A Q&A with Roseman, Fox of Newmark new spectrum

Real Estate Weekly, May 7, 2003

Real Estate Weekly: Can you explain the success of Whole Foods?

Jeffrey Roseman: Whole Foods has shattered the tradition of supermarket shopping in New York. It is a similar problem finding space for supermarkets. Most have to have two levels which they didn't like but now are doing.

Benjamin Fox: The average New York market is 7,000 SF as opposed to 30,000 to 40,000 SF for Whole Foods. We also had Whole Foods interested in 86th Street and Lexington Avenue but eventually Best Buy took the space but not before adjusting and making sure the merchandise was relevant.

REW: What about the drug store wars?

Fox: Duane Reade's strategy is to cover themselves sitewise and, to a large extent, it has worked. The amount of Rite Aides and CVS's in the city pales in comparison to Duane Reade. That is also a testament to the fact that Duane Reade is local and has a much better understanding as to the streets and pedestrian traffic. The national chains have more restraint regarding site evaluation. It takes longer to make a decsion.

Roseman: I think the drug store wars involve market share as well. At the end of the day, there will probably be one of those three chains that own everything. I know it has hurt residents of some neighborhoods.

REW: How are "big box" retailers doing in New York?

Roseman: The most difficult thing is finding the space and the logistics. With a Bed, Bath and Beyond, one can carry out an electrical cord or a lamp. With Home Depot, there are traffic and logistical issues. They will need at least 50,000 SF and there are not that many sites in New York City with that amount of space.

Fox: Much of it is merchandise strategy, not big box, per se. When K-Mart first opened at One Penn Plaza, they were selling bikes and car batteries for commuters on the Long Island Rail Road.

REW: The local movie house seems to be a relic. Why?

Roseman: These were movie houses - usually with one screen and charming theaters. But just inefficient in today's world of multiplexes with 10 - 15 screens. The one-screeners are not getting the premium pictures.

Fox: That is also a reflection of the exhibition business. Many of these movie houses are rundown and uncomfortable, many are not handicapped accessible and don't have many of the amenities that are expected. You have the occasional independent that can work in an upper demographic neighborhood.

REW: National chains seem to be overtaking local retailers. Is that good?

Roseman: The influx of national chains seems to have a negative image in many areas. I'd like to point to 14th Street/Union Square as a positive example. For the past 30-40 years, the area has seen discount houses; 99 cent stores and dirty coffee shops. The street has changed for the better and the national chains are driving out the stores that have littered 14th Street.

REW: Many people have mixed feelings about stores such as Target and Costco. Why?

Roseman: Target is kicking the tires like everyone else. They haven't pulled the trigger yet. But they look at every possible lease that is available to them.

Fox: Costco has had problems getting approvals from community boards. They were nixed on 23rd Street and on Tenth Avenue. Big box stores in New York are quite viable if they can find the right space at the right price and get a handle on the traffic and other problems that can arise.

REW: Olive Garden and the like are now in New York. Can they succeed?

Fox: There is a big population of middle class citizens whose budgets are not the same as those people you see in the society columns or the meatpacking district or Soho. A family can take the kids to an Olive Garden and its reasonable and its fun and there are no surprises. You know what you're getting. I think the city is large enough - population wise - and diverse enough from a personal income standpoint to support these places. The key is the food - if the food is good, people will come back.

Roseman: Some of the chains that have come and have been open for a couple of years such as Chevy's and Applebee's are failing miserably in Downtown and Times Square. I don't care how rich or poor you are, I don't believe New Yorkers are going to those restaurants. If you polled 10 New Yorkers, nine wouldn't be caught' dead in a chain restaurant.

REW: What about the "theme" establishments on 57th Street?

Roseman: They were not known for their food and 95% of their business was tourist driven. You may have gone to the Hard Rock when it first opened, but you weren't going back on a weekly or monthly basis to have a meal. ESPN Zone is an example of a success. If you're a sports fan and go watch a game, you're not expecting a four star meal. But the food is okay.

Fox: The saying in entertainment retail is 'will the customer come back three times?' If they come back three times, you have a success. But entertainment changes and tastes change. You have to make a distinction on what is hip and a fad and what had legs. Also, 57th Street had its thunder stolen by Times Square. Many of those restaurants opened while Times Square was still in an emerging state. In terms of traffic and viability, Times Square wins. hands down over 57th Street.