The Future of Retail

Event - January 2003

The Future of Retail

Sponsored by City Councilmember Alan Gerson, Pace University's Center for Downtown New York and the Center for an Urban Future, this panel discussion addressed the prospects of retail development in downtown Manhattan.

Tags: economic growth retail

JB: First, let me say a few words to describe and introduce these distinguished panelists today.

First off, Jeffery Roseman possesses a rare intuitive understanding of deal-making in New York City thanks to his experience as a leading retail leasing broker for the past 15 years. Mr. Roseman has completed numerous, notable transactions that helped influenced the re-emergence of Times Square, Grand Central, Lower Manhattan, Harlem, Union Square and Chelsea sections of Manhattan. Mr. Roseman is a two-time winner of the prestigious Real Estate Board of New York’s “Retail Deal of the Year Award.” He has been extremely involved in the retail landscape of downtown Manhattan both pre and post 9/11. He and his team were the exclusive leasing representative of the World Financial Center and assisted Brookfield Properties in the marketing and repositioning of the Winter Garden Shops.

Beverly Willis is the president of the Architectural Research Institute and the Co-Chair of Rebuild Downtown, Our Town, the civic voice of lower Manhattan. She began her career as multi-media artist; became a licensed architect in 1966; and was honored with a fellowship by the American Institute of Architects in 1980. While practicing architect, she owned and operated Capricorn, a retail specialty store. As an architect, her design of the Union Street shopping complex gained national attention and led to the growth of a neighborhood service retail area to a destination shopping corridor. She was a Dartmouth College Montgomery Fellow in 1992 while she was writing her book Invisible Images: The Silent Language of Architecture.

Joel Kotkin has come here all the way from Los Angeles to join us today. Joel is an internationally recognized authority on global, economic, political and social trends. He is the author of the best selling book The New Geography: How the Digital Revolution is Reshaping the American Landscape. Kotkin is a senior fellow at the Davenport Institute of Public Policy at Pepperdine University and a senior fellow at the Miliken Institute in Santa Monica. He is also a senior fellow at the Center for an Urban Future where he is cooperating on an annual report on New York City’s economy. He wrote the highly acclaimed monthly grassroots business column in the New York Times’ Sunday “Money & Business” section for nearly three years.

David Rayner obtained his JD from Fordham University School of Law, his MBA from Fordham School of Business and a BA in Political Science from Union College. He is currently the real estate director for Borders, Inc. where he is developing and implementing a strategic development plan for the northeastern United States. He is previously the director of retail services at Colliers Houston & Co in Teaneck, NJ. He was affiliated with the International Council of Shopping Centers, member of the Government Affairs Committee and was chairman of the Free Speech and Mall Security subcommittee.

Just a few words on the format: there will be no opening statements tonight or presentations by any of the panelists. Instead, like all the other forums we’ve had here on downtown issues, we’re going to go right into questions. Hopefully we’ll have a very lively discussion. To the panelists, please don’t be shy – jump in whenever you can with comments, whenever you want, or even feel free to ask questions of the other panelists when you want. For the last 30 minutes or so tonight, we’re going to open it up to the audience and hopefully have a good back-and-forth.

Why focus on retail tonight? First of all, according to the new report (which you should all read) by R-DOT, 750 stores were destroyed in Lower Manhattan as a result of 9/11, and most of those remaining have lost significant business as employees have relocated to midtown or other parts of the region. In addition, and maybe more important, many people are worried about what is needed to revitalize lower Manhattan, including the Mayor and key officials on the Lower Manhattan Development Corporation, have cited the importance of creating a 24/7 neighborhood. A lot of people think a thriving retail sector will help accomplish that goal, and help attract and retain both residents and companies in Lower Manhattan.

So let me start off by asking all of the panelists how do we begin to achieve the retail development of lower Manhattan that we think is needed? What has to happen?

BW: Let me put this into a little bit of a perspective. Typically retail is based on demographics. Typically it grows organically by demand. But what we have here is a situation. First, prior to 9/11, there was insufficient retail in Lower Manhattan, particularly personal service retail. Secondly, the attack and this great destruction of the stores has created a very abnormal situation. What we have concluded at RDOT is that we really have to approach retail in Lower Manhattan today by thinking out of the box, by coming up with new and clever ideas that are not based upon the traditional approach. The traditional approach is saying, here is the demographics, here is the organic growth and let’s follow that.

JB: Just very briefly for now, and we’ll certainly get more into this, but what do you mean by “out of the box”? What is the main thing you think we need to be doing?

BW: Well, essentially there are three things. First there must be a master plan for retail for Lower Manhattan. Secondly, we think the construction of the Broadway-Fulton terminal is dramatically important. Thirdly, we think we have to think of Lower Manhattan as corridors, districts and destinations. We have to be prepared to subsidize magnet stores in certain corridors and districts in order to organically grow retail.

JK: I don’t want to get into the specifics, but I want to take the perspective of what I see is happening in other cities and apply it. What my sense of it is what’s going to DRive retail and DRive urban economies? What kind of people want to live there? Who makes a choice to be there? If you deal with retail, this has to be part of the picture. Why would someone want to live or spend a lot of their time in Lower Manhattan? It has got to be mixed with entertainment and the arts and the other things that are going to be increasingly critical.

One thing I think that is very underdeveloped (in the work I’m doing with Jonathan we now have numbers that will show this pretty decisively) is the ethnic business sector in New York. This is vastly underdeveloped. And I know New Yorkers. My family has been here for 100 years. But the critical thing is that – if you go to other cities where the market economy seems to be functioning more openly and quicker – is that we have a lot of ethnic dynamism, much more so than in New York. I can back that up with numbers with figures on the average number of minority owned businesses in cities like San Jose, Los Angeles, Houston, San Francisco. What I think is missing, even though there’s a lot of potential here, is a kind of retail that is associated with lifestyle but also ethnic retail wholesale businesses. There are parts of that in New York, and interestingly enough, are historically in New York.

I know it’s odd to talk about downtown Los Angeles as a role model for anything, but actually we have an incredibly dynamic ethnic business sector in our downtown. Our downtown happens to be largely a garment district. It’s an incredible district. From the political point of view, I have to say that the estimates are total open air market about $2 billion a year on the books and about $8 billion off the books. That kind of excitement and retail, wholesale, ethnic-based business would be part of what would make Lower Manhattan a really great destination.

DR: Some very, very good themes. I think the master planning theme, I think, is very important. I come at it from being a retailer, so I’m short on theory but long on standing on street corners and trying to understand where our customers are coming from. That’s one perspective I bring to it.

The other is actually looking at moving into Lower Manhattan at one recent point in time, so where I come out on this is how do you find a retail nucleus in Lower Manhattan now? Because that is what the World Trade Center was with its 400,000 square foot (plus or minus) mall. It’s million of square feet of office space. It created a retail nucleus. When that was gone and we had to replace the store, we had to find a new nucleus. That is tricky when you don’t have that 400,000 square foot mall. So eventually we looked at what every retailer looks at: traffic, whether it is vehicle or pedestrian traffic. We said, “Well, Broadway has got the traffic. Let’s move down there.”

But how do you redevelop? I think what you want to do is create a new nucleus. I don’t think that the nucleus involves another 10-15 million square feet of vertical office space. I think we’d do much better by having, perhaps at most, 20% office space. Have a low-rise development. Make it people-friendly and street-friendly. Bring in restaurants, bring in entertainment and move away from the traditional mall format which frankly was already previously existing there. Move away from that. Integrate the mall into the street. The best example of a mall that is not integrated into the street is up in Stanford, Connecticut where you have that fortress type mall. Get away from that traditional type of mall.

I’m going to give an example that is every bit open to criticism but I’m going to throw it out anyway. Take New Rock Center up in New Rochelle. They are trying to bring in entertainment restaurants into the heart of a depressed urban area. That they are using it to draw people in. Perhaps a better example is Bob Congel is now working on the DestiNY USA project for Syracuse. His goal is to bring people from all over the state down to Syracuse. He’s got a wonderful, wonderful blend of entertainment, integrated sports activities, and shopping activities. I think if you’re to do that and bring in a large residential component above and surrounding that, supported by the infrastructure--I think the grid system is probably very, very good--then I think you’re going to have a lot. That would be the nightlife and bring the 24/7 hour community. And it will probably ruin my store’s business because everything will be north of me at that point, but that’s OK.

I think that is the way it needs to go, rather than some of the beautiful, high-rise designs that have been presented recently.

JR: Dave speaks like a retailer. A couple of the things that have been mentioned before are a lot of the same things that I jotted down last night. As Beverly said, retail has never worked downtown in Lower Manhattan. Nobody could ever figure out what the key corners were, what the key streets were. Retailers always looked at Lower Manhattan as five days, 9 to 5. We all know retailers are seven days and like to get as many hours out of a day as they can. So with the exception of a few anomalies like J&R and Century 21, there really have been no other retailers to stand out down here. Dave accurately pointed out that he’ll stand on a street corner and see who is walking by, who is around. Master plans sound great and everybody loves talking about it but the reality is that the retailers today want to see people walking by their stores. Most of them don’t have the foresight to go out and say, well, in about 8-10 years this is going to the be the new place to be.

Again, as Dave pointed out, you can look at certain parts of the town that have reinvented themselves like Times Square, Harlem or Union Square. And it’s all been a combination of entertainment and retail. Retailers love to be near other retailers. To try to bring in piecemeal various chains is going to be a little bit challenging.

Another theme that was brought up was the residential component which I truly think is the key to downtown and until there is a vibrant – even six day a week – week, many of the retailers are going to have second thoughts. When you think about it, the retailers who we’re trying to bring into New York have the whole country to look at. In some cases, Wall Street needs to see sales. Going into emerging neighborhoods is wonderful and its great PR, but the retailers’ mentality is what kind of business can we do and when can we do it. So clearly there is a challenge ahead. I’m not sure if there is a big enough scope in terms of putting together 100,000 or 200,000 parcels….besides obviously the World Trade Center site….being able to put together a Borders next to an HMV Records next to a Houston’s. Your neighbors downtown at 100 Broadway are a bank and …

DR: I think what you are referring to is the lack of big box space.

JR: Right.

DR: Actually we’re on four levels. Most of our stores are on two levels. This is unique space because the two floors are fairly large – about 12,000 to 14,000 feet, so the other two levels are support. The importance of that is that big box retail is the way the rest of the country does its retail, so you limit your abilities with small and smaller spaces of 5,000 or 6,000 feet. Then having to go vertical four or five floors becomes so cost prohibitive. New York is great – the topline always looks great, but to get anything to the bottom line (which is the way retailers think) is extremely difficult because of the nature of the space and operational costs that result from it. We’re touching on master planning. The 16 acres, I believe it is, of the World Trade Center cite….the proper zoning….

BW: I’m not talking about that.

I just want to bring some good news to this conversation before we go much further. I have a recent survey . . . and the red dots on this map indicates major chain retailers in Lower Manhattan. The blue dots indicate chain signed leases since 9/11. I’ll read you some of the names: Kodak, Starbucks, Duane Reade, Ann Taylor, Nine West, Crunch gym, Estee Lauder. There are three or four major chain stores signed since 9/11. So what we are facing here is not an impossible task. It is just something we have to do wisely and with forethought. From our point of view, if there had been an overall master plan for Lower Manhattan before all that early money was spent on individual retail stores, we’d be much further ahead of the game because we’d know what streets, what corridors, what destinations we want to encourage and support to attract the foot traffic that every store needs.

JR: And by no means am I saying that downtown is not desirable. A lot of the names you read off Beverly are retailers that are here already that have opened additional stores and they are interested in the five-day a week. Duane Reade and Starbucks and those types of guys…what I was alluding to was bringing in the exciting, entertainment type retailers and bringing in a whole new energy, which is what downtown needs. More Duane Reade’s? More Starbucks?

BW: For example, there are five restaurants in TriBeca that people fly in from Europe that spend two or three days wining and dining, and going to clubs. That exists today and it is a global destination in Lower Manhattan. The question on the table is what is happening now and really making it happen in a much bigger way.

JB: Let me ask you, Jeff and Bev in particular, the companies that have signed leases downtown since 9/11, the retail companies, are you seeing a new nucleus in Lower Manhattan—the kind that Dave was saying that was lost with 9/11? If we haven’t seen that yet, do you see specific opportunities in Lower Manhattan where that might occur?

JR: That’s a good question. The retailers that have signed leases…I know Ann Taylor Loft and Nine West have gone down to 2 Broadway and, incidentally, they have both let me know that it is there second or third best store in the chain, which is very surprising to me. They opened about six or eight months and they are just hitting the cover off the ball. What I’m finding are the retailers that are attracted to downtown now are the retailers like Dave who had stores downtown and are looking to replace them. I have not had great success with trying to entice other folks come downtown. Clearly the people who haven’t been here before are just in limbo and waiting to hear what develops. They probably won’t do anything until some of the other bigger picture items are dealt with.

JK: I’m going to ask a question. Walking around here – I’ve been doing that a lot the past few months – there seem to be some strips of retail that are unattractive…there may be a lot of troubled retail areas. You already talked about we need to add this, this, this. What is your analysis of why there are so many areas of not really upstanding retail?

JR: Again, retail is never worked down here. The Nassau Street Mall is just a hodgepodge of not-even real store fronts up there. There are banners. There are signs of guys who have been there for seven or eight years. Landlords there have neglected their properties. They are out of the churn-and-burn school. When the tenant who is in there now goes out of business, they’ll just re-rent it to a similar like tenant. They are looking for the most rent that they can get. Clearly there has got to be some intervention at some point, whether it is condemnation or not, but for the State to say we have to clean this up.

On 14th street there is a concerted effort there on the property owner to not lease to the typical 14th type tenant because they are trying to clean up the area. They don’t have any real leverage except from asking to do it, but from what I’m finding, a lot of the owners are obliging. A lot of these owners don’t have a reason to change. They are getting a big rent.

BW: I would like to add to what Jeff said. Obviously we have a tremendous challenge. We concluded that working at it in traditional ways is not going to work. We have a thousand times worse situation now. What is it going to take to turn it around? I think that is the real issue on the table. I have here a map – maybe you can see the colors. The purple colors are what we call existing corridors. Now that doesn’t mean retail in all these corridors is perfect. Some of them are sort of snaggle-toothed. That too can be turned around. The pink lines are what we see as future corridors, including these two pink lines on either side of West Street, because we would like to see West Street be a Champs Elysees kind of boulevard of retail. Bringing retail over from South Street to Water Street. The mayor is talking about building housing over there and that could be an anchor. Because there is a lot of foot traffic from the Staten Island Ferry, from Pier I, out to Ellis Island and to the Statue of Liberty. This is all in this area. We need to catch it.

We’re honestly very, very nervous of the development of what would be a mall of about 12 blocks long, a concourse. We need to revamp all over Lower Manhattan. I think everybody understands that when you build a huge mall in the downtown area, it tends to kill the retail out and about in downtown. That doesn’t serve the purposes of making a healthy, reliable 24/7 downtown.

JB: Does anybody here disagree with that? Would anybody like to see a mall? Would anybody like to see some degree of underground retail and what happens by the World Trade Center site?

JR: Mall is the wrong word. I think what both Dave and I are alluding to is an entertainment center or a New Rock City or along the variations of a theme. Maybe some of you are aware of the Bell Harbor Shops in Miami. It’s upscale and you have all kinds of cool, hip retailers. It doesn’t have to be a theme orientated with the same eight retailers across the country.

There are so many different ways to deal with it….an off-Broadway theatre company and some cool restaurants….combining the best of what some other strips either in the city or in the country have. But what you do need is a critical mass. Retailers want to be near other retailers. Restaurants want to be by the retailers. That will bring the people out and keep them out there for a couple hours. They’ll see a show, have dinner and go shopping. I don’t see another mall per se. I’m not a huge fan of that but critical mass and coming up with the right theme.

JK: It would be great if you got the chain stores, but in a way you’ve underestimated the potential of Lower Manhattan. You have tremendous resources historically, some industrial, warehouse and wholesale. I would not underestimate Chinatown as an enormous retail opportunity and a tourist attraction of huge appeal. It is also something that local residents would be involved in.

We have this conviction in retail but someone coming from out-of-town doesn’t want to shop in the GAP in New York. “I went to New York and was in 534 GAPS.” Who cares? There are 12 GAPS in Peoria. I think there is a lot of the uniqueness of New York that challenges us. The office community, the Seaport area and the traditions of New York might want to be the areas you build on more, as well as the ethnic and wholesale districts. They may not look pretty but the reality is that this creates unbelievable dynamism in some of your areas that are outside the realm. I have seen, not just in LA, but in Houston and Dallas, areas that were completely abandoned that have now become hip areas, or business areas. I think you really need to think outside of the box. Don’t just think about how you can get the same old, same old here. You also want to have some other interesting and unique things. I tell you, people come to New York not to experience what they can everywhere else; they come to New York to experience something different.

JB: Joel mentioned Chinatown, which is certainly part of Lower Manhattan, but a lot of times it seems disconnected from the rest of Lower Manhattan. What Joel talked about is an opportunity. Maybe, Bev, your report might have gone into this as you talked about the different quaDRants of New York? How do you link the different parts of Lower Manhattan together? How do you make them part of a whole?

BW: We’ve had very interesting conversations with Chinatown ….We talked a lot about Chinatown in our report. Chinatown is a major destination in Lower Manhattan, so is the Historical District which runs along Wall Street. But that particular district is a pedestrian district. Clearly Battery Park is a destination with Ellis Island and the Statue of Liberty. Ground Zero is now a destination. There are destination histories in Lower Manhattan and they are best tied together by corridors. Those are the corridors that we need to encourage.

I support 100% what Joel said. Arts & culture and retail go hand-in-hand. If we have a very vibrant arts & culture with constant events and constant attractions, to get people in Lower Manhattan, retail will benefit. They really do go hand-in-hand.

I might say the same thing holds true for Chinatown and the Historic District: it needs a stronger image. I’ve said this to people in Chinatown. Chinatown was a real strong destination when you wore straw hats and pigtails. But now you have third generation, well-educated, affluent Chinese who are running the stores and the restaurants. That is not much of a thrust anymore. Somehow there has to be a street cleaning of image, of branding if you will.

The same thing with the Historic District….we need to recognize it as a destination. We need to be able to put storefronts in some of these buildings that were built long before the storefronts existed. We need to make it a pedestrian area. In many ways, it already is, but we have to encourage.

A group of us just got back from touring cities in Europe and we found out much to our surprise that the highest grossing retail stores in Europe were all in pedestrian districts. That really goes counter to what so many merchants in Lower Manhattan think. So there is an element of design that has to be encouraged at the same time.

JB: So many of you have mentioned entertainment. When you are talking about destination districts a lot of it has to do with tourists. For a place like Borders, I imagine, and a lot of other retail you are probably just as much or maybe even more concerned with the people who live around there that are going to be spending their dollars in your stores. What kind of entertainment? What are the keys? What needs to happen to get people to want to live down there or to stay there after work and hang out?   You mentioned that people come to TriBeca but it is also a thriving neighborhood and has some energy because people are living down there. What kind of entertainment are you talking about that, as Joel said earlier, is going to get people to spend their free time in Lower Manhattan?

DR: First off, I think Borders is entertainment because you can buy books over the Internet. You can buy music over the Internet, and you can buy it for less sometimes. But what you don’t get if you buy it elsewhere, perhaps see your neighbors, have a cup of coffee, relax and spend two or three hours there. You also don’t have the ability over the Internet to bring your kids in on a wet, rainy, Saturday afternoon. So we’re entertainment.

I’m very impressed with what Joel was saying. When people come to New York it should be different. Then you went on to elaborate about the different neighborhoods and the historical features of it. But I don’t think all of those cultural themes are inconsistent with a proper master planning of the Trade Center site in the way we were talking about before. I don’t think we need another GAP. If you brought cultural anchors to that area….and that is a key term in retail that hasn’t been mentioned yet…anchors. Retail always looks towards anchors to build traffic. If it is a mall, it looks to a department store. If it is a corridor, it looks to a magnet store. But you need that anchor. If you were to integrate those cultural themes in a way that some of the brilliant people that do design can do it, so it doesn’t look tacky. You could also integrate as an anchor into this whole retail environment museum that brings traffic…Broadway-type theatre or Lincoln Center-type theatre. So it’s not the 42nd street type of mix of entertainment and restaurants that I would suggest. You already have it.

Also with this theme of anchor, let’s put that against the concept of corridors. The great opportunity for the Trade Center site is to be the anchor. Afterall, these corridors have existed for a long time. They haven’t developed as we’d like them to develop. So what can you do? Well, you could change the zoning of those corridors. Perhaps, for example, you can’t use the second floor for retail use along the corridor. You could change that so you can make a multi-store. Soho, for example, you can’t use the second floor for retail. If you want to go in there, you can’t. But the Trade Center site can be the anchor, and with judicious re-zoning, and introducing more residences, I think you can really change the rut that Lower Manhattan has been in. But no malls.

BW: The only problem is that we’re looking at the construction of the World Trade Center site on the ground surface, not the underground. The underground is undergoing construction right now and hopefully should be completed – at least a temporary PATH terminal – by the end of the year. The kind of construction that would be an anchor is some years away. We need something today that will turn around retail. What we are proposing – and we’ve seen this in Europe – Berlin did this – they provided subsidy and various types of incentives for major retailers to go in there. It worked quite well. We have got to select various destinations, including Chinatown, and various corridors and provide incentives for major retailers to locate there. Then watch the force of their retail and their DRaw, a DRaw from across the region and maybe even across the world. This would help other stores organically grow. Normally we never do this but we have an unusual situation here.

JK: First of all, I’m not necessarily sure about subsidies. I also wonder if some of the European things can be transferred over. For one thing, the United States is so much more heavily stored than Europe. They have very limited retail hours, as well.

I want to throw a few ideas from other places that have worked relatively well, and one from here. The first thing is you can do it on something fairly small. I just did some research before I came over here--looking at some of the places I understand pretty well.

There was a major development of Hollywood Boulevard. Now, Hollywood is just about the most famous street there is, but a terrible disaster as a street. The street itself has gotten better. They built name brand national stores. The restaurants have done well; the stores have done terrible. What works very, very well was a place called Farmer Markets. If you’re familiar with the Caruso project? He took a funky old neighborhood market--a great place, I used to take my daughters there all the time--and around it built a mall. They have transportation (a little train system) within it. It works brilliantly. What’s interesting is that Caruso said, “Let’s find something.” And I’m thinking of the Fish Market which is already kind of an icon, and then build something around it. I don’t want to touch the retail that already exists because the Farmers Market already has, in Los Angeles which has a short history, a sort of iconic status. That worked brilliantly.

Also, another example of doing entertainment without massive investment. If you’ve been to the Santa Monica mall, which happens to be where the Miliken Institute’s offices are, 20 years ago it was homeless people and a real disaster. What they’ve done is set-up a certain kind of sculptures like dinosaurs and things that kids like to play on, and then they have a lot of street artists and a farmers market that is extraordinarily successful. So I think there are a lot of things you can do that don’t require, at least in the short-run, massive investment. You’ve got to come up with short-term strategies that revitalize the area before the larger stuff even has a chance to happen.

I’d say it’s very controversial, but Jonathan and I have talked a lot about it--fundamentally Lower Manhattan is a major world business center that has passed its prime. It’s never going to come back in a significant way. You try to build things here it is not going to be economically viable. There are lots of reasons why that we could go into. So you have to rethink what Lower Manhattan is all about. I hear New Yorkers have a problem thinking small when they should. There are a lot of things that could be done to anchor these districts that may not require so much money or subsidy.

JR: Both those projects are wonderful. The biggest difference is the Farmers Market; Caruso owned the whole thing. He was able to do with it what he wanted. Here you’re talking about 50 different property owners, all with their own agendas and everything else. That’s where it gets tricky.

JK: But there were 50 owners…One thing we can see from looking at real estate prices and retail is retail in walking districts where people live vastly out performs retail in other places. We have pretty good evidence on that.

JB: I’m curious. Joel mentioned Wall Street and some of the loss of traditional Wall Street industry down here. Jeff, you mentioned, that retail in Lower Manhattan never worked and I wonder if any of that is partly attributable to a lot of the people who work in Wall Street actually don’t live in the area or even in New York City? They go back to New Jersey or up to Westchester or to Long Island. Now as we see things changing a little bit and as we see a little more emphasis on residential development down there, and as other sectors like nonprofits, the arts, smaller business are starting to establish themselves in Lower Manhattan, is that maybe a sign that maybe things will start to change. Maybe there will be more demand for more 24 hour retail?

JR: Well, the million dollar question is where do people shop and what are their shopping patterns. It’s very difficult. Joel probably has a lot more experience. When do people really go shopping? Do they go on their lunch hour? Do they go on their way to work or way home from work? Or do they do it on the weekends by their home? I think with some of the newer companies that are coming down here, perhaps, some of the people who work at these companies live a little bit closer to here and they are not fleeing back to Greenwich right at the end of the day. Time will tell on that but it is a good question. It is a tricky question.

BW: Everybody in the audience knows that downtown has been changing for the last 25 years. Slowly, apartment buildings have been built, or office buildings have been converted to apartment buildings. Even today we don’t have a mass of office buildings in the heart of the Financial District. It’s really interspersed right now with apartment buildings. We’re at a point now where we have about 70,000 people living downtown. That, obviously, is organically growing. The more housing and the more people we have living there, the more 24/7 environment we’re going to have in terms of retail. We do need more housing. The irony is that we have approximately 17 million square footage of empty office space. I’m willing to wager that the people who own those buildings will at some point decide that they want to convert that to apartment space.

JK: Let me give you a little number. This is very interesting. Office space was $250 per square foot value; condo space was $500 per square foot. Throughout New York City, residential space is already generally worth more. Lower Manhattan had the biggest differential between how much the office space was worth and how much that same space would be wroth as a condo. Not every office can be turned into a condo, but that is pretty profound. Ultimately, I think the market should be DRiving us in the direction of Lower Manhattan as a great residential district. If you look at the demographics of who is going to move down here. They are not going to be Ma and Pop from Peoria. They are going to be a pretty unique New York mix.

JR: The residential that has been built down here the past couple years has been dominated by corporate apartments. I don’t think, with the exception of Battery Park, you are really getting a neighborhood. That is unfortunate. I think people like traders and brokers are staying once or twice a week. I don’t count that as a residential community. Battery Park certainly is – you see families and strollers – but you don’t see that downtown. And you haven’t. There are some spectacular new residential buildings. I’m not sure who is living there. I don’t know if there are any studies available, but I’m sure a lot of the brokerage houses own or rent a significant proportion of them.

JR: One study that I did look at recently that I got from the Trump people….

SPEAKER: Then it must be true!

JK: What they said that was very interesting was that even in the midst of a touch economy they are finding a lot of stability in 30-40 year olds who are staying and buying places in Manhattan. They feel there is a huge potential market for those people. I personally believe most of those people are without chilDRen, but you have to realize about 35% of people between age 35-44 don’t have kids. That is probably where your market is going to come from. It is not going to come from families and particularly from families with kids over the age of six. They are unlikely to stay if they have a choice.

JB: Let me open it up for questions from the audience. Councilman Gerson, did you have a question?

Councilman Alan Gerson:
To what extent should we in government be looking to develop retail by encouraging the location of chain outlets of various retailers? To what extent should we focus our efforts that allow the unique, Mom and Pop, small business part of the chain? Or should we in government be completely neutral to the genesis of retail and let the market decide? I’m curious to any thoughts on the chain vs. Mom and Pop issue.

The other issue, we touched on this but I wanted to make sure we exhausted it, the planners feel they should recreate the underground retail center that many argue was thriving, in addition to the street life, or should we focus on the street and for the moment ignore the underground?

So I’d like to put those two questions on the table.

BW: I think you need both. I think you need that magnet store and I think Joel hit it on the head….50% of our population…these stores will organically form around the magnet stores. Stores that will form will in all probability be the smaller stores. Large retailers have a reputation for being cannibalistic. They don’t like much competition too close. I really think you have to support both.

We, of course, on the second question feel very strongly that you cannot have 24/7 community unless you have street retail. This is what New York is all about. For example, you can take any street in New York and put a cover over the street and you have a mall! That’s how the foot traffic is. The thing is that we have to remember is that the mall at the World Trade Center really became successful after the reconfiguration in 1994 with the dot com boom when the building filled up. If you lived in the neighborhood, this is where you went to shop. You didn’t have a choice. But now people are going to have a choice in neighborhoods all over Lower Manhattan. It’s a different story today than it was in 1994.

JK: One of the things that I find refreshing about Lower Manhattan as compared to midtown is that you can see the sky. It’s nice. It feels like when you’re walking in Paris, Amsterdam, San Francisco or other human-scale cities. It has that feel to it.

Underground malls are generally not done very well. Actually in many places they are tearing down the structures and opening the malls up. So there seems to be a pretty strong human desire for what you already have.

JB: Let me follow up with a quick question. Do people have faith that the LMDC, the Governor, the City are going to follow those wishes and opt against a mall type situation or underground retail?

RESPONSE: They argue that if you put an underground mall in, it will attract people to eventually go above ground.

DR: As a retailer, my natural inclination is to be on the street. That is where I want to be. Anything else, I’ll have to step back and ask how is this going to work?

AUDIENCE QUESTION: You’ve all come up with great ideas. The bottom line is a vision and a unified way to communicate that vision. There is so much potential here. Retailers need to be in contact and build these concepts together. I think street retail vs. a conventional shopping center if you want to revitalize the area…as a mall developer, I know that malls tend to range….you really have great, visionary ideas and I hope they are unified and find a way to market them.

I’m from Pace University. This is the most important gathering we’ve had since 9/11. Designs, memorials…this is a rock bottom issue….really, really important thing.

My second comment, Joel, is that I’m from Los Angeles too. I’m really concerned that we don’t lose the retail that we have here from 64th and Madison and Fulton Street and Broadway. I want to be able to have that mix. You need that. Please keep that mix for us.

AUDIENCE QUESTION: Today I saw in the news, or heard on the radio, that the hearings that Councilmember Gerson is actually chairing a committee for Governor’s Island. How does Governor’s Island fit into any kind of rebirth for southern Manhattan?

Also, this is a totally separate topic. I saw in the Sunday Times this weekend there was a very interesting article on the front page of the real estate section on the Vertical City, talking about Columbus….Time Warner building…Lincoln Center jazz…and all these restaurants and I wanted to hear thoughts on that. But Governor’s Island should probably go first.

COUNCILMAN GERSON: Just for the record, David Yaskey chairs the Waterfront Committee. I chair the Lower Manhattan Development Committee.

SPEAKER: I’ll address the second part of that question because while Governor’s Island is an integral part, us in the real estate community have really not gotten our arms around what to do that.

DR: We don’t have it.

JR: Well, yes, there are a couple of steps first. The AOL/Time Warner piece is competition to downtown. Retailers can only open so many stores. Restaurants can only open so many and theatre groups. So each new development, whether it is in New York or California, is basically competitive. Dave, I’m sure, has a model of how as to how many stores he can open in a year. He’s going to take the best stores that he sees. That’s how I see AOL/Time Warner.

So far New York hasn’t been too successful with multi-level retailing. So I’m curious to see how that works out. Steve Ross clearly has the Midas touch and if anybody can do it, he and his team can. He has an impressive list of retailers and restaurants going in so I’m real curious to see how it works out.

AUDIENCE QUESTION FROM BRUCE HERMAN: I’d like to raise one issue that hasn’t been discussed yet and I think it is an important one for this industry…which has historically been challenged in this regard: wage level. According to State Department of Labor, as of 2001 with the most current statistics, 54% of the jobs in this retail sector in Manhattan pay a little of $20,000 a year. Do you really expect to rebuild our community and revitalize our community based upon jobs that pay that little? They are insufficient in terms of families sustaining benefits as well. So I want to ask the committee to respond to the issue of job quality.

We’re looking at a sector that is probably going to receive significant public subsidy. Our tax dollars are going to support the development of this industry in Lower Manhattan. Should we use our tax dollars to develop an industry that produces so little in terms of job quality? We’ve heard voices from the community, academia, the employers and the developer but we don’t have any voice from the workers who are trying to make a livelihood. That’s my main issue.

The other issue, because I too was on the same trip as Beverly in Europe, was retail diversity. What we say, particularly in Munich, was highest income, highest profitability retail development in all of Europe was a tremendous diversity of retail space. Part of the reason for the diversity was public policy that did do something based on the combination of Mom & Pop…..but my main issue is the job quality issue. Will those jobs be family sustaining jobs?

COUNCILMAN GERSON: I’m glad you raised this point. We are in fact, as part of a broader series, have a panel focusing on employment and labor …in a couple of weeks we’ll begin to pull that together. You’re right on target. It’s a very important issue to my office and myself. We will actively and aggressively pursue the matter. I’m glad you put it on the agenda.

On the diversity point, I’ve heard what you said, but the argument that I’ve heard is that once you start having to change stores that drives out the Mom & Pop….limited amount of space…higher rent as opposed to those who can’t afford, so therefore, the argument goes that government programs should focus on encouraging the Mom & Pop rather than retail…

BW: For any retail store to survive, whether it’s Mom & Pop or a chain, it has to offer something different. It has to have its own special attraction. I own a retail store and we managed to double revenue every year until it got to the point where I said, “Am I retail or am I an architect?” So I opted out for architect, which may have been a mistake. But we got a lot of publicity because we had events, promotions…..so when we talk Mom & Pop stores, you can’t ….it’s got to be somebody who has a really clever idea and who can really attract customers or they won’t be in business for very long. The small store that has the idea and can attract customers will benefit. …large store being there is critical to foot traffic and the small store can’t survive without foot traffic, but the small store on its own can’t attract foot traffic. There are others here who probably know more about this than I do, and can speak to that point.

On a labor side, there is a US economy approach that impacts the lower income coming into the city…the immigrants coming into the city…The US economy is one of the leading economies in the world because we have a liberal immigrant policy. Immigrants come in and are willing to work at low wages while they are learning English, getting an education and moving up the ladder. That has been the democratic process of this country ever since it was founded. Other countries have shut off their immigrant policies and stabilize their own internal…but their overall economy has suffered. I’m not arguing for $20,000 a year. I think everyone should earn a decent wage. But there is a phenomenon of people coming into this country, making low-income wages, and working their way up the ladder to the higher wages and that allows other to come into the country. Invariably we see in many of the low-income ….I’m making a very general statement and I could get into a lot of trouble for what I’ve just said, but I think we have to recognize that we have this constant upward mobility in this country. We’re a democratic country and we make it possible to do that.

JB: OK, let’s move on. It’s a great question and probably worthy of a lot more discussion. We have so many people asking questions and only 20 minutes left.

AUDIENCE QUESTION: When it comes to retail, what’s the threshold where retailers decide there’s enough customers to support opening a store?

JR: I’m actually going to redirect the question to Dave who does demographic studies on the Upper East Side and Kips Bay…..obviously has stores….what kind of income?

DR: I don’t really have an exact answer for you. I can give you some variables. It’s not just how many people you have. It’s a mixture of how many people you have, how much income, what the average household income is, how much competition there is in the segment. For example, how many sellers of book are there? There’s of course Barnes & Noble. But after that, if you’re in the suburbs….the largest seller of books, for example, is Wal-Mart. They sell more books than anybody. So you have to look in supermarkets. So you have to look at all the different sources of that product in the marketplace. The income, education level. Then you look at your traffic and your competition. Is there an opportunity for you to establish your method of operation in that marketplace in a superior location? So you have to look at all of these factors before you commit to a location.

Getting back to the superior location, we go back to anchors and retail nucleus. I suspect in downtown, you’ve got some retail nucleus problems. But your income levels are pretty substantial. Residential density--how many people? How accessible are they? In Lower Manhattan you want to be able to walk everywhere. We studied Lower Manhattan and did a quarter mile. How many people live within a quarter mile?

But also understand that retail doesn’t always have to have residents. We did fine. You go to our store at 8:00 in the morning, it’s jammed. At 10:30am, it’s quiet. Then at 11:30am, get out of the way! It’s the busiest place you’d ever want to see. I think the question here is not do you just want to have a successful store that can be parasitic on what exists, but you want to create a 24/7 environment. For that, you need more and will want to develop all the thing we’ve talked about.

AUDIENCE QUESTION: Do the people working in the neighborhood buy? And what type of client would you advise to go in and make their money that way?

JR: Great question. If I was dealing with a supermarket chain I would advise them against coming downtown. There are not enough residents for them to live on. Their customer is a residential customer with a rare exception. Borders or Starbucks or Ann Taylor who really can make a living on lunchtime, afterwork….still downtown is the third largest business district, so there is still a ton of people. Dry cleaners and most service type tenants need not apply because at this moment there is probably not enough business for them, as opposed to the Upper East Side or Upper West Side.

AUDIENCE QUESTION: How to market or integrate those stores for those who want to go to bigger stores but they also want to go to the unique stores that they can only get in Chinatown to get? Is there a way to weave or integrate those retail experiences?

JK: The Chinese population in southern California is larger than the Chinese population is here, but it is more dispersed. Based on Midwest financial center….San Diego valley which is the most evolved Chinese section in the country…banks and restaurants….do anything other than make money and eat….

What we find is that a lot of these business people, not just Chinese but from Southeast Asia, have a desire to buy wholesale goods and cluster things. I think one of the things that New York could do out of Chinatown or areas surrounding Chinatown, is create an area ….business improvement districts…parts of lower Manhattan with very distinctive activities…if you go to Houston you see the same kind of activity. There is a street in Dallas where you see the same kind of activity. A new garment district….there is no marketplace for consumers as there is in southern California.

The second thing is what the tourist, outsiders wants….cultural events…parades and perhaps places where you can go hear Chinese music. I think Chinatown needs to market itself. My experience is, after spending a good part of my life in Asia, is that Chinatown tends to be inward focus. How do we get Chinatown to be outward focused? I think in downtown New York, Chinatown is the most exciting, vibrant part and needs to be expanded in some way.

AUDIENCE QUESTION: What can we learn from South Street Seaport?

JR: South Street Seaport in our world has been a disaster from day one. I think it was marketed towards everybody but New Yorkers. Clearly, anybody who lived in the city had no desire to go down there unless you worked around there. This is my opinion. Retailers were never intrigued enough by the…..you can get anywhere else….I think the biggest problem was that it didn’t market itself towards New Yorkers. The tourists were just not coming. It was not like New York. There was some discussion about bringing in something like the Pikes Place Market, which I think would be a mistake as well. New Yorkers are tough customers and they don’t need a designed retail shopping center that you might find across the rest of the country.

That is a key issue with retailers and what kind of incentives can be offered. With low funds, clearly a good incentive….I’m a big fan of the no sales tax programs that are run. I think retailers have benefited from that. I think people have taken to that. Short of that, it’s real estate taxes and monetary issues which are probably more problematic.