As the coronavirus ravages New York's retail economy and makes it difficult for businesses to pay rent, cooperative buildings with shops on the ground floor are losing an important source of income. Cooperative shareholders who were already stressed had to catch up, and in some cases maintenance costs rose by up to 40 percent.
"It's a big problem," said Michael Wolfe, president of Midboro Management, adding that residents complain about the additional costs as they also struggle with reduced work, vacation and layoffs.
But Mr Wolfe said most residents recognize that "Anything is better than a vacancy," added that cooperatives had great chances of finding replacement tenants during the pandemic.
Also, the decision to house stores rather than vacate them is a desire to keep the convenience of local stores, say board members. Other cooperatives seek to retain jobs for employees who have become family members after years of running businesses under one roof, such as 230 West 105th Street, a 14-story cooperative on Broadway in the Manhattan Valley neighborhood.
The board has increased maintenance fees by 15 percent, which is a jump from $ 1,200 per month for a bedroom to about $ 1,400 to make up for rental breaks and discounts offered to the four stores that make up the base of the pre-war building. This aid, from which a clothing store, a café, a delicatessen and a shoemaker benefit, corresponds to a rent reduction of up to 50 percent, according to the board of directors.
"One shareholder described the move as irresponsible," said Robert Chasen, the treasurer of the 70-unit concierge building, who had postponed its annual meeting from its usual time in May to November due to the pandemic. According to Mr. Chasen, around half of the apartments in the building are occupied by people with a fixed income or from the working class.
"But most of the neighbors say they support," he said. "These businesses contribute to our neighborhood."
However, the cooperative's generosity can only postpone the inevitable. "Our business has been strong, strong, badly affected and may have to close," said Carolina Conigliaro, whose father Fernando Andrade owns the Andrade Shoe Repair shop.
Speaking on behalf of her father, an Ecuadorian immigrant who speaks little English, Ms. Conigliaro said a decline in commuters has led to a decrease in requests for heel, hole and zip repairs. Sales are now often as low as $ 40 per day, after highs of up to $ 1,400 per day before the coronavirus hit New York.
"We have never seen anything so heartbreaking," added Ms. Conigliaro of the store, which has been renting space at the cooperative for four years and which was a block away 32 years ago.
Rent cuts are just a consideration. A punishing retail climate, with workers and tourists staying at home and not shopping, coincides with a major shift in store ownership for many of the cooperatives that were established in the 1980s.
Because of the complicated ways in which co-operatives are formed, third-party landlords often control the storefronts of buildings under long-term primary leases. Upstairs cooperative apartments usually receive a portion of the retail rent. But the amount is usually just a trickle compared to what the landlords bring in, lawyers say.
Many of the master leases date back to the 1980s when many of the buildings were converted from rental apartments to co-operatives. After all renewal options have been exhausted, the companies that own these master leases prepare to abandon them – allowing many cooperatives to finally take over their retail space.
The timing is not optimal, said Jeffrey Reich, real estate attorney at Schwartz Sladkus Reich Greenberg Atlas, a New York firm, and cooperative advisor. "These buildings have wanted their retail business for years and now nobody wants it anymore," said Reich. "It's really ironic."
The retail economy had already deteriorated before the pandemic due to rising rents and competition from online shopping. In the third quarter, which ended in September, asking rents in Manhattan's main shopping areas fell to $ 659 per square foot, the lowest in nine years, according to real estate company CBRE. And the number of available storefronts on the first floor in Manhattan rose from 235 in the second quarter to 254 in the third quarter, which is a new record, CBRE said.
Only about a quarter of Manhattan's hundreds of cooperatives are anchored to storefronts, and management agents estimate that despite recent sales, cooperative boards only control about half of the shop-lined buildings.
For boards that have long pondered the idea of reclaiming their retail space and increasing sales, the dismal market stats can be daunting.
"Frustrating is how I would put it," said Charles Sullivan, the chairman of the board of directors at 201 West 16th Street, a 110-unit cooperative on Seventh Avenue in Chelsea that is set to recapture its storefront on Jan. 1, 2021 with four lease extensions .
The handover took a long time.
In 1980, five years before the cooperative of the 20-story brick building, a facility affiliated with Barneys New York Department Store (once across the street) grabbed retail berth # 201 and rented it from the building's original owner, Ed Lewis , the treasurer of the board. The lease has changed hands a few times since then.
For the past several years, # 201's outdoor space of 400 square feet has been home to an outpost from Williams-Sonoma, the furniture chain that refused to sign a new lease with the cooperative.
And it's not like other tenants break the door. There have been no takers since the place was launched in March last year, just before the Covid crisis, said Sullivan, who said the board could hedge its bets and renovate the room to turn the great room into two deals.
The board refused to share the requested rent. "It's a lot, a lot less than it was in 2015, 2017 and January 2020," said Lewis, adding, "We're not going to be stupid about pricing, but we're going to be flexible." Banks, pharmacies and medical practices are checked.
If shareholders don't see an immediate uptrend, cooperatives like # 201 are still well positioned, they say. By collecting all of the rent instead of part of it, they will be better off.
And tax laws are cheaper than before. The rules that once limited a cooperative's retail sales to 20 percent of a cooperative's total revenue were relaxed in 2007.
But there is still the delicate issue of attracting and retaining tenants, an issue that has gripped 140 Nassau Street, a burgundy landmark on Beekman Street in the financial district. The 42-unit cooperative that has four retail spaces including an eyebrow threading store, hair salon, dry cleaner and bank branch has decided to cut rents and raise maintenance fees out of goodwill. A committee is currently reviewing the exact amounts.
"We have chosen to view this as a catastrophe on a global scale," said Dr. Raphael Santore, the dentist who acts as chairman of the board. "We will go the compassionate way, even if it will cost us."
Even co-operatives, which have been relatively lucky to attract retail tenants, are cautious. Consider 260 West End Avenue, a 74-unit building on West 72nd Street that opened in 1979 and signed its five retail units a year later to the building's sponsor, who apparently controlled the store fronts until that year. For the past several years, the cooperative had received retail rents of approximately $ 50,000 per year.
Before the main lease for these stores expired last month, the cooperative secured commitments from four of the five existing tenants, including a diner, dry cleaner, salon, deli and shoe repair shop.
Liz Osur-Marcal, the cooperative's treasurer, declined to tell, out of sensitivity to an ongoing process, which tenant was leaving despite the offer of an "oversized" rent. Ms Osur-Marcal, who will put the rents in a reserve fund in her "very conservative" building, added that the leases are shorter than usual. (The rents are lower than the cooperative that was originally sought a year ago at the start of negotiations.)
“Some shareholders were controversial. They wanted maintenance to be dropped immediately, ”she said. Part of the save-now strategy, however, is to protect yourself from the soon-to-be-empty space. And, of course, leases are no guarantee of future rents.
Nevertheless, the cooperative is grateful for a certain occupancy. "I am not the kind of woman who uses the word," said Ms. Osur-Marcal, "but I am blessed."
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