September 14, 2005
Multiplying in Manhattan: Banks
By C. J. HUGHES
Seemingly as numerous as Starbucks coffee shops - and sometimes resembling them, too - new bank branches are popping up across the city on corners, in the middle of blocks and even second-story spaces.
Newcomers like Wachovia, Bank of America, Commerce Bank and Washington Mutual have taken over many retail spaces that once housed branches of their competitors and have also moved into former hardware stores, boutiques and restaurants.
Landlords seem more than happy to accommodate them because banks are often willing to pay higher rents than retailers might pay for the same space.
A bank might pay rent of up to $300 a square foot for space in much of Manhattan, especially in prime high- traffic areas like Union Square and along Broadway in SoHo, compared with $200 to $250 a square foot paid by retail stores in the same areas, according to landlords, property managers, bank executives, brokers and urban planners.
This willingness to pay top rents "is the strong and compelling reason landlords want banks as tenants," said Gene P. Spiegelman, an executive director at Cushman & Wakefield, who recently negotiated four leases for Wachovia, which already has 13 branches in Manhattan, all opened since 2002.
But, he added, landlords were also eager to find tenants with the wherewithal to thrive over the long haul. And so, landlords take note that Bank of America, say, has a credit rating of Aa1 from Moody's Investors Service while the Gap, the clothing retailer, has a lower rating of Baaa3, according to recent quarterly earnings reports. "It's all about maintaining a return on your investment," Mr. Spiegelman said.
To make sure that these ideal tenants stick around as long as possible, landlords are locking them into unusually long leases of 15 or 20 years rather than more typical 10-year leases for retailers, said landlords and bank executives. Banks might be a bit squeamish about committing themselves to 20-year leases, reducing their ability to move if they choose, but landlords are seizing the opportunity to get banks to pay top dollar while they can.
"Having seen a number of trends come and go, landlords are banking - pardon the expression - on these banks not being here in 10 years," said David La Pierre, a senior vice president and commercial real estate broker for CB Richard Ellis, who analyzes the retailing market. "The attempt is to maximize the opportunity that's there today."
Even if the banking industry consolidates again as it did in the late 1980's, when many branches closed in New York City, landlords are not terribly worried. A banking company that takes over another will be obligated to complete the full terms of existing leases, they said.
There can also be aesthetic advantages in leasing to a bank. Before last month, the street-level retail spaces at 317 Madison Avenue at East 42nd Street, a 23-story office tower built in the 1920's, included a drab currency exchange and a cigar store. Now combined, the 10,000-square-foot space holds a spacious Commerce Bank that has towering marble columns and gleaming black granite counters.
"We're the dream tenant because we remodel the building," said Vernon W. Hill, the founder and chairman of Commerce Bank, which has, since 2001, also carved banks out of athletic shoe and women's clothing stores.
Mr. Hill's landlord, the SL Green Realty Corporation, did not mind the makeover, which was paid for by Commerce Bank. "Commerce Bank gave us an opportunity to change the flavor of the building," said Steven M. Durels, an executive vice president and director of leasing for SL Green.
Generally speaking, that flavor is vanilla, brokers and landlords said, creating a clean, corporate look. Yet occasionally, landlords encourage banks to cultivate an image that is much more distinctive, as at the year-old Bank of America at 1515 Broadway at West 45th Street, where the quotations on three blue stock tickers stream from floor to ceiling, giving the columns the appearance of barber poles.
The design, along with the Steinway baby grand piano that sits in the corner, is not only a nod to Times Square's theater-fueled glitziness, Mr. Durels said, but also a conscious effort to brand the building as the headquarters of MTV, which is upstairs.
Many upper-floor tenants like having a full-service bank under the same roof, as Rudin Management discovered long ago, according to Thomas M. Keating, the company's senior vice president and director of commercial leasing. "It's exactly the kind of amenity we want our tenants to have access to," said Mr. Keating, even if the bank might be paying a below-market rent. That is the case at 345 Park Avenue at East 51st Street, where Bank of America pays only $200 a square foot annually for a 10,000-square-foot space.
If banking convenience really affects tenant satisfaction, the people who live in the Coronado building at 2040 Broadway at West 70th Street will be delighted next summer when a 3,000-square-foot Wachovia branch takes over a ground-floor nail salon.
Jeffrey Katz, president and chief executive of Sherwood Equities, which owns the building, says banks project the right mix of cleanliness and style tenants like.
"We consider the whole demeanor of the store: what the product is, how they keep the store looking and how their other stores look," Mr. Katz said. "But nobody objects to living above a bank." Mr. Katz is also trying to lure a bank into a combined first- and second-floor space in the residential condo building that he is constructing at 1600 Broadway at West 48th Street in Times Square.
If the future means a new bank, or three, on every block, it could spell the displacement of other long-established businesses. That happened at 157 and 159 Eighth Avenue in Chelsea, which used to house a popular restaurant, Eighteenth and Eighth, and a hardware store. Now, the site is being demolished to make way for a Valley National Bank, which has nine branches in Manhattan.
Still, most agree that banks, with their stylish, inviting exteriors, are preferable to many types of retail chains.
"It's too early to make a judgment about their impact," said Mitchell L. Moss, a professor of urban planning at the Robert F. Wagner Graduate School of Public Service at New York University. "But I don't think we've seen banks reach the level of penetration that drugstores have."