By  on October 13, 2008

Even during economic turmoil, Harlem presents retail opportunities.

The financial crisis emanating from Wall Street, including a virtual freeze on credit, is likely to slow development, but Macy’s Inc., Bed Bath & Beyond and Levi Strauss & Co., as well as some national restaurant chains such as California Pizza Kitchen and The Cheesecake Factory, are said to have scouted the Manhattan neighborhood.

There is a 31,000-square-foot vacant lot on the southwest corner of Lenox Avenue and 125th Street that Macy’s is said to have checked out. But the retailer apparently was unable to secure some buildings just west of the lot that would have provided a big enough footprint on which to build a store.

Macy’s declined to comment on whether it was considering central Harlem, but sources said the move would make sense because many customers who shop in the Herald Square flagship are from Harlem. A Macy’s store in the neighborhood also would be a community relations coup, providing jobs and stimulating economic development, as well as bringing to Harlem many apparel labels that aren’t available there. It wouldn’t be the first time Macy’s has considered a second Manhattan site. Several years ago, the lower Manhattan financial district was mentioned as a potential Macy’s location.

“You’ve got a lot of major players interested in Harlem,” said Laura Pomerantz, principle ofPBS Real Estate LLC, which does work in the neighborhood. “They’re looking, thinking quite seriously about it, but not committing.”

Harlem has gentrified in recent years, as retailers such as Hennes & Mauritz, Old Navy, American Apparel and Starbucks have opened. The development has been propelled by residential construction. As housing prices have risen throughout New York City, people have pushed out to neighborhoods like Harlem and Bedford-Stuyvesant and Fort Greene in Brooklyn in search of affordable housing.

If investment money dries up, the development would be jeopardized.

“The demographics are changing significantly up there,” Pomerantz said. “It’s looking different from five years ago…but I do think the economic situation can stall things a little bit,”

Lloyd Williams, president and chief executive officer of the Greater Harlem Chamber of Commerce, said he sees a rough fourth quarter for neighborhood retailers because they will have difficulty getting lines of credit.

As for development that is under way, “no one will be immune” to the economic downturn, he said. Some projects on the drawing boards could be aborted, others in the planning stages may be reduced in size, and still others could be slowed down.

The developers behind Harlem USA, a 285,000-square-foot mixed-use development at 125th Street and Frederick Douglass Boulevard, have another project in the works in a vacant lot adjacent to the famed Apollo Theater. But more commitments from tenants are needed before construction begins.

Scott Auster, partner in Ripco Real Estate Corp., which is marketing the project, described it as a mixed-use development with retail on the ground and second floors, and offices above.

“Traditionally, 125th Street in general has been discount in nature,” Auster said. “Even the nationals that have located there have been discounters. But in the last 12 months, we’re starting to see more full-price retailers genuinely exploring opening up a store on 125th Street.

“I think there is a combination of reasons for this: the realization of very strong purchasing power in the community, that the community appreciates branded merchandise as much as other neighborhoods throughout New York City and, in some cases, Harlem offers an excellent branding opportunity,” Auster said. “Historically, the neighborhood had a stigma relative to crime and poor retail. The stigma over the last seven or eight years has been replaced with a cachet associated with cool, hip urban living, and that’s drawing more full-price retail merchants to the market.”

Harlem USA houses a nine-screen Magic Johnson Theatre as well as The Disney Store, Old Navy, Modell’s Sporting Goods, HMV Records and Jeepers!

Elsewhere in Harlem, American Apparel opened about two months ago on the south side of 125th Street between Frederick Douglass and Adam Clayton Powell Jr. Boulevards. There is a W Hotel coming to the southeast corner of 124th Street and Frederick Douglass Boulevard —a new concept for the hotel chain called the A Loft.

In the past few years, H&M, The Body Shop, MAC, Aerosoles, as well as House of Hoops, a high-tech, contemporary Nike concept on West 125th Street, between Frederick Douglass and Adam Clayton Powell Jr. Boulevards, moved in. The McDonald’s on West 125th Street, just east of Lenox Avenue, is said to be one the biggest volume units in the chain.

And former president Bill Clinton has his office in a 14-floor building at 55 West 125th Street.

The area has the added benefits of its proximity to Columbia University and the northern end of Central Park. It is home to venues such as the Apollo Theater, the Cotton Club and Sylvia’s restaurant, and tourism appears to be flourishing.

However, 125th Street — Harlem’s commercial heart — is still primarily a hodgepodge of small, moderate-priced independent shops and discounters weighted to urban streetwear and street vendors. More noticeable change could occur if developers and retailers think long-term and shed inner-city stereotypes.

According to the Real Estate Board of New York, average rental asking prices in Harlem rose to $107 a square foot this year, from $103 in 2007.

Pomerantz and other brokers said rents were higher along 125th Street specifically, starting at just over $100 a square foot for a larger space — around 10,000 square feet or more — and hitting $200 or more for spaces less than 5,000 square feet.

“I always hoped there would be more galleries,” said a real estate source active in the area. “You need the art component. You can’t just have regular apparel and restaurants. You need something that makes the area more interesting. The public transportation in Harlem is great. My hope is that somebody like Paul Smith, which is opening in Brooklyn, would come to Harlem. It doesn’t have to be 125th Street. It could be 116th Street. You don’t have a density of better or interesting retailing, which doesn’t always have to mean expensive. It could mean stylish.”

One of the newer retailers is N Boutique, selling bridge, designer and vintage designer fashion. The store opened two-and-a-half years ago at 114 West 116th Street between Lenox Avenue and Adam Clayton Powell Jr. Boulevard. Since then, co-owner Nikoa Evans-Hendricks has noticed an influx of spas, home furnishings and wine stores, and restaurants in tandem with the luxury condominium development.

However, as far as upscale fashion, “We are the sole venuein the immediate area,” Evans-Hendricks said. “It’s tough to operate a store before the market has moved in. But there are a lot of luxury condominiums still under construction,” and that’s getting retailers, including some that always shunned Harlem, motivated to at least explore the neighborhood.

“They’re now looking for space,” Evans-Hendricks noted. “There’s a lot of activity.”

Nearby, in East Harlem, Best Buy, Target, Home Depot and Marshalls have signed on to East River Plaza, which is under construction off the FDR Drive between 116th and 119th Streets. It is expected to lift the area by drawing shoppers from around the metropolitan area, and potentially waking up other retailers to the area’s potential. Plenty of parking is being created.

Also in East Harlem, between 125th to 127th Streets and Second and Third Avenues, a $700 million, 1.7-million-square-foot mixed-use complex will include affordable housing, specialty retailing, cinemas, cultural spaces, a hotel and community centers on six acres. The project is largely on city-owned property, part of which serves as a bus storage facility.

The City Council on Tuesday passed the zoning changes to develop the East Harlem Media, Entertainment and Cultural Center. The move clears the way for a group of seven organizations, including General Growth Properties, to begin building the project, which will include 600 affordable housing units, new office and retail space and a hotel.

It is set to break ground next year. The city controls a majority of the land. There has been concern that General Growth may not be able to refinance its debt. The company’s shares,which reached a 52-week high of $57.84, closed Friday at $4.82, up 92 cents, in New York Stock Exchange trading. Other members of the development team are East Harlem M/E/C LLC, Archstone-Smith, the Richman Group, Monadnock Construction, the Carey Group LLC and local partners Hope Community and El Barrio’s Operation Fightback.

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