Trader Joe's to Chelsea: The Proof is in the Picture

Late last year a few news outlets reported that Trader Joe's had leased a portion of the retail space at 675 Sixth Avenue, between 21st and 22nd Streets. Trader Joe's remained characteristically quiet and building ownership never came out with a confirming statement, to the best of my knowledge. And if you walk by the building, no work has been done to the space. And a sign with the contact information for the landlord's broker still hangs in the window.

But the image above is all the confirmation that I need.

Retail brokerage firm RKF is using this floorplan in its marketing of the 12,000 SF space shown in blue, which is now available for lease. Apparently, Trader Joe's is coming soon!

Now that we have confirmation, lets do some analysis. Why would Trader Joe's open a location just 11 blocks from its 14th Street store? The answer is residential real estate.

In the aftermath of September 11, 2001, the New York City real estate market began a precipitous decline. The downtown Manhattan market was obviously impacted the most, but the Chelsea, Flatiron and Gramercy submarkets were also at a crossroads. Just a few years earlier, these submarkets had experienced a revitalization. The dot com era was in full effect and older loft buildings were being leased up and achieving record rental rates.

The events of 9/11 however changed the momentum in the aforementioned submarkets, and property owners were faced with two questions - how do I move forward with poor office market conditions forecasted well into the future and what ultimately is the highest and best use for my land? The answer to both of those questions, in many instances, was residential real estate. And residential developers never looked back.

Today, with the opening of Trader Joe's, the Gramercy, Flatiron and Chelsea submarkets have become established as full-service residential communities. Need a 2'x4' or a drain pipe - you have Home Depot. Craving some chain restaurant food - take a trip down under to the Outback Steakhouse. Need some groceries - now you will have Trader Joe's. Can a Walmart really be very far behind?

(Image courtesy of Robert K. Futterman & Associates)

New Space Availability Monday

Photo courtesy of smashred, via Flickr

If you are a Midtown South landlord (and not a New Orleans Saint's fan, as pictured above), there is nothing much to smile about today. Approximately 130,000 RSF of new space hit the market last week, up around 5% from the week before. For those not keeping track, 3 of the past 4 weeks have seen weekly space additions of more than 120,000 RSF. With February leasing velocity expected to fall below January levels (even with a rumored 100,000+ SF Hudson Square transaction with Horizon Media reportedly on the horizon), next week is a big week. If we see another 120,000 SF+ of space additions, an availability increase for the month of February is likely in the cards.

On the other hand, if you are a tenant with a requirement for less than 15,000 RSF of space in Q2 or Q3 of this year, this week’s offerings may spark some interest. All of the Midtown South submarkets are covered, multiple options exist in many size ranges and there are some quality existing installations to speak of. That means reduced out-of-pocket expenses for you.

So call your broker and tell him or her that you are ready to see some new spaces. And if you do not have a broker, call me.

Total rentable square footage put on the market – 129,833 RSF
Percentage of direct space – 89.2% (115,822 RSF)
Percentage of sublease space – 10.8%* (14,011 RSF)
* Sublease space of less than 15% is great news that I should not overlook. The lack of largescale sublease offerings is the Midtown South story of 2010 thus far.

New Space Availabilities:

West 22nd Street, off Fifth Avenue – Two contiguous floors of 8,200 RSF each in a boutique building with a strong tenant roster. Each floor features a “spectacular” installation, one which is mostly open and one which is mostly offices. Possession is August 2010.

West 29th Street, off Sixth Avenue – Approximately 12,000 RSF in a full-service building, this full floor features 14-16 windowed offices, plus a conference room and cubicles.

Broadway, in Soho – Suite of slightly less than 2,900 RSF with an asking rent of $39.00 PRSF.

Broadway, in Noho – 6,000 RSF of high-end space in move-in condition, currently occupied by a Fortune 500 company. Great light and views. Furniture is included. The asking rent is $45.00 PRSF.

Fifth Avenue, in the 20s – Rare full-floor opportunity of only 3,300 RSF, the asking rent is $45.00 PRSF.

North end of Hudson Square – The past week’s only new sublease opportunity is also the largest new listing, with seating for more than 5o people. The 14,011 RSF space is available thru December 2013 and features a high-end installation that is in move-in condition.

Madison Avenue in the high 20s – Two contiguous floors of 7,500 RSF each, with an asking price of $37.00 PRSF. The spaces are described as being in move-in condition, with high ceilings and oversized windows. Possession in April.

Park Avenue South - Full floor of 12,200 RSF available in June on a direct lease basis. The space is built with 8-10 offices, conference rooms and open area, and is described as being "move-in ready." The asking rent is $36.00 PRSF.

Lease Transaction Friday

Let's jump right into the lease transactions. Your neighbors are signing new leases - here are the details.

Hulu more than doubled its office space at 276 Fifth Avenue, leasing 5,284 RSF on the fifth floor...The Partnership for a Drug-Free America will relocate from Midtown to 352 Park Avenue South, where it will occupy the entire 9th floor on a 15-year lease that begins with a low $30s PRSF rent, reportedly increasing in $2.00 PRSF intervals every 5 years, and includes significant construction by the landlord... Crain's New York Business reported that National Reprographics Inc. renewed its 33,000 RSF lease at 44 West 18th Street, where the asking rent was $30.00 PRSF, though the taking deal was reportedly much lower... New York Presbyterian Hospital leased the entire 10th floor of 23,000 RSF for 15 years at 463 Seventh Avenue, where the asking rent was $34.00 PRSF...Heartbeat Digital, currently located at 460 Park Avenue South, signed a 10-year lease for 15,358 RSF at 200 Hudson Street.

No Lease Transaction Friday report of late would be complete without NYU buying or leasing some property. The school purchased Founders Hall, at 120 East 12th Street, for a reported $134 million. NYU has been leasing the 190,000 SF building and using it as a 733-bed dorm, but reportedly exercised its purchase option on the property. The deal comes on the heels of NYU's $65 million purchase of the Forbes building at 60 Fifth Avenue.

Also, following up on this story from last week, involving the sale of five buildings that were formerly the Cabrini Medical Center on East 19th Street between 2nd and 3rd Avenues, The Commercial Observer reported this week that Memorial Sloane-Kettering Cancer Center submitted the winning $83 million bid in the auction for the property. The Observer story includes information on the reported second highest bidder for the property, and how he reportedly walked away with a nice chunk of change by losing the auction. Interesting stuff.

January Unemployment: Jobs Lost, But Unemployment Rate Falls

Every week, Robert Bach, the chief economist for my company, Grubb & Ellis, releases a report highlighting some positive (or optimistically positive) economic news. This morning, Robert analyzes today's unemployment report.

Good News around the Edges

Today’s employment report for January from the Bureau of Labor Statistics revealed a loss of 20,000 payroll jobs last month, a little below analyst expectations. But, paradoxically, the unemployment rate fell from 10.0 to 9.7 percent, also contradicting many analysts who expect unemployment to rise as discouraged workers reenter the labor force before it begins a sustained decline. What’s up with that?

Payroll employment and the unemployment rate are derived from two different surveys. The Current Employment Statistics (CES) survey covers 140,000 business and government worksites to derive payroll employment, hours and earnings while the Current Population Survey (CPS) covers 72,000 households to derive unemployment and other characteristics of the labor force. The two surveys don’t always move in lockstep. Many analysts believe the household survey is better at capturing changes in the labor force early in a recovery because it includes the self-employed, which is an important source of employment as laid off workers start up new businesses.

Here’s the good news from the household survey:

The decline in the unemployment rate from 10.0 to 9.7 percent occurred even as the labor force increased by 111,000. So the decline was not because fewer people were looking for work. The number of employed persons rose by 541,000, and the number of unemployed persons fell by 430,000.

The U6 measure of unemployment, which includes persons who have stopped their job search and part-time workers who would prefer to work full time, fell to 16.5 percent from 17.3 percent.

The payroll survey brought some hopeful signs as well:

The average workweek rose slightly to 33.3 hours from 33.2 hours while temporary hiring surged again by 52,000. This suggests that employers are giving their existing workforce more hours and relying on temps, both leading indicators of permanent hiring.

The biggest drag on payroll employment came from a loss of 75,000 construction jobs, but the unusually cold weather across the U.S. last month could have thrown off the seasonal adjustment factor, meaning that the losses were overstated.

Expect sporadic months of job creation in the first half of 2010 followed by sustained growth in the second half.

Scarpetta Chef Resetting the Table at Cooper Square Hotel Restaurant

Foodies tell me that Scarpetta on West 14th is one of the hottest restaurants in the city. And my personal experience tells me that the recently closed Table 8 at Cooper Square Hotel was one of the most unsatisfying restaurant outings I have had in a long while. So what would happen if you take the chef and part owner of that hot spot, and ask him to try and turn around that much heralded dining disappointment? Stop by Faustina at the Cooper Square Hotel starting tomorrow to find out.

Scarpetta chef and part owner Scott Conant unveils Faustina to the public tomorrow in the former Table 8 space. Not much is known about the new venture, mostly because the turnaround time between the closing of Table 8 and the redesign and opening of Faustina has only been around four weeks. A little light was shed in a New York Times story last week, but I will let my taste buds decide before the end of the month. And I will let you know all about it.

Where is Job Growth Going to Come From? Is "Everywhere" an Acceptable Answer?

Every week, Robert Bach, the chief economist for my company, Grubb & Ellis, releases a report highlighting some positive (or optimistically positive) economic news. His latest talks about job creation, which is a topic that seems to be on everyone's lips these days. Bob's take on the subject is interesting, as always.

The Next Big Thing

I’ve been on the speaker circuit this month to present my outlook for 2010, and the question I get most often is: Where will the new jobs come from? Many people think the U.S. could be facing an extended jobless recovery, a double-dip recession or, at worst, a “lost decade” similar to what Japan endured in the 1990s. The questioner can’t visualize the next hot growth sector that will jump-start hiring and lead the broader labor market to new heights.

Maybe we don’t want a next big thing. The hot growth sectors of the 1980s (commercial real estate), the 1990s (technology) and the 2000s (finance and housing) turned out to be bubbles, triggering recessions and massive investment losses when they burst. Maybe we want more gradual growth across all sectors fueled by prudent lending standards, and that may be what we are going to get. According to a recent report by Moody’s Economy.com, “By year's end, all major industry groups will be expanding.” Job growth will be strongest, they say, in environmental services, medical services, biotechnology, restaurants, computer software & services and pharmaceuticals manufacturing. If there is a next big thing, it could be healthcare, but demand will be driven by underlying demographic trends (aging of the boomers), development of new treatments to keep people healthy, and an expansion of coverage to the uninsured, though what that will look like remains uncertain.

The labor market will recover at a gradual pace, and it will take several years to recoup the 8 million-plus jobs lost in 2008 and 2009. But the forecast by Moody’s Economy.com bears repeating: “By year's end, all major industry groups will be expanding.” It will be a start.

620 Avenue of the Americas Owners Dodge a Bullet, But Face Future Hurdles

Months of turmoil revolving around the ownership status of 620 Avenue of the Americas appears to have come to an end. But with that problem seemingly resolved, the owners must now contend with another looming issue - growing vacancy in the building.

Real Estate Weekly reported last week that building owners Yair Levy, Meyer Chetrit and Charles Dayan had reached an agreement with REIT SL Green to maintain ownership of the building. Last year SL Green had reportedly begun foreclosure proceedings on a $30 million mezzanine loan it holds against the property after the owners reportedly failed to service the loan. A resolution was reached, according to sources in the Real Estate Weekly story, when the owners agreed to invest $10 million into the building in return for SL Green writing down about $10 million of its mezzanine loan.

The $10 million infusion is going to come in handy in the years ahead, as significant capital will be required to meet leasing costs associated with trying to replace major tenants in the building who will be vacating in 2010. Gap, which occupies approximately 35% of the building, and Filene's Basement, which occupies approximately 20% of the building, announced last year that they would not be renewing their leases in the building and would vacate later this year.

Looking just at the Gap availability of approximately 219,000 RSF, if we are to assume ownership providing $30.00 PRSF in work and paying commissions to its broker and the broker representing the incoming tenant(s) on a 10-year lease, the transaction costs, before accounting for any free rent, would exceed $10 million.

New Space Availability Monday

February is now upon us. But were we really ready for January to come to an end? With the first three weeks of January generally positive from a Midtown South real estate standpoint, let's see how the month came to a close.

Overall, we ended the month of January on a mixed note. Approximately 123,000 RSF* of new space hit the market last week, up almost 40,000 RSF from the week before. Weekly space additions in excess of 100,000 RSF are never good, but as we are in a recovering market, that number falls into the range of acceptability.

Looking back over the month, we saw a total of approximately 430,000 RSF of new space added to the market and more than 200,000 RSF of space unofficially leased. Assuming the amount of leased space rises slightly once final numbers are released, as is usually the case, Midtown South availability should rise only a few basis points for January, if not stay even with December. As I have been alluding to all month, the numbers are pointing in a positive direction.

Earlier I said that last week had mixed results, so I should pass along the really good news for the week. The percentage of sublease space to overall space added was once again below average, at 13% for the week. Can I get a "Hallelujah."

Total rentable square footage put on the market – 123,351 RSF
Percentage of direct space – 87.0% (107,326 RSF)
Percentage of sublease space – 13.0% (16,025 RSF)

* Not included in the 123,000 RSF is 72,000 RSF of space that was added to the inventory at 400 First Avenue, also known as The Alexandria Center for Science and Technology at East River Science Park, a newly constructed (near completion) center for commercial bioscience research and development. As this space is not intended for traditional office use, we have excluded availabilities in this facility from our weekly Monday report.

New Space Availabilities:

West 18th Street, off Fifth Avenue - Full floor of 16,000 RSF available in August. The building is recently renovated and features new elevators, restrooms and windows.

Broadway, north of Houston - Multiple spaces of between 2,500 and 5,000 RSF in a recently renovated building. $35.00 PRSF asking price. Availability in July 2010 and January 2011.

Fifth Avenue, just north of 14th Street - 10,000 RSF divided over two contiguous floors of 7,080 RSF (full floor) and 3,540 RSF (partial floor) with staircase. Sublease through June 2012. Spaces feature mix of offices and open area, hard wood floors, custom lighting, tenant controlled HVAC and high ceilings.

Seventh Avenue in the upper 20s - Multiple spaces of 2,000 - 4,000 RSF, all built either in move-in condition or with work available.

Varick Street - Multiple spaces of 1,300 - 5,500 RSF.