Monday, June 26, 2017

Pop Up Goes the Retail Scene as Store Vacancies Rise

The twin sisters Samantha, left, and Morgan Elias founded the Vintage Twin, a secondhand clothing company whose stores frequently pop up in Manhattan. CreditDolly Faibyshev for The New York Times
As traditional retail stores close and vacancies mount, landlords across the country appear newly receptive to leases as short as a week, eschewing the typical 10-year time frame, even in locations that once shunned limited stays.
The upswing in pop-up stores, as the short-term placements are called, is playing out in all sorts of ways, and in all sorts of places — including dark malls, former grocery stores and shuttered art galleries, according to real estate brokers, landlords and tenants.
For retailers, the stores can offer lower rents and far less commitment. For the landlords, the reason is just as clear: A short-term tenant is better than no tenant at all.
“Landlords have their backs against the wall right now,” said Samantha Elias, the co-founder of the Vintage Twin, a secondhand clothing company whose stores frequently pop up in Manhattan. “I tell them that some money is better than no money, and I promise not to bother you.”
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The rise in pop-up stores is adding another element of change to a retail industry facing upheaval from profound shifts in consumer habits and powerful new competitors, especially online. In the past, short-term tenants focused on holidays like Halloween: Costumes were hot items in October, but sales evaporated once the calendar turned to November.
But today, the products go far beyond monster masks, to skin serums, designer handbags and crystal champagne flutes, as brands see pop-ups as an opportunity for quick public exposure or as a possible steppingstone to something bigger. And while some landlords continue to shun short-term deals — arguing that the rents, which are generally below market rate, do not justify the trouble and cost involved with preparing a space — they are quickly dwindling in number.
“The trend has become more prevalent in the last year or so,” said Karen Bellantoni, a vice chairwoman of RKF, a retail-focused national brokerage firm.
RKF does not specifically track pop-ups, which is also the case with other major firms. But the fleeting boutiques are an increasingly bigger part of agents’ business, including in Los Angeles, San Francisco, Dallas and New York. “We’re definitely seeing landlords looking for them,” Ms. Bellantoni added.
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The Daniel Wellington pop-up in SoHo became a more permanent presence when the company signed a six-year lease because of the store’s success. CreditDolly Faibyshev for The New York Times
Ms. Elias said she had also seen a change. In 2012, when she started looking for physical stores to augment her online business, she had to cold-call landlords directly, she said, because “brokers had never heard of pop-ups.”
Landlords are finally coming around, she said, but they may have no choice, as stores continue to go out of business.
Ms. Elias added that “it must be really scary right now” for owners in SoHo, where most of her pop-ups have been.
But the new stores can cause landlords to lose money, said Stephen Summers, the managing director of Highland Park Village, an upscale shopping center near Dallas that is in the midst of a multiyear renovation.
In late 2014, Mr. Summers installed Goop, an online retailer founded by Gwyneth Paltrow, for a four-week run in a former grocery store at his historic red-tile-roof complex, a widely copied model for the 20th-century shopping center.
Because the store, at 20,000 square feet, was considered too large for Goop’s needs, Mr. Summers had to construct a more intimate 1,500-square-foot berth, including dressing rooms. That renovation ultimately caused the deal to be unprofitable, he said, even though Goop drew so many customers that there were lines around the block.
But Mr. Summers said he was glad to have a relationship with the company. Goop, which has popped up in multiple spots, is planning to open permanent locations, and Mr. Summers plans to court the company. “Pop-ups are a responsible way to grow,” he said.
Like Goop, other web-born businesses are seeking a bricks-and-mortar presence as well, aware that most shopping is still done offline, and are turning to pop-ups to get their start.
For instance, Daniel Wellington, a six-year-old watch company with a heavy social media presence, has been selling its timepieces in part through department stores like Bloomingdale’s and small jewelry shops. But in November 2015, it opened its first temporary store in the East Village of Manhattan. A year later, it opened one in nearby SoHo for two months. Because that location was a success, Wellington signed a more permanent six-year lease for the same space, said Ola Melin, a company spokesman.
Wellington also has pop-ups in Boston, Miami and Honolulu, among other cities, Mr. Melin said.
The designer Jamison Albritton at work at Artists and Fleas, a pop-up market in SoHo with tables and racks from different vendors. CreditDolly Faibyshev for The New York Times
In SoHo, where pop-ups are especially popular, the range in rents can be significant. Long-term tenants have been paying in some cases up to $150,000 a month, brokers and tenants say. But pop-ups can get deals for $25,000 a month. They generally pay all their rent upfront and agree to leave with a few days’ notice if a longer-term tenant is signed.
While some buildings may be hard to get into, others seem more inviting, like 543 Broadway. That is where Vintage Twin — which is owned by Ms. Elias and her twin sister, Morgan — has been set up since April, and which bustled with shoppers on a recent weekday afternoon. A tie-dyed Grateful Dead concert T-shirt from the 1990s was $244.
Several pop-ups have set up camp at the address, a Beaux-Arts edifice, since Carlo Pazolini, a shoes and accessories store, closed in 2015 after a four-year stay.
“To keep the neighborhood alive and vibrant, you need to have retailers occupying space, especially in today’s day and age,” said Jared Epstein, a principal of Aurora Capital Associates, the building’s landlord.
Similarly, last year, Aurora installed the Broadway Market Company, a pop-up with various vendors who sell handbags, jewelry and stationery, in a vacant building it owns nearby. Its lease is expected to run about 18 months.
Likewise, an Aurora-owned building in SoHo in May welcomed Artists and Fleas, another market with tables and racks from different vendors, which replaced a 10,000-square-foot Armani Exchange store that closed in March. Artists and Fleas has committed to a one-year lease, Mr. Epstein said.
Swooping in to capitalize on the rash of empty stores in New York and elsewhere are some new brokerage-type businesses, which charge fees to landlords as brokers do and also sometimes market spaces concurrently with other agents.
Examples include Space in the Raw, a two-year-old firm that for about a month last fall joined Taco Bell with Sony PlayStation for a SoHo pop-up, in its first New York retail deal.
There is also Appear Here, a four-year-old British company that opened a New York office in April. Since then, it has found homes for dozens of pop-ups, said Ross Bailey, its chief executive, including Misbhv, an apparel company, on East 34th Street, in a part of Midtown where empty stores are evident.
Mr. Bailey says that contrary to popular belief, young adults want to touch what they buy and also enjoy the physical shopping experience. Besides, “it would be a sad world if everybody was staying at home looking at screens,” he said. This month, Appear Here raised nearly $13 million in venture capital, bringing its total in raised funds to about $21 million.
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Joel Hodgin at the Broadway Market Company, a pop-up with various vendors.CreditDolly Faibyshev for The New York Times
But in a way, pop-ups, despite their growing ubiquity, are like Band-Aids on deep wounds when it comes to the problem of stubborn vacancy rates, brokers say.
“Rents are just too high, and it’s just too cost-prohibitive to be here,” said David Barreto, the founder of Cast Iron Real Estate in SoHo and someone who encourages landlords to do what it takes to fill spaces. “It’s really just sad.”

Why Boutique Hotels Are So Big in Not-So-Big Cities

Unscripted Durham, a new boutique hotel slated to open this month in Durham, N.C.CreditKate Medley for The New York Times
Jane and Greg Hills were visiting New York City when they grabbed a drink in the lobby bar of the Dream Downtown, a boutique hotel in Chelsea. As the full room pulsed with music and guests, the couple had an epiphany: Dream should run their new hotel in Durham, N.C.
“We had been talking to all the major brands, but we wanted someone innovative, creative and entrepreneurial,” Ms. Hills said of Dream, a relatively small company that operates 16 hotels. “The banks wanted us to go with someone more well known, but Dream was the right match for us.”
The result is Unscripted Durham, a hotel that will have its soft opening this month and the official opening in July in the center of a revitalizing downtown. With its rooftop pool and five restaurants on the premises — a considerable number given that there are just 74 rooms — it is the latest in a wave of new boutique hotels in the nation’s smaller cities.
The Trump Organization, for example, recently announced plans for Scion, a boutique brand that will open its first location in Cleveland, Miss. And industry giants like Marriott and Hilton have aggressively moved into boutique hotels, sometimes called lifestyle hotels. The hotels usually highlight a property’s unusual architecture or history, have no more than a few dozen rooms and offer special guest services or amenities.
Jane and Greg Hills, the developers of Unscripted Durham. “We had been talking to all the major brands, but we wanted someone innovative, creative and entrepreneurial,” Ms. Hills said of their decision to work with the Dream Hotel Group.CreditKate Medley for The New York Times
“In this industry, when one person thinks it is a good idea, everyone piles on,” said Jan D. Freitag, a senior vice president at STR, a hotel research firm. “The industry is firing on all cylinders on the supply side.”
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While hotel expansion is fairly typical in big cities when the economy is growing — New York leads the way with 15,470 rooms under construction — it is less common in smaller areas. In Durham, for example, the number of available rooms grew 5.7 percent in 2016, more than triple the national average, according to STR data. In Cleveland, the number of rooms surged 5.8 percent, while the Albany area of New York had a 5.3 percent increase.
Of all the rooms under construction now, about a quarter are in boutique hotels, according to data from Tourism Economics, a company that forecasts travel trends.
The boutique hotel push is driven by travelers’ increasing desire for “genuine” experiences, said Bjorn Hanson, a professor at the Jonathan M. Tisch Center for Hospitality and Tourism at New York University. Many travelers want something fresh and different, instead of the standardization of the large hotel brands.
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Unscripted Durham’s rooftop pool. CreditKate Medley for The New York Times
Expanding beyond large areas like New York and Los Angeles largely comes down to cost. In New York, for instance, construction and labor costs have outstripped increases in room rates, making it difficult to generate attractive returns on investment.
Building a luxury hotel in New York costs about $1.5 million per room, Mr. Hanson said, compared with just $500,000 in many smaller cities.
“Costs have increased dramatically in gateway markets, and many brands need to continue growing, so they are looking outside the typical cities,” Mr. Hanson said.
Many companies like what they see in smaller cities. Downtowns like Manchester, N.H., and Youngstown, Ohio, are being revitalized as young adults seek out more urban lifestyles, tech hubs pop up and companies relocate there.
A room in Unscripted Durham. Of all hotel rooms currently under construction in the United States, about a quarter are in boutique hotels. CreditKate Medley for The New York Times
Websites like Trip Advisor also make it easier for boutique hotels to find and market their rooms to guests. Their reviews and photographs give guests greater comfort in booking these boutique properties, according to Aran Ryan, the director of lodging analytics at Tourism Economics.
“There is also more value in staying at boutique hotels than before, since guests can post their distinctive experiences on Instagram or Facebook,” he said.
Marriott, one of the country’s largest hotel chains, is introducing numerous boutique hotels under its Autograph Collection. Known as soft brands, these boutique hotels have access to Marriott’s booking service and loyalty program, but retain their own identity rather than becoming full franchises. The locations include the Empire Hotel in Birmingham, Ala. and the Elizabeth Hotel in Fort Collins, Colo. The company also has a brand of boutique hotels known as Edition Hotels.
Hilton, which is pursuing the same strategy with Curio, counts among its properties the Asheville Foundry Inn in Asheville, N.C., and the Hoodoo Moab in Moab, Utah.
Across the street from Unscripted Durham is another boutique hotel, the 21c Museum Hotel. Ms. Hills says demand is strong enough to support them both. CreditKate Medley for The New York Times
With so many new rooms, there are some concerns about oversupply. For instance, the growth in a common industry metric, revenue per available room, is expected to slow this year. After rising 3.2 percent last year, it is expected to grow 2.2 percent this year, according to Mr. Ryan.
The new level of competition is playing out in Durham. Across the street from the Unscripted Durham is another boutique hotel, 21c Museum Hotel, which has historic architecture and a rotating collection of artwork on display.
Ms. Hills, whose company Austin Lawrence Partners is Unscripted Durham’s developer, insists that the two properties are distinct and that there is sufficient demand in the city to sustain them both.
Demand in the city, with more than 252,000 people, rose 5.3 percent in 2016, almost matching the increase in rooms.
The Dream Hotel Group hopes Unscripted Durham will be the first in a string of Unscripted hotels. A second property is scheduled to open in Flower Mound, Tex., in 2019, and discussions are underway for other locations including Phoenix; Austin, Tex.; and Long Island City, Queens.
With Unscripted Durham, Austin Lawrence Partners is the developer and managing general partner and will pay the Dream Hotel Group a fee to manage it
“It used to be that boutique hotels worked in the coastal cities like New York, but now the center of the country is also looking toward this lifestyle,” said Jay Stein, the chief executive of the Dream Hotel Group. “We are excited to become part of that.”