Q. What are the best and worst kinds of businesses to lease out the commercial space beneath our co-op, in terms of quality of life for residents, financial security for our building, and resale value of apartments?
A. Our experts agree that grocery stores, restaurants and bars are typically the least desirable from a quality of life perspective.
Restaurants and bars in particular "have to be the worst because of late hours of operation, noise potential, and pest potential," says New York City real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder. "They are also the types of businesses that have a smaller chance of succeeding and higher rate of turnover."
On top of that, they can do a number on resale values.
"Buyers have a strong bias against restaurants, bakeries, supermarkets and food shops because of garbage disposal, pest control and odor issues," says real estate broker Shirley Hackel of Warburg Realty.
Their concerns are well founded, says pest control expert Gil Bloom of Standard Pest Management. Moroever, he says, oftentimes a food establishment's need for "storage and, worse, refuse storage exceeds their alloted space, which can then spill over into building areas. These establishments can tax the waste system and discolor the exterior sidewalk with pest attracting grease and debris."
Real estate broker Gordon Roberts of Warburg Realty notes that though restaurants raise some serious concerns, these anxieties are not necessarily insurmountable.
"To those who’d say that a Chinese restaurant would probably be the worst tenant, bear in mind that 322 East 57th Street, one of New York’s most prestigious pre-war residential buildings--all-cash, no financing allowed, with selling prices well over $5 million a pop--has also been home to Mr. Chow since 1979," he points out.
As far as grocery stores, notes Roberts, desirability depends on the store.
"Some buildings would love to have a Whole Foods right downstairs--more so, perhaps, than a TJ Maxx," he observes.
So who are the best commercial tenants?
"Those who make the best neighbors," says Hackel. "They operate businesses that are clean, green, quiet and credit worthy with appealing signage and limited hours of operation. High profile businesses like financial institutions that keep regular banker’s hours are ideal. When leasing professional and medical offices, it’s important to consider foot traffic and whether clients will enter through the lobby or through a separate entrance so as not to compromise security."
Ideally, whatever business inhabits the space will reflect your building's personality and demographics, as well as demographics of the neighborhood and other established businesses in the area, says Roberts, pointing to 19 East 72nd Street as an example.
"An architecturally significant building with a notoriously difficult board--they rejected Richard M. Nixon, among others--they converted a medical office into a small retail space on Madison Avenue, presumably because it provided better income," he says. "The jewel-box space is leased to Frederic Malle’s 'Editions de Parfum.' Malle, a couture-perfumier, is the grandson of the founder of Dior Parfums. As such, that would not be the same as renting to Britney Spears’ 'Cosmic Radiance' or Beyonce’s 'Midnight Heat.'"
Resale value-wise, bear in mind that in addition to curb appeal and quality of life issues, savvy buyers may ask questions about expiration dates.
"If there are several leases, you'd like to see that the expiration dates are staggered so the building doesn't confront multiple vacancies and possible loss of rental income all at once," says Stone, the closing attorney. "If there is only one commercial space leased, it's good to note the expiration date to see if it's upcoming and if there have been any plans made to renew that lease or not."
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