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As Big-Box Retail Dies, Developers Look To Shape Long Island For Its Next Act

Developers, politicians and residents are figuring out how to capitalize on a changing retail landscape to reshape Long Island’s communities to suit its shifting demographics.

ERG's Property Advisors' Andrew Walsh and the Beechwood Organization's Steven Dubb

Across the country, suburban markets are feeling the impact of big-box retail’s shrinking retail presence.

Nationally, the vacancy rate hit 9.1% in the third quarter, up from 8.6% the quarter before, according to Reis Inc. In the first quarter of the year, the shuttering of locations pushed retail net absorption to negative 3.8M SF across the country, which was the worst quarterly total in nine years, according to Reis.

Long Island is feeling the pain more than most; it saw the third-largest vacancy increase in the country in the third quarter, and it was one of the four markets with the sharpest rent declines in the country in the third quarter, with rent falling by close to a percentage point. And just this week, Target announced it would close a 143K SF store in Commack on Long Island next year.

How to adapt the buildings being vacated into different uses, and bring necessary development to the community were all topics discussed at Bisnow’s Long Island State of the Market event Wednesday.

Margolin, Winer & Evens LLP's John Schmuck, Mill Creek Residential Trust's Russell Tepper, Tritec Real Estate Co.'s Jim Coughlan, HFF's Jose Cruz

“We’ve been mis-retailed," Tritec Real Estate Co. principal Jim Coughlan said. "We have a lot of strip malls and every mall has the same mix of nail, salon, deli and pizza place — A lot of that stuff is really obsolete.”

Experiential retail that provides a destination beyond shopping is what works well, he added.

“If you look around the country, you can go to cornfields in Ohio [and find] 2M SF of really amenitized retail in a walkable environment," he said. "Our demographic market would be multiple, multiple disposable incomes to what would be there. We just haven’t seen [those kind of developments] here yet.”

Renaissance Downtowns' Ryan Porter, Talisen Construction Corp.'s Joseph Rigazio and Cushman & Wakefield's Daniel Abbondandolo

Mall owners all around the country are scrambling to adapt their assets and fill them with the types of tenants that will bring shoppers. Some locations are being totally made over for entirely new uses.

In Hicksville, for example, Seritage Growth Properties is planning a mixed-use development that would bring 596 apartments and 200K SF of retail space to a 26-acre site that is home to a now-shuttered Sears department store and auto center. Earlier this year, Luxury movie theater brand iPic Entertainment signed on to open a 348-seat theater, restaurant and bar there.

The Beechwood Organization’s Steven Dubb said his firm acquired a 90K SF building, once used for big-box retail, on Merrick Avenue in Westbury for a residential conversion.

“It hadn’t really had a tenant in 10 years, and probably wasn’t going to get a tenant,” he said. "And we looked at it and said, 'This is right across from Eisenhower Park, this would make great residential reuse.'"

CBRE Senior Vice President Phil Heilpern said finding the right tenants for the space left empty after a big-box closure can be challenging, but he pointed out that there are still malls that have strong tenants and are performing well.

There is little land available to build new office space on the island, he said, and some malls could be used for office space, although the new offering would have to meet modern office tenant requirements.

“Where there is a mall — and office space can be carved out in a fashion that provides the amenities, window lines and access that tenants demand— that will work,” Heilpern said.

Talisen Construction Corp.'s Joseph Rigazio and C&W's Daniel Abbondandolo

Other developers said that including the retail in new developments is an important factor in creating a community, but does come with inherent risk.

Renaissance Downtowns President Ryan Porter said working out the design is a crucial factor, as is making sure there is both a mix of retail and amenities to draw people to locations.

“Doing [retail] in the right places and with the right design perspective is a way to kind of mitigate that risk,” he told the audience.

Four years ago, his firm entered into a public-private partnership with the town of Southampton with the aim of developing a 3M SF mixed-use development in Riverside.

“Some of the things we do look to do with our zoning codes is really look to designate what is a retail space and creating what’s called an active street walk," he said. "When I say street walk, it could be an amenity of a building. It could be a gym on the ground floor, a space like an internet café or business center.”

Berdon's Nicole Barthelemy, CBRE's Phil Heilpern, Renaissance Downtowns' Ryan Porter, Talisen Construction Corp.'s Joseph Rigazio and C&W's Daniel Abbondandolo

One of the major issues on the island is the enduring roadblock to development amid a housing shortage. Like most of the country, Long Island has a dearth of housing suitable for middle-class Americans.

Making it even more challenging is that Long Island has some of the highest property taxes in the country. A 2017 analysis by the Department of Housing and Urban Development forecast that between April 2017 and April 2020, there will demand for in excess of 1,600 market-rate rental units on Long Island. Only 1,200 are under construction.

Tritec Real Estate's Jim Coughlan, HFF's Jose Cruz, AvalonBay's Christopher Capece and ERG's Andrew Walsh

“You have incredible civic opposition, you have school districts that are pushing back, saying it will overburden the schools,” AvalonBay Vice President of Development Christopher Capece said. "A lot of the fears that are out there have not materialized.”

Others said slow entitlement processes can jeopardize projects.

"It’s a six-to-10-year horizon for a developer to do anything of substance,” said Talisen Construction Corp. CEO Joseph Rigazio. “Think about what can happen in six years … What happens if commodities go through the roof because of some kind of trade war?”

Panelists said there needs to be education within the community about what developers are doing, and how new projects will positively impact the communities.

“I think you need to take a step back and say there’s a paradigm shift that needs to happen here,” Capece said.

Related Topics: Long Island