Crains New York - August 6, 2012 - (Page 6)

THE Tenants step up to ownership INSIDER Low borrowing costs and prices making buying a better bet BY THERESA AGOVINO Fashionistas eager to enjoy Nordstrom’s legendary service were delighted when the chain announced in June that it would open its first full-line Manhattan store. Real estate executives’ interest was piqued for a different reason: Nordstrom was the latest major firm opting to buy its space instead of renting. The retailer joins a growing roster of A-list tenant names—including Coach Inc., the Federal Reserve Bank of New York and Young & Rubicam—that have agreed over the past year to buy either a part of a building or the whole thing. gic decision that is not made lightly.” When the Federal Reserve Bank of New York examined its options, a spokeswoman said, it decided that buying 33 Maiden Lane for $208 million simply made sense. It had leased 75% of the 617,000-squarefoot building for 14 years. Based on average asking rents for Class A office space downtown of about $45 per square foot, a 10-year lease for the whole building would have cost approximately $278 million. Of course, property prices can also fall,but an owner’s very presence in a building can have a positive impact on values. That is what Nordstrom and Coach likely are hoping for in their big real estate gambles. Coach has agreed to buy a 750,000square-foot condominium that it will use for offices and showrooms in a tower slated to begin construction this fall at Hudson Yards,a 26-acre project on the far West Side being developed by the Related Cos. Meanwhile, Nordstrom has agreed to buy a 285,000-square-foot retail condo to house a seven-floor store at One57, a mixed-use luxury tower being built by Extell Development on West 57th Street. “If these companies are creating the value, they should be able to take advantage of it,” said Dan Fasulo, managing director of Real Capital Analytics. by Andrew J. Hawkins and Shane Dixon Kavanaugh Combination of forces The reason is simple: Buying is often more cost-effective than leasing these days. Interest rates for large companies are at rock-bottom levels, and Manhattan property prices are well off their peaks. Meanwhile, office rents are starting to creep back up, and retail rents in many areas are skyrocketing. “Buying is something a lot more of our clients are interested in,” said Michael Rotchford, head of corporate finance and investment banking at Cushman & Wakefield Inc. “It is an emerging trend, but it is a strate- ‘It is a ... decision that is not made lightly’ Taking a chance Jay Cross, president of Related Hudson Yards, agrees. He notes that Time Warner Inc. took a chance when it bought its 1 million-squarefoot condo at the mixed-use complex Related was developing at Columbus Circle. The site had languished for years, and vertical malls—a key element in the plan— had never worked in the city. Yet the project now known as the Time Warner Center proved to be a winner, and the value of Time Warner’s investment has increased exponentially. Sources say that Related is now trying to lure Time Warner to Hudson Yards. Such purchase deals also have major benefits for the developers, especially now, when credit remains tight. “When you are trying to finance a big multiuse project, you look at multiple ways of getting financing,” Mr. Cross said. Selling off office condos is one way to do that. Mr. Cross adds that some prospective tenants have come in thinking they want to rent, but when they learn about buying, they are interested. “A lot of them are looking at it both ways now,” he said. I Helping businesses avoid red tape t takes an average of nine months to open a restaurant in the city. Tokumbo Shobowale is aiming to reduce that by 75 days. As Mayor Michael Bloomberg’s new chief business operations officer, Mr. Shobowale is helming the NYC Business Customer Service Initiative, designed to streamline the city’s byzantine regulatory process for new business owners. He will soon roll out a checklist of to-do’s for new business owners, as well as online videos and an updated Web portal. One video, for example, will show restaurants how to dispose of cooking grease. Mr. Shobowale has been briefing business groups and getting feedback about bureaucratic hurdles. “He can’t fix everything, but we are sure there will be meaningful reforms,” said Manhattan Chamber of Commerce President Nancy Ploeger. Others are skeptical. “Is it just going to be a universal political operative. “Of all the boroughs, Brooklyn is the most opinionated,” said Mr. Adams. “No matter what position I take, people are going to complain.” form for more bureaucracy?” asked Diana Reyna, who chairs the City Council’s Committee on Small Business. To hang up a shingle in New York involves more than 1,000 city requirements. Numerous applications must be completed in person at different agencies, and multiple trips can be needed to complete a single transaction. “A lot of businesses, the vast majority, want to do the right thing,” Mr. Shobowale said when appointed in June. “They just often don’t know what that is.” Flush Gillibrand cries wolf Sen. Kirsten Gillibrand has close to $10 million to spend on her reelection campaign. Her Republican opponent, Wendy Long, has $10,100. And yet Ms. Gillibrand emailed supporters that she could be “outspent.” While acknowledging her “lead in the fundraising race and at the polls,” the Democrat warned that “we can be outspent,” and requested donations from $25 to $2,500. “They will lose credibility among their donors,” said one GOP operative. “Someone should have nixed that before pressing ‘send.’ ” In 2010, Ms. Gillibrand outspent foe Joseph DioGuardi by almost $11 million. Battle of Brooklyn As he gears up to run for Brooklyn borough president next year, state Sen. Eric Adams may have a hard time persuading Democratic boss Vito Lopez, Rep. Nydia Velázquez and congressional candidate Hakeem Jeffries to support him, insiders said. Mr. Adams last week delivered an over-the-top endorsement of district leader Lincoln Restler, a Lopez nemesis. In June’s Democratic primary, Mr. Adams backed Ms. Velázquez’s opponent, Councilman Erik Dilan, but not Mr. Jeffries against Councilman Charles Barron. “He’s got three strikes against him,” said one For daily political and government news, subscribe to CRAIN’S INSIDER @ www.crainsnewyork.com/insider 6 | Crain’s New York Business | August 6, 2012 istockphoto http://www.crainsnewyork.com/vcfundingalert http://www.crainsnewyork.com/vcfundingalert http://www.crainsnewyork.com/insider

Table of Contents for the Digital Edition of Crains New York - August 6, 2012

Crains New York - August 6, 2012
Contents
In the Boroughs
In the Markets
The Insider
Business People
Opinion
Greg David
From Around the City
Report: Business of Sports
Classifieds
Small Business
Real Estate Deals
Helluva Town
Source Lunch
Out and About

Crains New York - August 6, 2012