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Retail condominiums become popular with investors

“Expect to see a lot more retail condos coming to market within the next two to five years, because there are so many mixed-used developments under way nationally,” said Alvin Mansour, the director of the national retail group at the Palo Alto, Calif., office of real estate investment brokerage Marcus & Millichap.

Retail space owned outright rather than leased has been flooding into select urban centers since 2004. Some $44.9 million worth of retail condominiums changed hands in 2003. That soared nearly 15-fold to $649.8 million in just a year, according to Real Capital Analytics, a New York City-based data provider.

Though comparatively speaking last year’s $654.1 million in volume was virtually flat, Dan Fasulo, Real Capital’s director of market analysis, anticipates a big leap this year based on a volume figure of $498.8 million through mid-June.

New York City-based W&M Properties is among the investment firms buying New York City retail condos. In Manhattan most buildings are mixed-use facilities: retail on the ground floor, homes or offices above. “Retail rents in Manhattan have become astronomical,” said Fred Posniak, W&M’s senior vice president. “For developers there is an opportunity to capitalize on the market, selling the retail portion at a huge profit.” Buyers don’t do so badly either. In 1998 W&M bought the retail space of a residential tower in New York City’s Union Square; since then, rents have skyrocketed roughly 400 percent, Posniak says.

Another company biting into the New York retail condo market is Vornado Realty Trust. Over the past two years, the firm has bought several retail condos in Manhattan, but one deal really stood out: the acquisition of 17,000 square feet of store space on Madison Avenue. The property is fully occupied by such luxury retailers as Cartier. For this prime venue Vornado forked over $113 million, the most ever shelled out per square foot ($6,647) for retail space in America, according to press reports. “In some urban markets, retail condos will sell for over $1,000 a square foot,” said Mansour. “I have deals coming on the market in D.C. that will be over a $1,000 a square foot.” Retail condos will compete for single-tenant property deals, says Mansour. “Instead of buying a Starbucks drive-through in a tertiary market, now you have a choice to buy a Starbucks retail condo, where there are a million people in a five-mile radius.”