Real Estate Chat

Fairway Markets Hitting Manhattan November 4, 2009

Source: NY Times

Author: Sana Siwolop

URL: http://www.nytimes.com/2009/11/04/realestate/commercial/04fairway.html?_r=1

“Looking Beyond the City for Growth”

PELHAM MANOR, N.Y. — Among supermarkets, Fairway Market, the popular Manhattan-based food emporium, is a destination retailer.

What started in 1933 as a modest 3,500-square-foot fruit and vegetable market on the Upper West Side now includes five stores in operation and three more in the works. It already claims 10 million shoppers a year, who are said to drive an average of 17 miles to reach its stores.

It probably does not help that new Fairway stores have turned up in obscure sites. In 1995, the retailer opened a sprawling Harlem store in a former meatpacking plant that sits on 12th Avenue, partly under the West Side Highway. And in 2006, it opened a store in a large Civil War-era coffee warehouse located on what was then a desolate stretch of waterfront in Red Hook, Brooklyn.

Last week, Fairway’s chief executive, Howard Glickberg, a grandson of the company’s founder, Nathan Glickberg, happily led a visitor through the still-vacant interior of a new 75,000-square-foot store scheduled to open next spring in this village of 5,500 in Westchester County.

The store is part of Post Road Plaza, a freshly overhauled 280,000-square-foot shopping center. Along with the recently redeveloped Pelham Manor Shopping Plaza across the street, the plaza is expected to help to transform a still largely industrial corner of the county.

At Post Road Plaza, Fairway will take some of the space that once belonged to Kmart and before that to the discount retailers Caldor and Korvette. At 75,000 square feet, the new store will be twice as large as Fairway’s longstanding flagship store on Broadway, between 74th and 75th Streets. It will have access to some 1,300 parking spaces and will offer a 25-foot-wide main aisle and the company’s first in-house wine store.

Fairway was a retail pioneer in West Harlem and Red Hook, and its entry injected new vigor into both neighborhoods.

The company’s choice of store sites has long been shaped by a particular set of real estate needs. Unlike larger chains, Fairway does not rely on a large central distribution facility. Instead, in the interest of freshness, most products are shipped directly to its stores, which means the stores need access to major highways and sizable storage space.

With the exception of customers of the Upper West Side store, most customers come by car, so Fairway also looks for sites with parking for at least 400 vehicles.

Leasing costs are important too. Although the company continues to introduce amenities like in-house cafes (the Upper West Side store turns into an informal steakhouse at night), deal-conscious shoppers are its bedrock.

“We create our own neighborhoods — it’s hard to go into the toniest towns and find 75,000-square-foot spaces with big parking lots,” said Aaron J. Fleishaker, the vice president of real estate operations.

Lately, Fairway’s expansion’s plans have quickened because of a major new investor and because of a desire to take advantage of the softer rents that prevail in the New York area.

In 2007, Sterling Investment Partners, a private equity company based in Westport, Conn., took a controlling interest in Fairway from the founding family, first investing $150 million, and then at least $30 million more to help finance expansion, said Charles W. Santoro, a managing partner and co-founder of Sterling.

Before this infusion, Fairway used to open a new store roughly every three years, but now its goal is to open three stores every two years. Mr. Santoro said the company’s sales, now more than $500 million annually, were growing “very rapidly.”

Mr. Glickberg added, “Eventually, we want to have about 15 stores within a 75- to 100-mile radius of Manhattan.” Rather than owning its own stores, he said, the company now prefers signing long-term leases.

In the suburbs around New York, new Fairway stores have turned into important focal points for retail developments that are remaking themselves completely or that sit in areas where the shopping waters are still uncharted.

Last March, the company opened a 52,000-square-foot store in Paramus, N.J., at the Fashion Center, a once-struggling enclosed mall that was recently redeveloped to house a number of big-box tenants, all with their own outside entrances.

To build a large square-shaped store at the Fashion Center, Fairway had to convert the mall’s little-used common areas and help two smaller tenants move. But Fairway also needed at least 500 parking spaces, so it took a spot that did not face Route 17, a major shopping artery. “We’re actually on the wrong side of the shopping center,” Mr. Glickberg said. “The landlord there owes me a big favor.”

East of Manhattan, the company has a 52,000-square-foot store in Plainview on Long Island, and it is working to open its first Queens store in what is still, for now, a Waldbaum’s supermarket in Douglaston.

Fairway’s largest store to date is to appear in Stamford, Conn., in the once heavily industrial South End, a peninsula that sits south of both Interstate 95 and the city’s downtown. There, Fairway is building an 80,000-square-foot store from the ground up at the 80-acre Harbor Point mixed-use development, which changed hands last year, passing from Antares Investment Partners, based in Greenwich, to Building and Land Technology, which is based in Norwalk.

At Harbor Point, Fairway is both the anchor store and the only retailer that has so far committed to space. Penny P. Wickey, a principal at Saugatuck Commercial Real Estate of Westport, Conn., the retail leasing agent for Harbor Point, said the development would eventually have some 350,000 square feet of retail space.

In addition to looking for store sites, Fairway is seeking space for a large central bakery, because the bakery at its Harlem store, which supplies other stores, will most likely be too small to serve its needs when it has eight markets or more.

Mr. Glickberg, meanwhile, would like the company to begin lining up new sites to follow the Douglaston store. “If the right space comes along, we’d grab it,” he said. “I don’t have a problem taking space, paying rent on it for a year and keeping it dark.”