Sunday, July 03, 2005

A Mall in Decline Eyes Fish-Market Space


THE South Street Seaport has long been perceived as a mall in decline - but fortunes there could begin to change this summer when the neighboring Fulton Fish Market is expected to move to the Bronx, creating an opportunity for the shopping center's owner to expand and revive the Seaport.

The mall's owner, General Growth Properties, a large real estate investment trust, has told the city that it plans to exercise an option in its lease to take over portions of the fish market, including the Tin Building on Pier 17, which has landmark status, and several brick fish market stalls on South Street, city officials and a mall executive say.

In preparation, the company has hired the architecture firm of Beyer Blinder Belle to come up with a plan for an expanded and possibly reconfigured Seaport, according to Michael Piazzola, vice president and general manager of Seaport Marketplace, the company that operates the mall for General Growth. Beyer Blinder Belle has been asked to find ways that the new properties can be incorporated into the current complex, which includes a series of shops and restaurants along Fulton and Front Streets and a three-tier mall on Pier 17, in the East River.

"They're basically on a fact-finding mission to understand what the development potential of the site is, what the as-of-right looks like and what the potential is over and above what the zoning allows today," Mr. Piazzola said.

General Growth has also met with members of Community Board 1, which covers Lower Manhattan, and the city's Economic Development Corporation, to discuss possible Seaport changes. "There's this desire for more than just retail," Mr. Piazzola said. Possible uses include restaurants, cultural venues and housing, he said.

The company has six months after the fish market departs to exercise its lease option. The market, which has been on South Street for more than 180 years, is scheduled to move to a new facility in Hunts Point in the Bronx this summer, although the move has already been postponed several times.

The Chicago-based General Growth took over the Seaport last November, when it acquired the Rouse Company, which created the mall. The Seaport was developed in 1983 on property leased from the city.

Some ideas for an expanded Seaport had already been explored by Rouse, which last year was on the verge of a deal with the Related Companies and the city to knock down the Pier 17 mall and replace it with a theater for Cirque du Soleil, the Montreal-based avant-garde circus. General Growth opted not to follow through with that deal when it bought Rouse.

The Rouse plan, however, is a focus of a lawsuit filed against the mall operator by a group of Pier 17 merchants last fall in state Supreme Court in Manhattan seeking $80 million in damages. General Growth has inherited the lawsuit, in which the tenants charge that Rouse overbilled them for a variety of charges, misappropriated funds meant to promote the Seaport and sought to drive away tenants to clear the way for its planned redevelopment.

The tenants who filed the suit say they were never informed of the talks between Rouse, Related and the city, which included provisions to buy them out or have the state condemn their leases. General Growth has pursued eviction proceedings against several merchants involved in the lawsuit, claiming that they have fallen behind on payments or that their leases had expired.

David Keating, a General Growth spokesman, refused to discuss the suit or the company's redevelopment plans. Lawyers for the company have asked a judge to dismiss portions of the lawsuit and say the charges are unfounded.

Gerry Nally, who owns the Seaport Watch Company in the Pier 17 mall, is a prime mover behind the lawsuit. He says that his sales dropped 37 percent from 2000 through 2004. In that period, he says, promotional events at the mall became less frequent or declined in quality and stores offering less-upscale products were added at the mall.

The Seaport, covering 260,000 square feet, is really two malls in one. Merchants on the terra firma portion of the mall, on and around Fulton Street, have not joined the lawsuit and apparently have not had the same problems. Complaints are concentrated on Pier 17, which has always had a greater challenge attracting customers because it is more out of the way.

Merchants on the pier also say escalators installed in 2000 routinely break down. And they complain that General Growth has continued a pattern, first established by Rouse, of renting out many stores on short-term leases for far below what the more established merchants are paying. Mr. Nally estimated that about half of the pier's tenants are on short-term leases. These short-term tenants include T-shirt shops, a bonsai shop and a poster gallery.

Mr. Piazzola said General Growth "has a very aggressive specialty leasing division" that has a standing relationship with small retailers that may take temporary space in several malls at one time, or move from mall to mall as space becomes available. "That drives a lot of revenue for the company, and by its very nature specialty leasing deals are short term," he said.

Asked if maintaining short-term leaseholders at Pier 17 was part of a larger strategy, he said, "At the end of the day we've hired an architect, we're planning on repositioning the project in the marketplace and the landlord has every right to maintain its flexibility with regard to its occupancy."

Meanwhile, retail brokers said the Seaport is off the radar screen of high-end retailers seeking space in Manhattan. "Brokers go to other areas where the retailers want to go," said Benjamin Fox, executive vice president of Newmark Retail. He pointed to heavy competition for shoppers from areas like Times Square and said the Seaport must find a way to distinguish itself.

Matthew Ostrower, an analyst with Morgan Stanley who specializes in the retail sector, said General Growth is the second largest retail REIT in the country. "Redeveloping mall assets is their bread and butter: buying a 'B' mall and trying to turn it into an 'A' mall, buying a 'C' mall and trying to turn it in to a 'B' mall," he said.

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