Retail

Streets of Madrid

There’s an eerie feeling around the streets when I visited Spain…the image below was taken in the middle of Puerta del Sol in Madrid, a few steps away, there were protesters chanting against the current situation in Venezuela, there were homeless people asking for change, and others selling counterfeit goods on the lookout for the police. 

Parallel to this scene, was a completely different setting, full of tourists, five star hotels, expensive restaurants and old world architecture that reminded me of  the decadence of the Spanish empire.

Although it is general knowledge that Spain is on a long road to recovery from the economic crises of the of the early 2000’s, this contrast got me wondering about the income disparity that could exist in a place like Spain, where the unemployment rate was still hovering around 18% at the time I traveled.

Below is the data–as of 2010, 24% of Spain’s population live in lower income households and 13% are in the upper income brackets, their statistics are starkly similar to that of the United States, where 26% of the population live in low income households and 15% are in upper income households. The difference is that America’s unemployment rate is under 5%, and Spain’s is more than TRIPLE that number, YET, they have less households living on the edge of poverty, and more middle income households than we do in the US.

Food for thought….

Index of Income Inequality in Europe & USA

 

 

 

 

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Loveday 31 Astoria, Queens

Astoria is a popular residential neighborhood north of Long Island City in Queens, New York. Its a few train stops out of Manhattan on the N and Q train lines, but I rarely make it to that side of town because the retail landscape hasn’t drawn me in. Largely made up of auto-body repair shops, local distributors, business services and food establishments, I was surprised when a friend invited me vintage shopping there, and found the most special shop nestled between blocks around the 31st Street stop.

Here are some notable reports on the real estate front:

  • Does a 2 Bed Condo at $489K sound like a good price? Street Easy has a great neighborhood highlight on Astoria–see the neighborhood and residential availabilities here on Streeteasy
  • Want to see what developers are doing with small lots? See the specific project listing by clicking on this Yimby Link
  • And lastly, Hallet’s Point. It’s the largest development in Queens, at a $1.5 Billion cost, 2000 apartments and new retail. Its faced some setbacks from the phasing out of the 421-A program. See the drama here on Curbed.

To satisfy my fashion  craving that weekend, I focused on the accessories and found the most fun gold jewelry I could get myhands on; from studs with gold accents, necklaces with vintage pendants, as well as gold rings and bracelets. As an aside, my rule is one ring either on the ring or middle finger for most occasions; and three rings dispersed between hands (displayed above) when you really want to make a statement. I wouldn’t generally recommend any variations from that rule!

See a more detailed  post on the fashion end, from my friend at One Creates Oneself  here.

A Lesson From China’s Urban Villages

Urbanization on the outskirts of Shenzhen, China.

Urbanization on the outskirts of Shenzhen, China.

 

THE URBAN VILLAGE

In China, the issue of affordable housing is deeply connected to the rapid urbanization of cities in the past 20 years. Rural inhabitants are flooding cities like Shenzhen or Guangzhou and as a result these cities end up with these incredibly dense neighborhoods (pictured above) right outside of their central business districts.

The characteristics of those areas are generally referred to “handshake architecture”, buildings constructed so close together that someone can reach out and shake hands with the person in the next building. And while there are issues with this type of urban plan, it serves the cause of affordable housing in the following ways:

  1.  Instead of directly subsidizing housing developments, the government can spend tax dollars on funding energy efficient retrofits, better quality management systems for those developments and reducing the burden of rising operating costs for landlords as an incentive to maintain rent levels.
  2. Since the government owns the land, they can regulate pricing in awarding those parcels to developers. This allows for lower development cost and thus more economic feasibility.
  3. Where there are limits in residential building heights, this type of plan creates more housing units per block than would be allowable in traditional urban planning scenarios.

Similarly in the US, the idea of bending building codes to allow for micro-units as affordable housing apartments in central business districts will allow for many more housing units, while minimizing the amount of direct subsidy that the government must place into those projects.

COMPARING TO HOUSING POLICY IN THE U.S

Affordable housing is a topic that is tossed about in local politics all over the united states, as a social policy to address the rising cost of living for those on the edge of poverty. Its also a way to allow everyone across the economic spectrum to have access to major cities where there is better access to jobs and education. Here in the states the government moves that agenda along in the following ways:

  1. The Federal Government (IRS) issues a certain amount of tax credits to each state. Developers are awarded those credits and then sells them to investors to fund their projects, in return, the rents remains capped at a certain level.
  2. Housing developers can apply for a HAP contract through the Federal Government (HUD), where the government sets your rent, gives the landlord a  guaranteed payment  monthly, and tenants pay only a portion of that amount.
  3. Local Governments can also build their own housing (often referred to as the Projects), which is also subsidized through a contract with the Federal or State governments.
  4. Lastly, in the case where the Government owns the land, they may decide to give it away to developers for very little money, or lease the land at a low rate, and in return, the rents on some of the apartments remain capped at a lower level.

In Sum, there is almost no scenario where you can find low income housing in the CENTER of major cities like New York City, Chicago, San Francisco, without the help of some government subsidy. The economic feasibility just doesn’t work because land is so expensive in those areas.

THE URBAN VILLAGE LESSON

A better way to implement affordable housing in city centers is to implement a similar strategy for increasing density in central business districts in the form of what we are seeing as today’s micro-units. In our cities most desirable economic centers,  why not increase the number of micro unit developments, which will bring more low income households to those neighborhoods.  More units per square foot equals more revenue for the landlord and less direct subsidy from the government.

Ensure quality of those units by setting design standards, monitoring occupancy limits, creating a supporting infrastructure of public safety, schooling and community resources as a means to enhance the standard of living at the same time.

Buddha beads and traditional Chinese retail store the size of one of NYC's micro-units.

Picked up some Buddha Beads, in a Chinese retail store as small as one of the city’s micro-units

Coming Up on the Lower East Side

Hotel, Residential and Mixed-Use in the pipeline

Hotel, Residential and Mixed-Use in the pipeline

Have you been to the Lower East Side recently?  There’s a little neighborhood sandwiched between the south side of East Houston Street and the north side of Delancey Street, full of the most fascinating development activity.

Residential Rehab Site

Residential Rehab Site

The uniqueness of this area, I suspect is driven mostly by the large inventory of apartment buildings still very heavily under rent stabilization and the mom-and-pop feel of the retail spaces, many still available under $125/psf/yr.

So the price of land for development is still within feasible measures compared to neighboring Soho or Tribeca. A few development listings found through Cushman & Wakefield and Besen & Associates, came in within $400 and $900 per buildable square foot. These typically include certain FAR bonuses for exclusionary housing or low income housing tax credits.  This seems hardly like a bargain, from a neighborhood that has been transitioning in price and investment activity for years–but finally, has caught up as any new development will likely cost as must as most competing NYC neighborhoods. The value here is in the existing stock of real estate, both residential and commercial where the inventory of older spaces are abundant enough to offer a thriving economic environment for up-and-coming businesses.

Retail Landscape in LES

Retail Landscape in LES

Lastly, there’s a cool factor in LES that I have not yet seen replicated in other NYC neighborhood; it’s colorful, busy, full of style and hustle. The shot below was taken by a local butcher on a cigarette break outside of a graffiti-clad market, who volunteered to capture me in this scene because he could not stand to see such an artistic opportunity go to waste for my lack of a personal photographer. This sort of thing only happens in a place like this.

LES Graffiti Art

Sake Bomb, Woodbridge

Italian headscarf and Chinese Buffet. Thank you Woodbridge.

Italian headscarf and Chinese Buffet. Sake Bomb Restaurant.

If you’ve ever driven through Route 1, Route 9 or Route 35 in Jersey, you’ve probably seen the retail strips lined along the road. Home improvement stores, lots of fast food, liquor stores, department stores, local retail chains, diners and the occasional Chinese buffet. I was invited to this location–and since still feeling inspired from my trip to Dubai, I created a makeshift turban from my Versace scarf and headed over. It makes sense why most of these buffets are along retail strips on the highway; hundreds of thousands of cars each day pass by, providing high visibility to businesses AND the rents are arguably more favorable than being in a large mall complex, like the Woodbridge Center Mall.

Route 1

Route 1, Woodbridge

Rents range from $15.00 to $25.00 Per Square Foot (annually) on this Route 1 hub. By comparison, retail rents in lower Manhattan can be over $300 PSF!

 

Union Theatre-UPDATE

990 Stuvesant, Union NJ (2)Having completed my research for the week on the property, I can now present some of my analysis on the site. First, I’d like to thank the broker who took the time to provide neighborhood demographics and full property report. Super Helpful, and I hope some of the work I’ve done will help one of their potential investors. Here goes:


Sales Price: $740,000.00.  Based on the fact that this property requires extensive renovation capital (upwards of $70/Sq Ft to demo, remediation of major structural issues along with tenant improvements), I would require a 5-10% discount on the purchase price, offering between $660,000 and at most $705,000 to purchase.

While I love the idea of a theater in Union, this use is not sustainable here. First, there is NO PARKING on the site. Major drawback for theater goers  having to spend the afternoon looking for parking. Second, the location is in the heart of the central business district, where there is major foot traffic during business hours, why not have your business maximize on this? A conversion to retail would cost upwards of $70/SF so almost another $Million to convert. We are looking at a total investment of about $1,700,000.

Investment Strategy: If you borrowed 65% of the total investment, your equity partners would put up the additional 35% (about $580,000), 15 yr Commercial loan at 5%? I think its doable. The biggest contingency on this deal would be our ability to secure a retail tenant at NO LESS than $20/PSF in rent. The comps in the area range greatly from $10 per sq. ft to up to $30 per sq. ft. Feels risky…but, if achievable, you’re looking at a 15% cash on cash return at the beginning of the 2nd year of occupancy and a 20% IRR (internal rate of return)….music to my ears….

If you are interested or have comments, leave a reply or send me a message and i’ll share my spreadsheet and additional assumptions.