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VERTICALLY CHALLENGED

Is New York City allergic to malls?

BY NANCY COHEN

New owners are giving Herald Center another shot.

The Big Apple never took a shine to vertical malls.

Since their 1980s debut, each of Manhattan’s vertical malls — Trump Tower (1983), Herald Center (1985) and Manhattan Mall (né A&S Plaza in 1989) — has struggled with retail performance, especially on the upper levels. (Manhattan’s steep land costs and small plots drove its malls as high as nine stories, more than triple the norm.) All have revamped, repositioned and, most recently, retreated, reducing retail square footage.

“New Yorkers don’t have the time or patience” to wander through a mall, said Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, a brokerage in New York City. “It’s a fast-paced, fall-in, fall-out kind of city — it’s just got to be right in front of them.”

Donald J. Trump, chairman, president and CEO of the Trump Organization, New York City, which developed Trump Tower, agrees.

“Consumers are generally apathetic and/or indifferent about shopping on the basement level or a high floor,” he told SCT. “They tend to avoid elevators and escalators and spend most of their time shopping on the level they entered on.”

Yet even as its predecessors shrink their vertical retailing, The Related Cos., New York City, hopes to make a brand-new start of it with a seven-story retail project at the AOL Time Warner Center, a $1.7 billion complex rising on Columbus Circle, near the south end of Central Park.

In developing the Shops at Columbus Circle, Related officials aim to refute the conventional wisdom that New York City’s wealth of street-level shopping presents too formidable a degree of competition to any mall, and that Manhattanites, unique among city dwellers, will resist any enclosed, vertical project that forces them to go in, up and around to reach their destinations.

Although that once was true, it may no longer be. Until recently, only Manhattan’s department stores succeeded in persuading shoppers to ride escalators; most other stores were laid out on one level. But New Yorkers have adjusted to a vertical format, said Robert K. Futterman, CEO of the city-based retail brokerage that bears his name. “Two- and three-level retail now works in the city. H&M and Virgin and Barnes & Noble all have three-level stores, and people go with the flow.”

Others suggest that the difficulties Manhattan’s first generation of malls encountered are peculiar to their individual executions and do not reflect on the concept overall. In fact, the enclosed mall, if not the vertical one, proved its viability with the one-level shopping concourse at the World Trade Center. According to Westfield America Trust, which gained control of the property months before its destruction on Sept. 11, 2001, the mall generated annual sales of $900 per square foot.

“The notion that vertical malls don’t work in New York is a conclusion we’ve drawn from a very small sampling,” said Benjamin Fox, executive vice president, Newmark New Spectrum Retail, a New York City brokerage.

If New Yorkers have been slow to embrace the mall culture, he says, the reasons might lie in the obstacles that the developers of Trump Tower, Herald Center and Manhattan Mall both faced and erected in their attempts to bring vertical retailing to Manhattan.

There are 8 million stories in the Naked City. Here are four about its malls.

Trump Tower opened with a bevy of luxury retailers, but these drew more gawkers than buyers and soon gave way to less tony stores.

Trump Tower
Trump Tower, on Fifth Avenue at 56th Street, is a 68-story skyscraper, devoted mostly to luxury condominiums and offices. It opened with a six-level, 140,000-square-foot atrium mall clad in salmon-colored marble and filled with 40 tiny, exclusive shops. But instead of an upper-crust clientele, the lavish public space drew tourists and other gawkers.

Over the next decade, the likes of Buccellati, Martha and Mondi made way for the more popularly priced Abercrombie & Fitch, Sunglass Hut and Tower Records. Of those, only Tower Records remains, on the lower level. The anchor tenant — in a 57th Street site attached by a back door to the rear of the atrium — also shifted from class to mass: Trump Tower was occupied first by Bonwit Teller and then Galeries Lafayette before Niketown settled in, in 1996.

But remerchandising couldn’t address the underlying design problems, notes Futterman. “Trump Tower was built with very small floors and terrible traffic flow, and there’s no synergy with the anchor,” he said. To this day, “no one even knows that Niketown is connected.”

That matters less now than it once did, because Trump Tower no longer depends on driving traffic to and through vertically stacked stores. Although its Fifth Avenue entrance is still adorned with a plaque that reads, with typical Trump bravado, “Welcome to the World’s Most Extraordinary Shopping Experience,” the building’s collection of shops has given way to bigger stores and other uses. The fifth and sixth floors have been reconfigured into the Avon Salon & Spa, which also has a street-level store. This fall London-based luxury goods dealer Asprey, which has operated in Trump Tower since 1983, will expand its street-level store onto the second and third floors. The tower’s fourth floor has been demolished to create a single 15,000-square-foot retail space with an annual asking rent in the range of $150 to $200 per square foot.

“Trump was smart” to eliminate the small stores, said Consolo. “Now there’s just one true brand, Asprey. That plus the [Avon] spa has saved Trump Tower.”

Herald Center
Like Trump Tower, Herald Center suffered when it opened from haute aspirations and a small-floor layout. The nine-story, 250,000-square-foot center sits on one of the world’s most bustling corners, 34th Street and Broadway, opposite Macy’s Herald Square flagship. Some 100 million people walk by each year. But the ultra-high-end boutiques — including Alfred Dunhill, Christian Bernard Jewelry, Guy Laroche, Lancel and Il Papiro — were a mismatch for an area that was at best middle class. Two years after its opening, the mall was more than 50 percent vacant.

Its architecture, too, was and remains a handicap, said Consolo. A black-glass facade obscures the center amid the crowds; it looks more like an office building than a retail property. That impression is reinforced inside, where the entrance opens not to a common area but to a hallway and elevator bank.

Beyond tenant mix and design, though, it was international intrigue that rocked Herald Center’s financial standing and tarnished its reputation. The project was surreptitiously financed by Ferdinand and Imelda Marcos, the Philippines’ deposed president and first lady, with funds they’d looted from their country. The Philippine government took legal action to recover its assets, and Herald Center was soon in foreclosure. It sold at auction in 1989 for the minimum bid of $25 million, well below the $60 million it reportedly cost to build.

Plummeting from lofty ambitions down to earth, the center was recast as a discount venue with a handful of large tenants, including off-price apparel chain Daffy’s, the Payless ShoeSource and Toys ‘R’ Us. The decidedly unglamorous New York State Department of Motor Vehicles eventually took over the eighth floor.

Herald Center had found some kind of footing. Then, in 2001, Toys ‘R’ Us decamped to a new flagship in Times Square, eight blocks to the north, leaving more than a quarter of the center vacant.

Despite that checkered past, the new owners are enthusiastic about Herald Center and its future. “You can’t beat the location of that building,” said Randy Briskin, director of retail leasing at the New York City-based Feil Organization, which acquired it in 2002. “If it’s tenanted correctly, everyone will win.”

Indeed, the pedestrian traffic surging outside Herald Center has been a bonanza for a street-level tenant like Mrs. Fields. The cookie shop, which opens onto Broadway, is the chain’s highest-volume unit, said Garry Remington, senior vice president of real estate at Mrs. Fields/Famous Brands, Salt Lake City. “In 500 square feet we’re doing $2,000 per square foot.”

But on the upper levels, leasing such an unconventional mall can be a challenge, Briskin acknowledges. “It has to be a retailer that has such name recognition [that] customers know exactly why they’re going upstairs,” he said.

Staples may fit that bill. A unit of the Framingham, Mass., office supply chain moved into Herald Center last November, adding multiple signs to the facade to compensate for its second-floor space. Similarly, Modell’s Sporting Goods offset its basement location with a street-level entrance and oversized marquee. Low rents motivated Modell’s 2001 relocation from Manhattan Mall, said Mitchell Modell, CEO of the New York City-based chain. (Briskin calls the rents “discounted” relative to the area; gross rents on upper floors range from the mid-$40s to the mid-$50s, a fraction of what they cost at street level.)

Retailers are not Herald Center’s only prospects. The Feil Organization is looking to expand the center’s nonretail uses beyond the DMV. Last year Fleet Bank moved into a ground-floor corner, and a technical school is taking over the ninth floor. A medical clinic would be another attractive tenant, Briskin said. Some 28,000 square feet are still available on the second and third floors.

Also in the works are plans to improve the entrance and exterior signage. “We want customers to know Herald Center is an integrated mall, not a collection of stores in one building,” Briskin said. “The presence of the mall itself has to be a draw.”

Shoppers rarely traveled to the upper floors of the 13-level Manhattan Mall, stymieing leasing efforts.

Manhattan Mall
Just a block south of Herald Center lies Manhattan Mall. When it opened, it was the Manhattan center most resembling a suburban one, with its large floor plates (about 90,000 square feet), soaring atrium, national specialty chains and department store anchor. In fact, the building had originated as a department store, a 1 million-square-foot Gimbel Bros. emporium erected in 1910 on Broadway and 33rd Street. It has 11 levels above ground and two below.

After Gimbels’ demise in 1987, Melvin Simon & Associates partnered with New York’s Silverstein Properties and the Zeckendorf Co. to redevelop the building into a mall. Specialty stores and an A&S department store were spread out on the lowest eight levels, with a food court on the ninth. Children’s wear showrooms leased the four uppermost floors.

An early and persistent complaint was that the mall was difficult to navigate because the escalators were not aligned on every floor. Although the lower-level stores were said to flourish, shoppers rarely traveled all the way upstairs, which stymied leasing efforts. Seven years after the mall’s opening, Crain’s New York Business reported that occupancy had recently increased to about 80 percent.

Another problem arose from department store consolidation. When Macy’s and A&S merged in 1995, the mall’s A&S space was converted to the lower-end Stern’s, which itself closed early in 2001. “Stern’s was a dud,” said Futterman. “Still, after losing A&S, losing Stern’s was a death knell.”

But perhaps the greatest stumbling block was the project’s price tag, which ran to some $450 million, about double the budget. “It costs a bloody fortune,” said Melvin Simon, co-chairman of Simon Property Group, referring to the price of urban development in a 2001 interview. “Manhattan Mall was a real disaster because we got clobbered by the extras” in construction costs.

Given the expense, the original developers couldn’t possibly have succeeded, said Mark Teitelbaum, COO of Argent Ventures, a New York City real estate firm. The issue was never Manhattan Mall’s sales, he said. “They’ve always been respectable,” averaging $750 to $800 per square foot. “But you can only charge tenants so much. Even if it’s successful, you can’t make oodles of money that way.”

Argent acquired Manhattan Mall late in 1998 by buying up its debt, a reported $135 million. “It has worked for us — at a more reasonable price,” Teitelbaum insists.

Nevertheless, Argent has dramatically reduced the mall’s retail square footage, compressing the stores into 180,000 square feet (about 50,000 of it still vacant) on two below-grade levels, the ground floor and the first floor. In 2002 the firm converted the five floors above that — some 450,000 square feet — into office space for Bank of America and the Interpublic Group.

“As markets twist and turn, retail may not be the highest and best use of the property,” Teitelbaum said. “The office market was very strong, and office tenants sign 10-to-15-year leases, which takes the cyclical nature out of the picture.”

Now Argent is focusing its efforts on the remaining mall, where gross rents average $100 to $150 per square foot — about half the going rate for street-level stores on 34th Street. A new food court, relocated to the lowest level, was to open in March with 12 tenants clustered at one end and seating for 740 stretching the length of the floor. Teitelbaum likened the food court to an anchor and expected its completion to stimulate leasing.

New tenants have already begun signing on, including Blades Board & Skate and juice bar Surf City Squeeze. In February Charlotte Russe agreed to take an 11,000-square-foot store, its first in Manhattan. The women’s clothing chain will join such existing tenants as Body Shop, Express, LensCrafters, Nine West, RadioShack and Victoria’s Secret.

Also on Argent’s to-do list are some much-needed painting, new signage and new awnings to replace a 1980s-era neon marquee. “We’re de-glitzing the property, creating a cleaner, fresher look,” Teitelbaum said.

New York City brokerage firms support Argent’s redevelopment. Still, no one knows how shoppers will react to the mall’s latest incarnation. “The plan they have makes sense, and it’s still a convenient place for people to shop, in a transit hub,” said Futterman. “But it will take time to see.”

The Shops at Columbus Circle is one vertical mall that will work, its developers say, because they are mixing retail with other uses.

Shops at Columbus Circle
Undiscouraged by the retail retrenchment at Trump Tower, Herald Center and Manhattan Mall, the people behind the Shops at Columbus Circle say they have painstakingly devised a plan that avoids retail developers’ earlier mistakes.

A key distinction is that they designed the project from the outset to provide a broad mix of uses, which reduces the amount and the verticality of the specialty retail space. The various components — entertainment, fine dining, shops, a gourmet market and a health club — are meant to pull diverse audiences to the center at different times of day and to direct traffic to every floor.

“We created a series of destinations and located them vertically to drive people up and down,” said Kenneth Himmel, president and CEO of Related Urban Development (one of the Related Cos.), who is overseeing the project.

Perched above the Shops at Columbus Circle will be the first permanent home for Jazz at Lincoln Center, whose three performance spaces and educational facilities are to open in the summer of 2004. The box office will be on the ground floor. Himmel calls the music venue “an umbilical cord” that will link the levels and draw people in.

The two floors below Jazz at Lincoln Center will house five restaurants and a bar-lounge overlooking Central Park. A constellation of celebrated chefs — Thomas Keller, Gray Kunz, Masa Takayama and Jean-Georges Vongerichten (a fifth has yet to be named) — will be the magnet pulling diners upstairs, and often, Himmel said.

“This is the only project in the world that will open with four or five Michelin three-star chefs, and there’s safety in those numbers,” he said. “You could come two or three times a month, trying each one. The beauty is that your repetitive trips to the center build your level of comfort in visiting it.”

Another destination for food lovers — a 60,000-square-foot Whole Foods market with a 225-seat food hall — will lure shoppers and office workers below grade. “They calculate 3 million people a year will go through that store,” Himmel said. Beneath the market, on the lowest level, will be a 40,000-square-foot Equinox health club for those who want to work off, rather than ingest, calories.

The plan compresses what is ostensibly seven floors of retail space to just three — the street level and the two above it — devoted to specialty stores. “That’s a manageable sandwich of retail, and it’s accessible,” Himmel said. But he’s taking no chances: To ensure that visitors make their way to the uppermost floor of shops, the elevators leading those inside the AOL Time War- ner complex to the retail portion will deposit them on that level.

Indeed, while Himmel maintains that the Shops at Columbus Circle will cater primarily to residents of the Upper West Side, the project has a built-in market at the two-towered AOL Time Warner Center: guests at the 251-room Mandarin Oriental Hotel (which is scheduled to open, along with the stores and restaurants, this September); office workers, including the staff of AOL Time Warner (who will move into the new headquarters in January 2004); and owners of the 191 luxury condominiums (due to arrive in the spring of next year). A similar formula succeeded at Chicago’s Water Tower Place, in which Himmel, as an executive of Urban Investment and Development Co., had a hand. One distinction, however, is that Water Tower Place, which opened in 1976, also has two department stores.

The Shops at Columbus Circle lacks that kind of retail anchor, but was 90 percent leased in February. Tenants include Coach, Crabtree & Evelyn, Thomas Pink, Tourneau and Williams Sonoma. To capitalize on the foot traffic generated by the dining and entertainment venues, the shops will remain open until 10 p.m.; the market will be open until midnight.

“It’s a very good mix, an assortment of things people use everyday,” Himmel said. “There’s no need to build a museum of retailing.”

While the merchandising is less extravagant than at the original Trump Tower and Herald Center, some still question whether it will appeal to those living nearby.

“It’s a casual way of life in the surrounding area,” said Consolo. “The foodies on the Upper West Side won’t buy a decent pair of shoes, but they’ll spend $36 for a pound of cheese. They’ll go crazy for Whole Foods, but they don’t shop for fashion.”

Others say an unprecedented destination in New York City will be created by the blend of better-quality retail and services, fine dining, and entertainment; the nearby transit hub; and the spillover benefits of the complex’s residential, hotel and office space. “The AOL center is a lightning rod,” Futterman said. “People will have to go see it.”

Certainly, its prospects are brighter than were those of Manhattan’s earlier properties, said Fox of Newmark New Spectrum. “It’s not akin to any of those other places. These folks do know retail, and they’ve got the benefit of learning from the experience of others. With a terrific location and the uniqueness of it, everyone’s fingers are crossed that it will succeed.”

It’s up to you, New York, New York.

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