Brand Meets Space


Reports of the death of retail are premature and exaggerated. In fact, the challenge of e-commerce is a major driving factor for dramatic innovation in what a store represents, how space can be configured to suit a brand’s image and objectives and why branded buildings are best suited to engage consumers in a multi-channel sales environment. Below are three salient examples:

Metrograph, No. 7 Ludlow Street, New York

Millennials don’t just want to stay home, order in food and stream Hulu. The immediate popularity, particularly among millennials, of the Lower East Side’s Metrograph building demonstrates this. It features two theatres for independent films, but also much more. Metrograph includes a restaurant, curated candy shop, bar/lounge and a miniature bookstore. It’s a branded place in touch with New York’s repertory theatre tradition that rejects the prosaic multiplex aesthetic with elements like custom seats made from pine reclaimed from Brooklyn’s Domino sugar factory.

Domenico Vacca Club15 West 55th Street, New York

The Italian luxury label, Domenico Vacca, closed its three traditional Manhattan stores in favor of establishing a branded flagship presence off Fifth Avenue. What elevates the new Vacca Midtown presence beyond traditional bespoke retail is the incorporation of a private, member-only DV social club, a café, barbershop, salon, private event space and extended stay furnished apartments along with an 8,000 square foot boutique with a private V.I.P. atelier for special order collections. Particularly for the  international tourist/shopper, the Vacca building creates a power spatial context for elite luxury in New York.

Miami Design DistrictBuena Vista, Miami

In a little more than two years, the world’s leading luxury brands have nearly all made substantial retail investment in Miami’s Design District. More than a shopping center, the Design District allows brands like Dior, Tom Ford, Hermès and Bulgari to each establish a branded showcase building in a neighborhood known recently as a quiet outpost for high-design home furnishing. Many have questioned the audacity of such expenditures far from Miami’s principal tourist retail hub (Lincoln Road) and the super-high-end Bal Harbor Shopping center. But with the expansion of direct Asian flights to Miami, the importance of the city as a luxury travel outpost is clearly on the rise. Each of the major brand outposts of the Design District feature dramatic staircases and roof top lounges primed for events, photography and private shopping rooms. The performance of these stores is not measured by sales transacted on site, but by how these spectacular environments serve as settings for sales professionals to engage luxury consumers and establish ongoing relationships.

Photo Credit: Alessandra Chemollo

Should You Consider Owning Commercial Space and Leasing it to Your Business?


Firms looking for office or retail space in New York find that the majority of opportunities are available onlyfor lease and not for purchase. But for entrepreneurs and other private business owners who have the ability to purchase (and finance) the acquisition of real estate to lease to the businesses they own, the hunt for relatively uncommon commercial purchase opportunities may be worth the extra effort and due diligence. The most important location criteria for selecting any office or store must be accessibility to talent and visibility to targeted customers. No matter how attractive a commercial purchase opportunity may appear, any location that potentially hinders a firm’s prospects should generally countermand the benefits and opportunities presented by property ownership. Leasing space also typically provides much more flexibility (and liquidity) if a company is growing, unless a purchased building or condominium provides surplus space into which the business may grow.

There are very clear potential investment, tax and business expense advantages for a company’s principals by owning the real estate that can be leased to the firm owned by these same principals.

  • If the supply of the type of real estate acquired is constrained, there is strong likelihood its value will increases over time. For example, commercially zoned townhouses in New York are not common but desirable and generally no new inventory of this product type is added to the market. If the property does increase in value and is eventually sold as a part of a 1031 tax deferred exchange, the equity can be moved to another property by the seller with no immediate tax liability on the capital gain.
  • If a business owner acquires real estate through a Limited Liability Corporation (LLC) structure and the company (also typically structured as an LLC ) pays rent to the LLC to occupy the space (a lease backarrangement), the company can deduct the rent as a normal business expense and the property owner can offset the rental income with interest payments, operational expenses and depreciation.
  • Since the company owner is also the building landlord, the lease rent can be stabilized. In contrast, if a business rents from a third party landlord, it will likely face base rent increases and tax and operating expense escalations over the course of the lease term. This can be very critical in a tight real estate market prone to rent spikes. This explains why a bar such as The Brass Monkey  has been able to maintain its unpretentious but successful niche as rents in its Meatpacking surroundings have spiked – the bar’s principals also own their building!

Time. Space. Workplace.


There is no single prototype for the workplace of the future. With that said, below are two unmistakable and disparate trends that are currently driving the planning and design of office space:

  1. Technology, advertising, media and information (TAMI) firms are creating all-encompassing work facilities with an array of amenities intended to not only engage their employees but also encourage them to work on-site and collaborate with each other to develop the branded products, designs and content that generate revenue. For example, Facebook’s Silicon Valley headquarters includes not only the largest open plan work space in the world but also an array of employee perks including bike repair, a barber shop and multiple dining choices. These perks are designed to increase productivity and ensure the staff doesn’t clock out at 5 PM. When a smaller TAMI company is looking to lease office space in a multi-tenant office building, the available services and facilities, including dining, recreation and shopping within the building and immediate neighborhood, are critical to selecting the most dynamic and creative functional environment.
  2. Professional service companies (consulting, accounting, insurance, finance, real estate) are employing technology to cultivate a mobile and flexible workforce and de-emphasizing fixed and dedicated personal work spaces in favor of work settings for team and client engagement. At the management level, firms like the accounting and consulting giant PWC have eliminated the concentrated “headquarters executive office floor” in favor of a decentralized management team, spread amongst geographies and connected by technology like Google Hangouts and face-to-face interaction as permitted by travel schedules. Thanks to technology, independent contractors and small business owners can work almost anywhere. Co-working environments like WeWork and The Grind offer not only flexibly designed work spaces with the attractiveness of short-term occupancy commitment but also the opportunity to benefit from interaction with similar firms and professionals.

At Working Mothers Media’s 2016 Work Life Congress: Time. Space. Workplace. (, I will be speaking and conducting a seminar for corporate leaders to assess the impact of these key workplace trends on company culture, talent acquisition and employee engagement. Stay tuned.

The Future of Soho Retail


In a recent interview with me on the floor of the NYSE, Cheddar TV founder and host of the network’s daily business news broadcast, Jon Steinberg insisted that SoHo’s current high store vacancy rate indicated the neighborhood was a “nightmare” because it had become inundated with shoppers from New Jersey.

In fact, SoHo’s retail vacancy, which doubled in the last 18 months to 20%, is a result of rising real estate values and skyrocketing rents driven by the neighborhood’s desirability as a shopping destination for brands like Moncler, Louis Vuitton, Dior and Chanel, appealing to the higher-income global tourist drawn to New York in record numbers since 2008.  For many other retailers, however, looking chiefly to drive on-site store sales, the rents are too high to sustain profitability.

While the stretch of Broadway between Houston and Grand Streets may have some similarity to a mid-level New Jersey shopping center in terms of the range of brands featured (from Uniglo to Zara to American Eagle), the reality is that SoHo is perceived globally as one of the most desirable 7-day neighborhoods in the U.S. SoHo’s strength reflects a mix of fashion and tech firm offices and showrooms, luxury loft apartments as well as leading “high-street” brands on streets like Prince, Spring and Greene and trendy restaurants like Cipriani, Ladurée, and Felix.

More importantly, as e-commerce and particularly the technological obsessions of millennials (and centennials) transform shopping, leading global brands are looking to vital neighborhoods like SoHo as environments ideal for engaging consumers in new types of retail experiences. I’ve just represented Sennheiser, the leading German headphone and microphone manufacturer, in licensing a five month “pop-up” SoHo store to launch the brand’s U.S. retail presence. The primary intent of this store is to engage consumers with exciting displays, events, and concerts to generate brand awareness and stimulate multi-channel sales. The future Sennheiser space is now occupied by the premium Belgian ice cream brand Magnum (now owned by Unilever) which has been phenomenally successful in launching in the U.S. in SoHo — typically with customers lining up around the block — curated by a strong social media presence.

The willingness of landlords in SoHo to entertain “pop-up” leases reflects recognition that today’s higher vacancy requires greater flexibility in rents as well as retail concept.

Digital Nomad: Iconoclast or Prototype?

Photographer equipment

Digital nomads are individuals who capitalize on their skills and the flexibility provided by telecommunications technology to earn a livelihood, primarily as self-employed workers, without being anchored to one specific location. While all of us experience how the pervasiveness of wireless internet and smartphones blurs distinctions between the places we work, live and play, digital nomads proactively seek a lifestyle where they are never actually at home or at work. Digital nomads generally love to travel and are creatively inspired by new environments, but typically struggle with an array of concerns including maintaining long-distance relationships with friends and family and identifying comfortable work spaces with high download speed.

As pioneers of sorts, digital nomads may be clear indicators of where our globalizing society is headed. Within 15 years, over 50% of American workers will be freelance, independent contractors or consultants, with a minority remaing full-time employees. Millennials, in particular, do not typically strive to affiliate with one company for any extended period. Mobility, often without the obligations of ownership (home or car), is clearly prized by this demographic. Increasingly companies seek to engage and retain talented workers with more flexible workplace policies and are moving away from stolid corporate campuses and longer-term office space commitments in favor of more flexible and shorter-term office configurations oriented toward collaborating and diverse teams, often organized across geographies.

The real estate sector is also developing an array of environments oriented to the mobile worker, from Soho House-type clubs in a range of cities which meld hotel, play, work and meeting areas to far flung co-working spaces that are now growing as fast in Third World countries as they are in the West. Perhaps repurposing of vacant retail spaces as work spaces for the growing number of freelance digital workers may be next.

Is Airbnb disrupting the second home investment market?

Much has been written about Airbnb’s impact on demand for hotels and apartment rents in specific neighborhoods. In addition, we are now familiar with the controversial restrictions municipalities have enacted to minimize the perceived deleterious consequences of short-term rental in multifamily buildings. Now we are observing the dramatic impact of Airbnb and its peers on second home investment markets like the Hamptons.

Historically, many owners of Hamptons vacation houses benefited from the income of monthly or summer rentals, which often more than offset annual mortgage, tax and maintenance expenses. However, this year, local brokers report that summer rentals were off nearly 50% as compared to typical years, particularly in the under $75,000 rent per summer category. This appears to be a direct result of large numbers of available Airbnb shorter rentals, despite greater scrutiny and regulation of shorter term rentals by the towns of Southampton, Riverhead and Southhold and throughout the unincorporated portions of the Town of East Hampton. And this phenomenon is not restricted to the Hamptons. Christopher Chauvin, the president of a french concierge app for villa, car and plane rentals, reports a similar drop this summer in seasonal rentals in the south of France.

For many renters the option to pick and choose which specific weeks and weekends they commit and pay for is particularly attractive. And for owners of well-reviewed and attractively photographed properties, the rental income from multiple shorter rentals can in some cases exceed that of traditional longer term commitments (while allowing owners greater flexibility to also use and enjoy their properties). However, managing a large number of shorter term rentals requires greater effort by property owner, particularly in effectively pricing to capture demand and for maintenance, as cleaning and associated responsibilities are shifted from tenant to owner in the Airbnb model. In other resort-oriented markets like Charleston, South Carolina, these issues have contributed to the rise of short-stay management firms like Duvet ( which in return for 25% of rental income, price properties for short-term rentals, manage advertisements, guarantee 5-star ratings and coordinate check-ins and check-outs.

Why a Millennial-Centric Investment Strategy – Part 2


Last month I explored why the millennial preference for urban lifestyle and this cohort’s general inability to purchase housing combine with a shortfall of rental housing production to present an ideal opportunity to invest in urban housing appealing to renting millennials. Since that post I attended a lecture by Laurie Goodman, Director of the Urban Institute’s Housing Finance Policy Center and her research confirms my recommendations. Most fascinating was that even with the housing construction industry now largely recovered, net new housing units in 2015 represented only 75% of the number of homes demanded by new households in that one year.

Once you establish your own cap rate threshold, implementing a millennial-oriented real estate investment plan should incorporate these strategies:

  • Invest through LLC entities in single family and multifamily properties in urban neighborhoods where new housing supply is constrained and where recent rent growth can be quantified. This doesn’t mean avoiding areas attractive to new development – as long as new housing development is a different typology –i.e.,  invest in existing single family and two-five family homes in neighborhoods where land values and construction costs only justify much larger multifamily condominium and rental apartment development.
  • Select properties which combine architectural appeal with walkability to shopping and amenities and good access to public transportation.  The average millennial drove 23% less in 2009 than in 2001 – the sharpest reduction for any age group.  Lack of bike storage could be a deal breaker for a 2-wheeled commuter.  Outdoor space – whether a back yard or roof deck is also an important amenity to attract tenants
  • Don’t be afraid of neighborhoods in the midst of socio-economic transition – these may represent the greatest opportunity for future appreciation of value.  However remember that for many millennials, safety is a top priority.  76% of millennials reported safe streets as the Number 1 priority for urban living.  Install alarm systems and security cameras to enhance a property’s appeal.
  • Be prepared to accept pets and alternative forms of rent payment. More than 76% of millennials own cats or dogs.  And they rarely write a check.  I always offer my millennial tenants the options of Quickpay, Paypal and my personal favorite, Venmo. In fact any of these payment systems give me greater piece of mind than hearing from a tenant that “the check is in the mail.”

Why a Millennial-Centric Investment Strategy – Part 1


The media is rife with attention to the predilections of millennials (born between 1982 and 2001) who form a demographic cohort of nearly 76 million, that is now the largest living generation in America. In this first of a two-part post, I will explain why an urban real estate investment strategy attuned to Millennial tastes is on target. In the second part of this post, I will describe how to implement a millennial-oriented real estate investment plan.

Millennials seek to live and work in walkable urban areas

Resurgent American Downtowns have long been attributed to aging baby boomers, who as empty nesters were eager to swap suburban homes for urban condos. Millennials are even more inclined than boomers to live in walkable urban areas, particularly if these neighborhoods re-enhanced by the availability of a wide range of transportation options. A Rockefeller Foundation survey in 2014 found that up to 86 percent of millennials said it was important for their city to offer opportunities to live and work without relying on a car. Nearly half of millennials who owned a car said they would give it up if they could count on public transportation options.  A 2014 Harris poll of millennials found that over three-quarters agreed to the importance of affordable and convenient transportation options other than cars in deciding where to live and work. For millennials the fifteen most desirable US metropolitan areas include those with some of the nations’s strongest mixed-use neighborhoods where residents can work, live and play without heavy reliance on owned vehicles: San Diego, New York, Boston, Denver/Boulder, San Francisco, Seattle, Chicago, Los Angeles, Portland, Washington, Austin, Phoenix, Charlotte, Atlanta and Miami.

Millennials need to rent

Most millennials are not financially equipped to purchase urban homes or apartments. Despite a persistently low interest rate environment, millennials are far less likely to purchase rather than rent because of tighter availability of credit and far more rigorous mortgage underwriting standards since The Great Recession. Not only do millennials have more personal debt (particularly student loan debt) than earlier generations, but having witnessed the distress caused by the housing bubble of the late 2000s, most Millennials believe that owning a home may not offer the kinds of financial benefits it once did. As a result, the rate of home ownership among millennials aged 25-29 is only 31.8%, the lowest rate on record for any adult age cohort, according to the US Census. In a rising interest rate environment, none of these conditions are expected to mitigate.

Supply of rental housing has fallen

Since The Great Recession, new housing production (single and multi-family) has fallen far behind the pace of new household formation and demand. Amidst this backdrop, the private equity firm Blackstone has become the largest owner of both private homes and multi-family apartments and its enormous portfolio across 25+ markets has a total vacancy rate under 4% and has seen rents rise more than 5% per year.

These conditions present an ideal opportunity for investors to focus on current returns and future appreciation from owning urban housing positioned to appeal to renting millennials. In the second part of this series, I will detail how to implement this selective investment approach. Stay tuned.

Five Reasons WeWork May be Worth $16 Billion (as of 4/4/16)


WeWork, the co-working office space firm founded in New York in 2010, now has a valuation of over $16 billion dollars based on private equity and venture capital funds raised. This valuation is comparable to the market values of Vornado and Boston Properties, two of the largest and most established REITS (real estate investment trusts). Unlike these landlords, WeWork owns no real estate. WeWork generally leases office space for long lease terms and builds out and subleases office and open desk space for contract terms of one month to a year. What explains WeWork’s ability to raise money based on this presumed sky high valuation?

  • While we can assume WeWork’s initial market valuation if the company were to go public today would be $16 billion (or higher), there is no guaranty this valuation would hold up over time. For example, Groupon had a $17 billion valuation when it went public in 2011 and today has a market value of a fraction of that amount.
  • Like some observers and analysts, I see WeWork as a “disrupter” that has created a new paradigm for the workplace – similar in impact to Airbnb, which owns no hotel rooms but is currently valued more than Marriott, and Uber which owns no cars but is valued at more than the market capitalization of Hertz and Avis combined. Like Airbnb and Uber, WeWork is capitalizing, in part, on the dominant impact of PDA technology and millennial preferences for how we live, work and play.
  • The US (and multinational) workforce continues to shift from full time employment to contingent jobs, such as freelancing, temping, contracting or part time jobs. Currently 40.4% of the U.S. workforce has a contingent job and this is expected to grow to 50% in ten years. WeWorks greatest success is in curating appealing environments for these “unaffiliated” workers (or members) and for the small and growing firms they create.
  • Without advertising or other marketing WeWork has achieved average occupancy rates of 98% for facilities open more than six months and typically achieves 40% profit margins as the density of a WeWorks office is nearly twice that of a typical dedicated office space. WeWork’s combination of flexibility (including the ability of its members to easily grow or shrink occupancy without capital investment), free drinks and snacks and a zeitgeist of collaboration, community and innovation have built a uniquely successful brand identity, largely through word of mouth of its members. WeWork leases space in older and loftier buildings and employs organic finishes and an overall chic industrial aesthetic that contrasts with the typical slickness and monotony of most corporate office space.
  • WeWork currently has 70 spaces already under lease including several over 250,000 square feet, and its funding may allow it to grow by more than 150 centers per year (across the U.S., Europe and Asia) if a recession does not tamper with employment growth in the 24-hour, millennial-heavy markets the firm targets. In 2014 and 2015, WeWork was the largest lessee of office space in the United States. WeWork’s growth dwarfs that of all its competitors except for the office suite firm Regus, which has not been able to shake its outdated generic corporate office aesthetic. Limiting larger corporate occupancies (firms like Apple, Microsoft and Merck) to no more than 20% of its total membership, WeWork often turns away tenancies for lack of space.

Why are Stores Rents So High


The #1 question I’m asked about New York City retail is, “Why are store rents so high if there’s so much retail vacancy in my neighborhood?” This inquiry arises from an observation that appears to contradict a basic microeconomics principle — if supply exceeds demand, pricing should adjust downward. New York City’s retail reality today, however, is not so straightforward.

Without a doubt, the rise of e-commerce has disrupted consumer demand across a wide range of retail categories from books to music to clothes to shoes to hardware and has fueled store closures across these categories and beyond. The rise of urban “big box” venues has also hit small retailers hard. More recently, neighborhood restaurants — which have always had a high turnover rate — face diminishing demand in light of the growing popularity of internet-based meal and ingredient delivery services (obviously, we’re not talking about the celebrity restaurant category). A harbinger of the exacerbating struggles of neighborhood retail is clear on Bleecker Street (east of Sixth Avenue) and on East Eighth Street in Greenwich Village These retail strips have always catered almost exclusively to the local NYU student population and now see some of the highest store vacancy rates in Manhattan as they struggle to assimilate the buying habits of this most “wired” of consumer demographics.

Despite these trends, the recent stickiness of neighborhood retail rents is a softer echo of how store rents have fared since the great recession in the tourist-oriented retail corridors of Fifth Avenue, Madison Avenue, Times Square and Soho, and gentrifying shopping districts like Bedford Avenue in Williamsburg. Since 2009, New York’s skyrocketing appeal to international tourists, a weak dollar and competition among major consumer brands for exposure to influential shoppers have driven retail rents to new heights and retail values into the stratosphere. At the end of 2015, Bulgari broke all records in renewing and expanding its ground floor store lease at 730 Fifth Avenue (one block from Apple, the top selling store in the world) at over $5,500 per square foot per annum. The escalation of prime Manhattan retail rents, growing much faster over the past seven years than rents for New York offices and apartments, has compressed down retail cap rates (the ratio of net operating income over price) to 3% or even lower for prime locations. Observing this much income and valuation growth, landlords in less dynamic retail corridors have been reticent to reduce store rents despite vacancy rates in many cases above equilibrium.

But the winds of change are apparent, even in New York’s hottest shopping corridors. Brazilian, Chinese and Russian tourists are no longer as flush in disposable spending. The dollar is now strong. And Broadway in Soho, where rents range from $800 – $1,600 per square foot, now has a vacancy rate nearing 20%, as retailers cannot justify rents there in light of sales per square foot for brands found in most mid-to-high end American shopping centers. A time of reckoning may be near.