These middle-market players may not be household names yet, but they’re betting (on) the store
Despite signs of a slowdown on several prime avenues, New York City retail investors are invading the market everywhere from Broadway in Soho to Bedford Avenue in Williamsburg.
And it’s not just the household names competing on deals.
In 2015, the NYC retail industry raked in $10.6 billion in investment sales deals — $7.6 billion in Manhattan alone, according to Real Capital Analytics data. That’s a 16.5 percent increase over the $9.1 billion in transactions in 2014.
That’s despite the fact that ground-floor asking rents in Manhattan have been softening, with only 10 of 17 corridors seeing a year-over-year increase, according to a recent report released by the Real Estate Board of New York.
This month, The Real Deal looked at five middle-market players — 60 Guilders, the Klein Group, L3 Capital, Premier Equities and the Jackson Group — who are all tearing into NYC’s competitive retail sphere. Each spent between roughly $100 million and $300 million on retail properties between January 2013 and February 2016, according to RCA.
Although there are more than 50 investment firms in that category, only a small subset are true mid-size players primarily focused on retail.
To be sure, these players are not spending anywhere near what New York retail titans are. Investors like Jeff Sutton and Thor Equities, mainstay families like the Friedlands or the Safras, and global juggernauts Westfield and Simon Property Group are all in another league. Nor do they have other vast portfolios — office or multifamily — that overshadow their retail holdings, such as Vanbarton Group and Harbor Group International.
But they are ramping up their buying activity and ruffling feathers in the middle of the retail market, where the vast majority of NYC’s investment retail deals take place.
Some of these rising retail investors are among a class of players who have recently left their roles at billion-dollar firms to start their own shops. Former Carlyle Group executive Andrew Chung and former Vornado Realty Trust CEO Michael Fascitelli are two others. But Chung is just starting up and Fascitelli doesn’t have the same laser-like focus on retail.
For all of these firms, the key to success is agility.
For example, 60 Guilders is among the “mavericks who now don’t have to carry around the 900-pound gorilla of a large firm,” a source said. “With their knowledge and connections, they can compete faster than a REIT, and can even outbid them.”
Here a look a closer look at five firms to watch.
New guys with old ties
In 2013, Kevin Chisholm and Bastien Broda left their jobs at the high-profile investment management firm Savanna to start their own shop.
They had both focused on acquisitions, which involved sourcing, financing, underwriting and closing deals. But they each wanted more control over their investment decisions.
The company name, 60 Guilders, refers to the price the Dutch paid the Lenape Indians in the 1600s to buy Manhattan Island.
“The modern equivalent is 24 bucks, but this had a nicer ring to it,” Chisholm told TRD.
The four-person firm, however, is not stuck in the past.
In just a few years, 60 Guilders has aggressively gone after properties, racking up an impressive $750 million portfolio. The firm, headquartered at the Feil Organization’s 7 Penn Plaza, has acquired 14 buildings that include 1.9 million square feet of real estate. Half of the properties are retail only; the other half is made up of office or multifamily buildings with a retail component.
The 45-year-old Chisholm, who was a managing director at Savanna, and the 29-year-old Broda, who was a senior analyst, said they’ve locked in at least five partnerships with major private equity funds and investment firms, including Carlyle; Rockpoint Group; and Meadow Partners.
Some of the private equity firms 60 Guilders has partnered with are “people we were competing against when we were at our former shop,” said Broda.
The firm has not yet come across Savanna in seeking out a deal, Chisholm said.
Broda said they plan to be long-term retail owners on the very high and very low ends of the market. He said those sectors show strength, while “the margins are being squeezed in the middle.”
The firm has zeroed in on Soho, buying a mix of retail condos and co-ops at 119 and 121 Spring Street; 542 Broadway; and 133-137 Greene Street, which is home to a 3,200-square-foot Dior Homme.
<p”>In late March, Carlyle and 60 Guilders teamed up to acquire the retail at 106 Spring Street for just shy of $100 million. And, the duo is expected to close soon on the retail at the adjacent 93 Mercer Street for north of $40 million. The buyers plan to upgrade the combined 12,000-square-foot retail space — which until recently was home to high-end fashion designer Helmut Lang and sporting goods company Burton Snowboards.“Jacob is practically a one-man show, in that he sees a property and writes a check,” said a source who asked to remain anonymous.
To date, 60 Guilders biggest purchase has been an undisclosed stake in Feil’s 1.2 million-square-foot Queens Atrium office complex in Long Island City in 2014, according to Chisholm and Broda.
The Klein Group:
The one-man show
In the past year or two, many New York-area developers specializing in supertall condo towers or in multifamily buildings have flocked to Israel to raise capital on the Tel Aviv Stock Exchange. But the Klein Group is one of the first players — if not the first — to show up on the Israeli exchange with an almost exclusively retail portfolio.
The Florham Park, N.J.-based company, led by Jacob Klein, owns more than 20 retail buildings in the New York metro area, including eight in NYC. The holdings are valued at nearly $400 million, Klein said.
In November, the 11-person firm — which launched in the 1990s, but has recently seen its profile and deal volume rise in NYC — secured about $55 million in its first bond offering that targeted Israeli banks and pension funds.
That victory came just a few months after retail mogul Jeff Sutton delayed a $500 million bond offering because of lackluster demand.
“We knew about Sutton, but that didn’t deter us,” Klein said. “We went in with our own story, and included assets we thought were appropriate.”
In the past year, the Klein Group has made some big NYC purchases. It snagged an Upper West Side retail condo and parking garage at 670 Columbus Avenue for $60.5 million, and a Tribeca retail condo at 261 Broadway for $22 million, the latter in partnership with Alto Investments. Trader Joe’s is in late-stage negotiations to anchor the 20,0000-square-foot Upper West Side property, according to sources.
“Jacob is practically a one-man show, in that he sees a property and writes a check,” said a source who asked to remain anonymous.
Klein, who is in his mid-60s, grew up in Israel and moved to the U.S. in the 1970s. He started his career as a mechanical engineer but later founded a business called Klein’s Associates that wound up acquiring about 30 Hallmark stores in the tri-state area. He then sold the stores in the mid-1990s, and started the Klein Group to focus on a more diverse array of retail.
In the city, the firm has taken a shine to the Financial District, where it acquired 30,000 square feet of retail at 20 Pine Street in 2013 and 25,000 square feet at 111 Fulton Street, where a CrossFit is set to open this month, in 2011. And now Klein is looking to expand his footprint elsewhere Downtown.
“We are very intensely looking at Soho, but we are hearing it’s very soft at the moment,” Klein said.
Windy City dealer
This investment firm may be based in Chicago, but its biggest presence is in New York.
Domenic Lanni, who co-founded L3 in 2009, said he visits the city every other week. In New York, the firm owns and manages 25 properties valued at $600 million. Its total assets — including properties in Miami, Los Angeles and Boston — clock in at $850 million.
In the past few years, L3 has set its sights on value-add Williamsburg retail investments.
In spring 2015, L3 and Washington, D.C.-based ASB Capital Management paid about $95 million for 17 Williamsburg parcels, some of which are vacant lots prime for development. The partners are in the process of investing $38 million to redevelop the ground-floor retail at existing mixed-use buildings and to construct new retail on the vacant lots.
In March, French perfumery Le Labo signed a lease for the full, three-level 7,500-square-feet retail component of a warehouse-to-commercial conversion at 120 North 6th Street, part of a prime Williamsburg corridor, sources said.
“Whole Foods and Apple were the initial drivers in Williamsburg, allowing for us to have a positive long-term outlook,” Lanni said, referring to leases signed at other landlords’ buildings by the two retail giants in 2014.
The highest-profile tenants at L3’s buildings to date, however, have been in Soho.
In 2012, L3 leased a pop-up store at 72-76 Greene Street to Apple — which took the space while its store at 103 Prince Street was under construction. Patagonia is currently leasing 14,000 square feet at the building — which L3 bought with ASB for $41.5 million in 2012.
Lanni, formerly a vice president in the acquisitions at RREEF, the real estate investment management arm of Deutsche Bank, said at the moment purchasing in most parts of the city is not easy.
“We’re looking all over Brooklyn for new opportunities, but outside of Williamsburg, we haven’t been as lucky,” he said.
The guys with the ‘Scoop’
Premier Equities has been buying up Manhattan retail for more than two decades, but has increasingly been ramping up its solo retail development efforts.
Israeli investors Yaron Jacobi and Uzi Ben-Abraham both started out in the fashion industry. Jacobi ran American Leather of New York, a manufacturer of leather garments, while Ben-Abraham co-founded trendy clothing brand Scoop, which he has since sold for an undisclosed amount.
The investors, who are notoriously private, declined to comment.
“Through Scoop, Uzi became aware of the importance of good retail firsthand,” said Keller Williams NYC’s Peter Acocella, who has represented the firm in multiple deals.
The duo now own more than 35 buildings in the city, according to RCA. The firm’s tenants have included Vera Wang, Nike Sportswear, Lucky’s Famous Burgers and home décor shop Jonathan Adler.
Many of its properties, located in Soho and on the Lower East Side, are mixed-use with a retail component.
The Midtown East-based company, which also has holdings in Miami and the Hamptons, is perhaps best known as Thor’s partner on a bevy of Soho investments.
But in recent years, Premier has ramped up its solo development efforts.
It’s currently developing a ground-up six-story, 18,700-square-foot retail-and-office building at 134 Wooster Street and an eight-story, 23,500-square-foot retail-and-residential condo at 260 Bowery. The NYC Landmarks Preservation Commission approved the plans in March for the Wooster Street building — the site of an Adidas store until July 2015.
Architect Morris Adjmi was tapped to design both buildings.
“Retail is a finite thing,” Acocella said. “Like a prewar residential co-op, [it’s] in limited supply. You can build up, but not always across. Premier has developed its own retail and made more of it.”
Not all of its deals are development plays, though. In March, the firm put a five-building Upper East Side package with a total of 115,000 square feet in unused residential development rights on the market. Also, Premier and Meir Cohen’s Cohen Equities own the vacant 10,400-square-foot retail space at the base of the 26-story Brack Capital-developed Hotel Indigo, which opened on the Lower East Side in November.
Not all of its tenant relationships have been smooth.
In June, Vera Wang sued Premier, accusing the firm of seeking to terminate the designer’s Soho lease at 158 Mercer Street to make way for a higher-paying tenant. Although Premier agreed in September to withdraw a lease termination notice, the lawsuit has yet to be resolved.
“Gold Coast” newbie
The Jackson Group, led by Ike Chehebar and his brothers Eliot and Gabriel, has largely steered clear of the city’s foremost shopping corridors — until now.
In December, the firm paid $83 million for a five-story commercial building at 712 Madison Avenue anchored by jeweler David Yurman. The purchase marked Jackson’s debut on Madison Avenue’s “Gold Coast,” where retail rents average north of $1,600 per square foot.
Further south, the Garment District-based firm’s other luxury tenants have included Armani Exchange at 129 Fifth Avenue and Jimmy Choo at 407 Bleecker Street.
“Their strategy is to trade and sell off their B and C Class legacy assets and buy more Class A core retail,” said Jared Epstein of Aurora Capital Associates, which has partnered with Jackson on a few building purchases.
Jackson, which the brothers founded in 2007, owns 14 buildings in NYC and two in San Francisco. Its portfolio is valued at more than $400 million. Representatives for the Jackson Group could not be reached for comment.
The firm’s most notable undertaking to date might be the redevelopment of the longtime home of adult toy sex shop Fantasy World at 192 Seventh Avenue South in West Village, where it wants to build a five-story mixed-use property. Jackson paid $4 million for the site in 2013. In December, the Department of Buildings signed off on the proposed demolition of the 1,875-square-foot, one-story building.
Jackson’s strong capital footing largely stems from the Brooklyn-based clothing chain Rainbow Shops, which the Chehebar family founded in the 1930s. The chain operates about 1,300 stores nationwide.
“They’re young guys with a long road ahead of them. The big players are giving the Chehebars a shot due to their extensive capital.” Epstein said.