Tough Times Ahead For Retail Landlords
(02/11/2009) There were few shoppers walking in East Hampton Village on Monday, even with its unseasonal warmth. Through the windows of some
 David E. Rattray
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stores, like Ralph Lauren Rugby and John Varvatos, clerks could be seen folding cashmere and rearranging displays, while in others only empty expanses and naked mannequins were visible.
“I find it frightening. In my 28-year tenure here I’ve never seen that,” said Judi Desiderio, a chief operating officer of Town and Country Real Estate in East Hampton Village, of the number of empty storefronts.
Of about 100 commercial spaces on Main Street, Newtown Lane, Park Place, and the Circle, more than 15 potential retail or office spaces on Monday were up for rent, empty, or about to be closed. Medusa on Park Place and J. McLaughlin on Main Street belong to the latter category.
According to Doreen Tibbetts, a sales associate at the women’s clothing store, J. McLaughlin plans to close 10 of its 40 stores nationwide. The East Hampton property has been shown to prospective tenants, she said, and the store will continue to offer major sales “until the end of March,” when the lease is up.
“There is a possibility of staying, they have been saying,” she said, “if the property is not rented.”
After one of the slowest holiday shopping seasons in history, other stores have closed for the season. The display cases at Mayfair Jewelers are bare. Elsewhere on Main Street, a sign on the door of the Solstice Sunglass Boutique says, “We’ve gone south for the winter.”
In addition to papered-over windowfronts promising that new stores will open in the spring, including Tommy Hilfiger, a new J. Crew on Main Street, and a Coach on Newtown Lane, there are at least 11 unused properties in East Hampton Village at the moment.
Most Main Street rents have still not dropped below $200 per square foot, said Neil Hausig, a senior vice president at the Corcoran Group, so this has proven to be a difficult season.
Stores that have been long in the planning have not been abandoned, like the J. Crew slated to move to 14 Main Street. However, having a South Fork presence is no longer a high priority for retail chains that are trying to cut expenses.
Mom-and-pop shops were driven out of the village years ago, said Mr. Hausig, who has worked in commercial real estate in East Hampton since 1983. The type of renter East Hampton typically attracts is looking for “a long-term investment or a short-term sort of a thrill.”
“But people are not thinking long term because of the uncertainty,” Mr. Hausig said, “and they aren’t thinking ‘thrill’ because they’re too scared.”
“A year ago, even at the beginning of last summer, there were about 15 national retailers that wanted to come to East Hampton for the 2009 season, and they all have put those plans on hold,” Hal Zwick, a broker for Devlin McNiff, said.
“Basically, what I have been told is, the Hamptons is not the priority to open a new store this year,” he said. He noted that the success of the luxury clothing and goods retailers that fill most of East Hampton Village is directly tied to the amount of money that Wall Street executives who vacation here have to spend.
On Madison Avenue, high rents and sluggish sales have already taken their toll. The New York Times reported last week that an unprecedented number of stores on the “gold coast” there are for rent.
According to Ms. Desiderio, “the rents there are cheaper than they are here.”
“For a lot of these national advertisers, part of the rent goes against the PR budget, not against the operating budget,” Mr. Zwick said.
“It becomes more of an advertising thing than actually generating enormous amounts of money,” Mr. Hausig said.
These days, however, retailers cannot afford to operate at a loss for a presence on East Hampton’s Main Street.
Some landlords in East Hampton, like their counterparts on Madison Avenue, have become more open to negotiation, for example, offering a few months’ free rent to prospective tenants during construction periods. According to Mr. Zwick, however, the economy is “going to stop rents from escalating in the next couple of years, but it’s not necessarily going to bring them down.”
He has been negotiating long-term leases with an incentive of reduced rent for the first few years. “If we’re writing a 10-year lease, year 3 is at the rates that they would be without this economic crisis,” he said.
For the most part, he said, “I believe that what we’re going to see this year is seasonal. It’s almost the middle of February, and I have a couple of people that have offered seasonal, and we said we’re going to wait until March 1 to make that decision.”
But Ms. Desiderio, who remembers a time when it would be practically unheard of to have a vacant retail space during the summer, said landlords could help by being more realistic about what they charge this year. “It’s better to have a tenant in there that’s going to pay the rent” than no tenant at all, she said.
The building on Main Street last occupied by Victory Garden has been empty for almost three years, and Ms. Desiderio said the landlord is asking $1 million per year in rent. “From his perspective it’s just like sticking money in a stock and you leave it there,” she said, but empty stores like those can be unhealthy for the local economy.
“Truly, if they adjusted their price, they would rent. We need commerce, we need people in the stores, we need local people,” she said.
“The problem is not just that the rents are so high, it’s who do you find to work in the shop, because the cost of living in East Hampton is so high,” Mr. Hausig said. As for the local merchants of yesteryear, “all that stuff’s gone, and probably gone forever,” he said.
“For the most part, the mom-and-pops need to go to the outskirts,” Mr. Zwick said. Locations like the newly refurbished 460 Pantigo Road, across from Domaine Wines and Spirits, he said, cost “basically 25 percent of Main Street and maybe 40 percent of Newtown Lane.”
Ms. Desiderio said she had detected a subtle change in this season’s potential renter, someone she described as “either very elite or more organic,” as opposed to companies that may have “got a little too big, too ambitious, and too top-heavy.”
“I brought one of the landlords I’m working with a potential tenant yesterday,” Mr. Zwick said. “I said, listen, this is not Tiffany’s, but it’s respectable. It may not have been your ideal client a couple of years ago, but they are going to pay the rent.”