large CVS, Duane Reades and Walgreens also serve up a large variety of items that were once found in the old Woolworth’s. Retailers who sell lower-cost goods have small margins and must sell a lot of items, while luxury retailers may sell fewer pieces at sky-high pricing, but can afford to pay higher rents.

Property values and income, of course, also affect the assessed value and the taxes that the city can collect.

Building and retail space owners also have other costs — mortgages, electric, water, maintenance, upgrades to the retail façade, payments to brokers and investors — and hope there is something left to put in their own pocket.

“Sometimes those rents get out of whack,” Abrams said of the pricing that peaked in early 2016 when retailers who didn’t need a specific block or store simply decided to wait it out.

Since then, consumers have reduced their brick-and-mortar purchases, preferring Amazon Prime and its free, fast delivery. At the same time, internet-only stores are going from clicks to a few choice bricks so customers can really check out their wares, even if they later buy online.

In high-rent neighborhoods, there is also a natural bell curve so that those that cannot afford the corner rent take a spot in-line, on a side street, in another neighborhood or wait until rents decline.

“There is always room for mom-and-pops,” Abrams said. "If, in a particular retail corridor, the rents increase, then there are likely adjacent corridors where service tenants and restaurants can locate."

Abrams recalls that at one point, Madison Avenue in the East 60s got very expensive and local tenants couldn’t afford the rents. Some moved to Lexington and are still in the neighborhood. Other moved up to the 70s and those in the 70s move to the 80s.

“It’s really big picture, and when someone zones in on a particular area the changes are the norm, and not necessarily long term,” Abrams says. “Things are continuously in flux."

“One year, the banks are taking 5,000 square feet and in other years they are just looking for a place for an ATM,” she continued. “One year, Duane Reade is doing megastores and the next year they are getting rid of spaces. I never get concerned when market conditions go one way because a couple of years later, it could be the exact opposite.”

It’s time for politicians to stand aside and let the free market figure out what rents to pay, where to locate stores that appeal to consumers so both the shopkeeper and building owners make money, and the city can maintain a tax base.

Lois Weiss is a Bisnow featured columnist as well as a real estate reporter for the New York Post. She has covered New York City real estate for more than two decades and is a past president of the National Association of Real Estate Editors.