Mixed-Use Retail and Residential Building for Sale on New York’s Union Square

Thursday, May 31, 2018

Holliday Fenoglio Fowler, L.P. (HFF), on behalf of the owner, is arranging the sale of 862 Broadway, a mixed-use retail and residential asset fronting New York’s Union Square. The retail component, including ground-, lower level- and second-floor space, is fully leased to AmorePacific, a $14.1 billion South Korean cosmetics conglomerate, and is operated by its Innisfree brand as its U.S. flagship. 862 Broadway is a quintessential flagship directly visible from Union Square with a location along one of New York City’s most charming blocks. This offering represents an exceptional opportunity to own generational real estate in New York City’s thriving Union Square.

Innisfree, which was launched in 2000, became the best-selling cosmetics brand in Korea by 2015 and the seventh largest cosmetics company in the world. Its parent company, AmorePacific, is a multi-brand conglomerate that is widely considered to be the “Estée Lauder of Korea.” Innisfree has nearly 1,600 stores in Asia and is projected to be the second most successful brand for the company and set to record 1 trillion Won in annual sales ($865 million USD). AmorePacific recently signed a 10-year lease at the property with annual increases and a FMV option.

Prior to occupancy, Innisfree spent approximately $1 million to outfit the space with physical and cosmetic upgrades. The top two floors are full-floor, loft, market-rate apartments that offer near-term upside through adding bedrooms to increase rents. Further, with more than 11,000 square feet of additional air rights, the property provides an attractive long-term redevelopment opportunity.

Properties on Union Square Park rarely become available, and this offering is a unique opportunity to invest in a retail destination that has experienced record levels of pedestrians. Union Square is one of the most popular neighborhoods in Manhattan and will continue to flourish given the continued momentum of the Midtown South Office market as well as significant recent capital investments, including the $250 million redevelopment of 888 Broadway (former ABC Carpet & Home headquarters), the redevelopment of Tammany Hall, the 250,000-square-foot 14th Street Tech Hub and numerous others. This dominant stretch of Broadway has become desirable for a variety of retailers. Lower Fifth has emerged as an increasingly strong shopping destination and top performer, bringing additional foot traffic to the Union Square submarket. Over the past three years, these retail corridors have experienced average rent growth of 9.3 percent.

Investment Highlights

  • One-of-a-Kind, Cash-Flowing Asset:  862 Broadway represents the rare opportunity to acquire a stand-alone boutique retail flagship leased to a well-capitalized retailer and 26 feet of frontage facing the historic Union Square Park. Union Square is a vibrant residential and commercial community that attracts tens of millions of visitors from around the world each year, highlighted by the world-famous Union Square Farmers Market, which attracts 60,000 shoppers on a market day. Nearby anchor tenants include Whole Foods, Nordstrom Rack, Trader Joe’s, Lululemon and Sephora.
  • Near and Long-Term Upside: The mixed-use retail and residential property’s income stream is diversified by two full-floor, loft, market-rate apartments, which are in high-demand given Union Square’s strong appeal. These full floor apartments provide an opportunity to increase rents through adding bedrooms. Comparable upgraded one- and two-bedroom apartments in the submarket achieve rent premiums of approximately 27 and 50 percent, respectively. Furthermore, with more than 11,000 square feet of additional air rights, the property provides an attractive long-term mixed-use redevelopment opportunity via its location in one of the most desirable areas in the city. Office rents for newly built assets in Midtown South have outpaced the market dramatically, exceeding $100 per square foot, while new condominium units in the area are achieving average sellouts in the range of $2,000 to $2,500 per square foot.
  • New York City’s Preeminent Live-Work-Play Neighborhood:  Union Square is one of the most popular and affluent residential neighborhoods in Manhattan. Nearly 240,000 New Yorkers reside in Union Square and its immediate surrounding neighborhoods, highlighted by an average household income of more than $215,000 within a quarter-mile of the property. Few locations offer the same level of pedestrian foot traffic from residents, workers and tourists. Furthermore, NYU, the New School and Cooper Union are best-in-class institutions serving more than 90,000 university students within close proximity to Union Square.
  • Exceptional Transportation Access and Connectivity:  Union Square offers excellent subway accessibility with eight subway lines (4, 5, 6, L, N, Q, R and W) and annual ridership of 35 million, the fourth busiest in New York City. This outstanding connectivity adds tremendous appeal to the location for businesses and their employees as well as heavy pedestrian traffic totaling approximately 383,000 per day in Union square, which is highly beneficial for retailers. The retail property for sale’s prime location along a heavily trafficked thoroughfare positions the asset for long-term success.
  • Favorable Tax Class 2A:  The mixed-use property for sale offers prospective tenants and investors the unique benefit of the favorable tax class 2A as a result of being located at the base of a building featuring fewer than 10 units. Under tax class 2A, real estate taxes are not income based and the filing of a RPIE is not required. The benefits of the 2A tax class are two-fold: There are caps on the year-over-year increases in taxes at eight percent and the aggregate increases over a five-year period are capped at 30 percent. As tenants have become more sensitive to increases in real estate taxes and the resulting strain on occupancy costs, 862 Broadway’s 2A tax designation has allowed the property to maximize face rents.  HFF estimates that the tax Class 2A benefit represents a 68 percent discount to the real estate taxes at the property if the tax class 2A designation was not in place.

For more information on this commercial property for sale or other available mixed-use properties in New York City or the surrounding areas, please contact Rob Rizzi, Jeff Julien, Andrew Scandalios, Steven Rutman or David Fowler in HFF’s New York office. Click here for our real estate investment sales search page.

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