On 34th Street, a Future So Bright, You Gotta Wear Sunglasses

May 18, 2011

Liana Grey, Real Estate Weekly

Fifteen years ago, Richard Cohan, a broker and retail consultant, brought Sunglass Hut to the corner of 34th Street and Broadway.

It was a bold decision for Cohan and his client. At the time, the area around Macy's was just beginning to emerge from the retail equivalent of the dark ages, and low-end merchants, rather than national fashion outlets, ruled the streets.

For much of the '80s and '90s, vendors hawked counterfeit handbags on the sidewalks, porn shops flourished, and oversized signs obscured equally unappealing buildings, including a bright pink row-house with chipping paint.

On some parts of 34th Street, merchants blocked access to private doorways, rendering apartments and offices above storefronts vacant. Streamers with blue, red and orange pennants – the kind used to mark newly-opened gas stations and car dealerships – hung from stores long past their opening days.

"They left them for six or seven years," said Dan Pisark, vice president of retail services at the 34th Street Partnership, a business improvement district that helped transform the neighborhood.

Around the time Cohan inked a deal for Sunglass Hut, the Partnership launched a clean-up operation, adding potted plants and tables to the neighborhood's two desolate parks, Greeley Square and Herald Square, installing soft white street lights, and fighting illegal signage. The Partnership even worked with landlords to fix up storefronts, matching them with window-dressers and other contractors.

"While all this was happening, we took note of some of the positive elements of the district, for example Macy's," which attracts 20 million visitors a year, said Pisark. "Macy's said if we fixed the block they'd be indebted."

Cohan began consulting for the organization, serving as its eyes and ears on the street. He was retained earlier this month, and now faces a challenge of a different sort: how to accommodate all the retailers clamoring for a slice of the now-hot corridor. "We get dedicated shoppers to our 34th Street stores," said Daniel Biederman, president of the 34th Street Partnership.

The neighborhood, which stretches from Fifth to Tenth Avenues, between 31st and 36th Street, is a paradise for fashion outlets. There are two H&Ms on the same block, a Strawberry, Timberlands, Mango, Forever 21, and one of Gap's most profitable stores in Manhattan. A JC Penney that opened recently at the Manhattan Mall on 33rd Street is among the chain's most successful shops.

And in place of graffiti-covered gates and garish storefronts, there's an artily decorated building housing a Desigual on the corner of 34th and Fifth Avenue.

"It's a critical mass of stores – wall to wall stores, all very successful," said Biederman, who also helped revitalize Bryant Park. In the district's core, between the Empire State Building and Penn Station, "there are no vacancies," he said. "We don't see people leaving, people want to relocate."

Further west, and along some side streets, there are spaces available – but they're flying off the market. "It's a great value," Pisark said of rents in the area. On the western end of the neighborhood, the average retailer forks over $300 a foot.

Closer to Macy's and the Empire State Building, where real estate is especially desirable, rents climb to around $500; Gap pays the latter price for its location in Herald Square. In Times Square, its rent is close to $2,000 a foot.

A tri-level Starbucks opened near the Empire State Building, as did the type of mid-range clothing chain that has become a neighborhood staple. "Aeropostale opened last year," said Cohan, the retail consultant. Uniqlo, the popular SoHo shop, is set to move in nearby. Chipotle and Heartland Brewery, which cater to hungry shoppers and tourists, were natural additions to the retail strip across from the Empire State Building.

Back when Biederman founded the 34th Street Partnership, there was one tablecloth restaurant in the neighborhood; now there are 21, and a handful of pubs on 33rd Street. "We've been promoting restaurant development for a number of years now," said Biederman. An Asian Quick Serve franchise is setting up shop on 34th Street, and Simon Oren opened 404, a bakery, breakfast, and lunch spot on 10th Avenue and 33rd Street.

Still, the neighborhood's gourmet food scene, which has flourished to the south in Chelsea, and north in Hell's Kitchen, leaves much to be desired. "It has unbelievable foot traffic," said Amira Yunis, head of Newmark Knight Frank's retail division. "One thing that's lacking is restaurants, a place people can go that's a little more upscale."

Yunis has a listing at 1359 Broadway, in the district's northern reaches, with the makings of a high-end dining spot. "It's a brand-new space," she said. "It's a pretty large loft in the garment center, which is very heavily trafficked." At the request of tenants, the building's landlord, Fred Posniak of W&H properties, is committed to improving the neighborhood's after-hours scene.

SL Green is doing the same at 21 Penn Plaza, a 17-story office building on Ninth Avenue. An available retail space is touted on the management company's website as ideal for a "white tablecloth restaurant."

Ground-floor space in new and renovated towers like 21 Penn is the best bet for retailers looking to lock in leases before rents increase or vacancies vanish entirely. Construction is underway on a four-story shopping center just east of the Pennsylvania Building, a recently refurbished office tower seeking quality tenants for its 50,000 s/f block of retail space, Biederman said.

Located across from Penn Station and Madison Square Garden, the tower is in the path of some of the most desirable pedestrian traffic in Manhattan.

The 34th Street partnership counted almost 10,000 visitors per hour near the 32nd Street entrance to the commuter hub and arena. Elsewhere in the neighborhood, the Herald Square subway and PATH train hub is the 3rd busiest of New York's 421 stations, according to the Partnership.

Given this heavy concentration of shoppers and commuters, Gregg Gropper, a broker at Newmark, is marketing a 20,000 s/f property on 34th Street to major big box tenants. "It used to be a building that was net leased or occupied by Citi Bank," he said. "SL Green purchased the building three years ago, repositioned it, and put in a new storefront."

So far, the space has attracted a handful of national chains – and some unusual suspects, like gyms and service companies. "There's a variety of need for the area," he said. "It's going to be a destination."