City storefronts, in danger of closing, find rent relief

Photo credit: Urbanite

Mr. Joe is saddled with skyrocketing rents while sales receipts are plummeting.

By Garett Sloane

gsloane@am-ny.com

To keep city stores from shuttering, landlords and tenants are displaying an unprecedented level of cooperation, even renegotiating signed leases, according to business leaders.

Storeowners and landlords throughout the city are contending with an abysmal business climate, but instead of folding, communities are coming together to try and keep their neighborhoods vital.

“It’s getting just brutal out there,” said Councilman David Yassky. “Mom-and-pop and neighborhood retail stores have been suffering with rents for years now, but now they’re getting the double whammy of business just falling off the cliff.”

Consumer spending is one of the hardest hit sectors of the economy, and stores are not pulling in enough to make their rents.

“They’re paying rents based on the 2007 economy, but their sales receipts are the 2008 economy,” said Yassky, who is chairman of the council’s Small Business Committee and is running for city comptroller.Wilma Alonso, executive director of the Fordham Road Business Improvement District, said she has seen a change in attitude on the part of landlords.

“Property owners are identifying issues with their tenants, and they cannot pay the rent so they are going to be able to renegotiate the lease at least temporarily,” she said.

Revisiting leases is a recent phenomenon for the retail sector in New York, according to a number of brokers and business leaders. While renegotiating helps keep stores open, it is also a sign of how weak the economy is, Yassky said.

A business owner, Joe Mizrahi, said he renewed a lease in October for one of his three Mr. Joe stores, which sell clothing and apparel. The rent went up from $19,000 a month to $30,000 at his space on Eighth Avenue in Manhattan, but since then business receipts have been down 60 percent from last year, he said.

Now, he wants to renegotiate the terms of that lease.

“I’m sure [the landlord will] say no — I don’t know what to do. It’s very painful,” said Mizrahi, who has been in business more than 30 years.

After years of prosperity, many revitalized neighborhoods are struggling to keep the gains they’ve made. Healthy retail is at the core of every vibrant downtown area, and a key quality-of-life component.

“When it’s clean. When it’s tidy. When things are in order, people end up recognizing it and want to keep it that way, and they’re empowered to do even better,” said Robert Walsh, commissioner of the city’s Small Business Services.

The reverse is also true, he said.

“When you see the streets have not been swept, the bad guys recognize that and people looking to make trouble in a neighborhood or community see that there is neglect and they pounce on it,” Walsh said.

Walsh has seen the worst of days during decades of working with the small business community. As executive director of the Union Square Business Improvement District, he spent the 1990s chasing crack dealers out of the neighborhood and helped develop the area into the energized shopping corridor it is now.

“We’re going to be working hard to ensure that [the city] doesn’t revert back,” he said.

The mayor’s office has come up with a number of initiatives in the last few months to help small businesses, including $5 million in microloans to help them get money during the credit crunch. Also, merchants, landlords and community leaders are banding together with a sense of urgency as they recognize their shared predicament.

“The landlords are talking to their tenants. The retailers are talking to their brokers. The brokers are talking to the owners, and everybody is trying to look for solutions,” said Faith Hope Consolo, chairwoman of the retail leasing and sales division at Prudential Douglas Elliman.

The dynamic has certainly shifted. During boom times city landlords were notorious for driving out businesses in search of higher-paying tenants, but today they’re willing to negotiate by offering more free months rent, longer deals at the same rate and money to improve the stores.

It’s a phenomenon Yassky called “enlightened self-interest” on the part of landlords, and their continued flexibility is likely going to be necessary if they want to retain tenants rather than try to attract new ones under the current market conditions.

Stores in the city are going to have a hard time making enough money to pay the rent, according to a recent study by Property and Portfolio Research, a Boston-based firm that analyzes retail data. The firm predicts the city’s “economic vacancy rate” will shoot up from historic lows of 2 percent seen last year to near historic highs of 12 percent by the end of next year. The economic vacancy rate does not mean the amount of physical storefronts that are open or closed. It is an indicator of how much money stores are making compared to how much they should be making to support the amount of retail space in a given area.

If the indicator shoots up, however, it translates to more closed storefronts, said Andy Joynt, the New York metro area analyst at PPR.

There are no definitive studies on the exact amount of empty storefronts in the city, but Prudential Douglas Elliman projects that vacant storefronts will jump from historic lows of less than five percent to about 15 percent next year.

“Some retailers are iffy at the moment,” said Patrick Breslin, the president of Grubb & Ellis East Coast Retail Group. “So Christmas is do or die time.”

He predicts the city is “way off from hitting bottom,” and next year will see a number of stores closing.

With a long slog likely ahead for city stores, the business districts, merchant associations and almost all relevant community groups are becoming more vigilant.

“Relations in many communities are better than they’ve ever been before,” Walsh said.

There are more people taking pride in the community, and more people willing to speak up than there were during some of the city’s darkest days like the 1970s, he said.

“When we see problems of public safety or sanitation or vacancies,” Walsh said. “It’s going to be our job to keep our eyes and ears open, and look to pounce when we see problems.”

Aline Reynolds contributed to this report.

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