Kerry Coyne of Mount Kisco and her one-year-old-son, Isaac, at the new Stop & Shop in Mount Kisco. The store was formerly an A&P. Photo by Tania Savayan/lohud
A&P’s bankruptcy triggered a feeding frenzy over every coveted square foot, the likes of which supermarkets had not seen since the financial crisis of 2008.
Supermarket competitors and real estate professionals, who last had the opportunity to expand into new locations seven years ago, were more than eager to review lease terms for some of the A&P locations.
Supermarkets demanded low rents for being anchor stores in shopping centers. Now new tenants are paying big bucks to take over those leases.
The former industry powerhouse had some long-term store leases that extended decades into the future and featured almost unheard-of low rents, some in the single digits per square foot.
Not since the 1970s had retailers seen those kind of prices, which contributed to bidding wars for the most valued properties. In some cases, supermarket operators, pharmacies, real-estate investors and others plunked down millions of dollars for the right to take over a lease.
Acme Markets and Stop & Shop paid more than $373 million for 95 of the nearly 300 A&P store leases across the country, including 15 in the Lower Hudson Valley, while Key Food Co-operative picked up another 25, including four in Westchester County. This is the first time Acme has opened a store in the region. Key Food had a limited presence prior to the A&P bankruptcy.
“Now they’re going into a great market that was never available before,” said White Plains commercial real estate broker Martin Deitch.
Nepperhan Avenue, CVS Pharmacy
• $4.6 million purchase price from A&P
• 30,000 square feet
• $11 per square foot in annual rent
• $7 per square foot in additional taxes and fees
In Yonkers, CVS Pharmacy paid $4.6 million to buy a Nepperhan Avenue store, which has around 30,000 square feet and a lease that extends to 2017, Deitch said. The annual base rent came to less than $11 per square foot with additional taxes, common area and insurance charges of around $7 a square foot. CVS officials said they planned to share the space with a Key Food store operator.
In other cases, landlords who wanted to find their own tenants and negotiate new contracts shelled out millions just to keep the lease out of another buyer’s hands.
Brixmor Property Group, a real estate company and owner of Highridge Plaza, paid $4.1 million to reclaim the lease of a 55,0000-square-foot Pathmark store at 1757 Central Park Ave. in Yonkers which extended to 2028. The base rent there was set at around $9 per square foot with an additional $6 per square foot in taxes, common area and insurance charges, Deitch said.
In addition to the low prices, the sheer amount of retail real estate turnover associated with the A&P bankruptcy is unprecedented, Deitch said. The last time supermarkets opened any significant number of stores was in 2008, near the start of the worst financial crisis since the Great Depression.
Back then, commercial real estate was showing signs of faltering, as one major retailer after another filed for bankruptcy. Fortunoff, Linens ‘n Things and Circuit City were among the big-box retailers who filed for Chapter 11 that year.
“You lost a number of retailers in a matter of months,” Deitch said.
Square footage and triple-nets
Retail shopping properties in the Lower Hudson Valley come with their own sticker shock. Supermarkets look at the price per square foot and the “triple-nets,” which cover net costs for taxes, insurance and common fees. According to brokers Marty Deitch and Adam Nelson, here are three properties and their costs.
Putnam: A new development in Putnam Valley, up to 70,000 square feet. $23 per sq. ft, plus $10 triple-nets. $33
Scarsdale: Existing A&P, 30,000 square feet. $30 per square foot plus $9 triple-nets. $39
West Nyack: Former Stop&Shop and Grand Union, 28,000 square feet. $18 per square foot plus $7 triple-nets. $25.
Not only were many retailers permanently going out of business or limiting their presence to online-only sales, no new players emerged to fill the space left behind, according to Deitch. Supermarkets, with their thin margins but an ability to draw customers and foot traffic, suddenly became an attractive option for shopping plazas without another retail anchor.
“What does a supermarket do? It brings bodies in on a weekly basis,” Deitch said.
In exchange for anchoring shopping plazas, supermarkets wanted cheaper rents. So while Linens ‘n Things might have been willing to pay $35 a square foot in rent plus an additional $12 to $13 in taxes, common area fees and insurance to anchor the Midway Shopping Center in Greenburgh, ShopRite negotiated the rent down to $21 per square foot. But the gamble worked out for the plaza, providing an anchor that drew crowds and allowed the landlord to fill the other retail space.
“That revitalized that shopping center,” Deitch said.
Outside of these special circumstances, there are few opportunities for supermarkets to expand, Deitch said. Most operators want to keep their total leasing costs well below $25 per square foot. But given that taxes can command an additional $8 to $18, supermarkets tend to look for base rents of around $10 to $15 a square feet, a price range virtually impossible to obtain until the A&P stores became available, he said.
Due to its longevity, A&P had negotiated long-term contracts as far back as the 1950s and 1970s. In addition to low rents, some contracts offered unique provisions, such as allowing rents to be adjusted based on a percentage of store profits. That way the grocer could pay even less during an unprofitable year and more during the good years.
But not all A&P stores offered such valuable leases. Due to renewal clauses, some A&P contracts, particularly those negotiated in recent years, carried less favorable terms. As a result, stores with more expensive rents or less desirable terms went unsold.
For instance, the 30,000 square-foot A&P at 668 Central Ave. in Greenburgh had no takers during auction and remains on the market. That’s because its base rent is $30 a square foot with real estate taxes and common charges costing an additional $8 to $9 a square foot, Deitch said.
Although A&P store sales generated much of this year’s supermarket activity, they weren’t the only deals. Best Yet Market, which made moves to buy 10 A&Ps on Long Island, took a pass on buying any leases in the Lower Hudson Valley.
“It was a great opportunity to grow in Long Island and they’re not many opportunities in Long Island,” said Or Raitses, Best Yet’s vice president and general counsel. “We have so many opportunities in Long Island that purchasing a store in Westchester wasn’t on our radar.”
But the company moved quickly when it learned through its landlord — Brixmor — that Mrs. Green’s would be abandoning its Hartsdale store and making the space available through a sublease. The arrangement allowed Best Yet Market a chance to open its first Lower Hudson Valley store with a smaller commitment.
“This location is an opportunity to get in with minimum expenses,” Raitses said. “It’s kind of an opportunity to test the water in Westchester.”