Homework Trumps Gut Instinct in Retail Brokering
By JULIE SATOW – New York Times – RetailMLS
When Donald G. Fisher, the founder of the Gap clothing chain, began expanding in Manhattan in the 1990s, “he would stand in front of a space, see how many people walked by, and say, ‘Hey, this looks like a good spot,’ ” said Robert K. Futterman, the founder of the retail brokerage RKF, who represented the company in some leases.
The retail leasing business has come a long way since then. Companies like the Gap pore over maps detailing subway access and foot traffic, as well as wealth profiles of nearby residents and sales figures for neighboring stores before agreeing to move to a new location.
And rather than the company founder visiting a site, it is more common for real estate consultants and other executives to make these decisions. It is all part of the shift in retail real estate over the last decade away from a tight-knit group of brokers, tenants and local landlords toward large brokerage firms advising multinational retail chains and institutional landlords.
“Gut instinct is no longer sufficient,” said Jeffrey D. Roseman, an executive vice president and a principal at Newmark Knight Frank who has been in the business since 1986. “You need to have done your homework and provide your clients with data showing why the space is right for them.”
In New York, the proliferation of national and global chain stores and fashion brands in places like Times Square and SoHo has raised the stakes. Retail rents in Manhattan are some of the most expensive in the country, regularly topping $1,500 a square foot. In the costliest corridor, along Fifth Avenue between 49th and 59th Street, rents averaged $2,550 a square foot in the fourth quarter of 2011 — a 64 percent increase from the market downturn two years ago, according to CBRE.
There are some 500 retail brokers in the city, estimates Joanne Podell, an executive vice president of Cushman & Wakefield, though there are no official numbers. Those in the industry say the ranks have been growing, in part because as retail rents rise, so does the potential for large commissions. Mr. Futterman, for example, said that more than 10 brokers at his company earned at least $2 million last year.
Retail brokerage came into its own as a real estate specialty when Garrick-Aug Associates, one of the first retail-only firms, opened its doors in 1975. Many of today’s most established brokers came from its ranks, including Mr. Futterman. In the 1980s, other firms expanded their retail business, including CBRE and Cushman & Wakefield. The industry was still relatively specialized, however, and “seen as second class by many brokers” compared with the more glamorous, and established, business of commercial office leasing, Mr. Roseman said.
“It used to be that New York was small, with retail almost exclusively focused on Greenwich Village, Midtown and the Upper East Side,” said Benjamin Fox, an executive vice president of retail leasing at Massey Knakal Realty Services. Mr. Fox, another alumnus of Garrick-Aug (the firm closed in 2007), joined Massey Knakal last year from Winick Realty Group to start its retail team. “Every building had its own leasing agent who would also do the retail, and leases were just a four- or five-page document you would sign in a lawyer’s office.”
In the last decade, the field has become far more competitive and professionalized, industry insiders said. In some cases, it has been a hard transition. “There are so many retail brokers now, it is increasingly hard to find opportunities and make deals,” Mr. Fox said. “After 30 years, my earning chart is very up and down; it is a tough way to live and it isn’t for everybody.”
As the retail sector has matured and grown more competitive, it has also become an increasingly significant part of commercial real estate as the rents and value of the space have risen. Retail now “is a critical piece of the puzzle because it directly plays into the branding and prestige of an office building,” said Matthew Van Buren, the president of CBRE for the New York, New Jersey and Connecticut region.
The advent of digital technology has turned retail deals into a game of numbers. Ms. Podell said she recently reviewed one client’s portfolio of stores, and using customer ZIP codes, sales figures, store size and other particulars, “we built a model that showed us the ideal store size, where the majority of their customers were coming from, the importance of subway access.”
But while the retail industry has become more competitive and sophisticated, there is still very little transparency in terms of asking rents, availability and lease expirations. Unlike the office space market, where data companies like CoStar track much of the information, retail data is mostly compiled by the brokerage firms themselves and remains largely proprietary and hidden.
One company trying to make the process of finding and advertising retail spaces more efficient is RetailMLS.com, which plans an online database of listings. The company’s Web site is set to go live in May in test form to a closed network of brokerage firms, said Benjamin M. Zises, the founder and chief executive.
At first, the service will be available only to brokers, but may eventually be opened to the public, said Mr. Zises, who was a retail broker at Mogull Realty.
With such little transparency, retail brokers often find themselves playing the role of private detective to reach landlords. In New York, many stores are within residential co-op buildings that are run by a board of residents, or are owned by small landlords who can be difficult to find.
“Typically, good retail areas have very low vacancy rates,” said Amira Yunis, an executive vice president of CBRE, “and finding out who owns which buildings, who are the decision makers and when leases come due can be very hard to figure out.” She said that roughly 35 percent of her deals were for spaces that were not officially on the market, and that she spent significant portions of her days forming relationships with landlords and retailers to find hidden deals.
The competition among brokerages to retain or recruit top producers can be tough. Ms. Yunis recently jumped to CBRE after spending much of her career at Newmark Knight Frank. Though she sees herself as a relative newcomer to the industry after 12 years representing retailers, she has closed a number of prominent deals, including in 2006 bringing the first Trader Joe’s grocery to New York City with a lease on 14th Street.
Ms. Yunis said brokers who were women offered “a unique perspective.” “I love to shop, I like architecture and design, so this gives me an edge,” she said.
Scott D. Galin, a principal of the Handler Real Estate Organization, said retail brokers played a more critical role than ever, with the economic recovery still fragile. Mr. Galin, who spent 30 years as a retailer before joining Handler, a landlord and brokerage firm, said retailers “are much more cautious now, reducing their footprints and being more selective in opening new stores.”
Because New York has the added risk for retailers of high rents, he said, “local knowledge is critical. I don’t care how big your chain store is, if you live 1,000 miles away you aren’t going to know the eccentricities of different areas, like why one corner is better than another corner. Only a broker can tell you that.”