Madison Avenue property owners have long resisted having pop-up stores as tenants, preferring long-term deals and viewing pop-ups as not up to the neighborhood standard.
But the mind-set has changed, with Madison Avenue enduring an eye-popping 16 percent vacancy rate, compared to a still-high 9 percent vacancy rate in 2019. Property owners are also reconsidering pop-ups, based on the handful that, after trickling onto the avenue, determined their business was good enough to ultimately establish permanent stores. Those making the conversion include Altuzarra, Au Rate, Cuyana, Frances Valentine and Mackage. There could have been more, but a number of pop-ups closed during the pandemic and never reopened.
The pop-up trend is one that the Madison Avenue Business Improvement District likes and is encouraging by introducing a template that property owners and retailers can use to enter short-term license agreements for storefronts on Madison Avenue between 57th and 86th Streets. The template makes the short-term deal process easier, cheaper and less time-consuming as it presents a standardization of expectations, rights and obligations of both the licensee (the retailer) and the licensor (the property owner).
“The template is not a lease but property owners treat it like that. It’s a licensing agreement that makes the process easier and quicker to open shorter-term retailers,” said Matthew Bauer, president of the Madison Avenue BID. “Otherwise, you would have to put together these lengthy lease documents for something that lasts a month and proves cumbersome and expensive for both the property owner and potential tenant. The difference is leases are longer-term, governed by a different set of rules.”
The template is also novel because it presents standards for three types of license agreements: for less than one month; for less than one year, and more than a year.
The template is copyrighted, free to members of the Madison Avenue BID, which owns it, and free for brokers representing retail properties along the avenue.
The BID commissioned Laura Brandt, a commercial real estate attorney, to create the template and an accompanying user guide.
“Prior to COVID-19, the retail industry was already evolving to adjust to new economic realities and changing consumer behavior,” said Brandt. “Part of that transformation has been a growing trend for short-term specialty leasing, not just for e-commerce retailers providing pop-up experiences but also for established brick-and-mortar brands. With this in mind, based upon term length, we sought to streamline the negotiation and documentation process by building into our form some basic expectations and structure to these specialty licensing arrangements.”
With the short-form licensing agreement, Brandt added, the short-term, less risky property arrangements become more appetizing.
The typical leasing process, she explained, can be a very expensive and time-consuming involving documents that could be 80 to 90 pages long, with a lot of negotiating between tenant and landlord and multiple drafts.
Brandt also explained that while a lease is based in landlord-tenant law, a licensing agreement is based in contract law. Disputes would be adjudicated in different courts.
The BID’s template is ten pages and allows for exhibits or riders to be added. “The property owner and retailer would go through the form and customize it,” said Brandt.
On Madison Avenue, “We are barraged by many brands who want to have pop-ups, but the landlords would almost never agree,” said Bauer. “There has always been a feeling on Madison Avenue that a store should feel appropriate to the district, based on the preservation of the value of the street. Most property owners on Madison own multiple buildings. The look and feel of the neighborhood is important to them, and there are also historic district regulations on the design,” adding to the challenge of opening a store of any kind.
“Signage requirements, what is the buildout, how you treat the space, the maintenance, electricity — these are all some of the things that would be different based on the length of time in a space,” said Bauer.
During holiday 2019, Madison Avenue between 57th and 86th Streets had nine pop-up stores, said Bauer. “We are most pleased about the many retailers who transformed their pop-up presence on Madison Avenue to a permanent flagship.” At this point, in the year of the pandemic, it’s too soon to say how many pop-ups will emerge on the avenue for holiday 2020.