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Why Food Halls Whet Developers’ Appetites

Aventura Food Hall Planned For 2777 N.E. 185th St_Image Credit Architectonica 1170x435

For years, food halls have been a tempting option for commercial real estate developers and investors who hunger for more flexible lease structures and for a delectable option for repurposing often obsolete properties. But this appetite has not been sated. If anything, it has only grown with feeding.

In a five-year span, the number of food halls has doubled from 150 in 2018 to 352 in 2023, according to Cushman & Wakefield data. The number will soon grow even higher with another 147 food halls currently at some stage of development, according to Richard Latella, executive managing director and retail practice group leader for Cushman & Wakefield’s valuation & advisory group. He noted that food halls are also spreading into more tertiary markets compared with around a decade ago when 20 percent of the assets were in New York City.

And while an increasing number of mall developers have sought to transform their properties with food halls, they’re hardly the only ones who are taking unused space and filling it with local (read: non-chain), pop-up and artisanal dining options. Even former warehouses or industrial assets are shaping up as options for food hall owners to park.

The concept is gaining favor with lenders, too, who are more likely to invest with mall properties that feature creative amenities to draw visitors, according to Latella.

“The money will go with those owners that show that they can adapt and continue to change their mix to make it relevant, and I think that they’re the malls that are beginning to differentiate themselves from others,” Latella said. “With such a trend going towards food and entertainment, food halls keep people at the malls longer if you have the right mix and the right profitability. It’s very important for the operator, and I think many of the operators have recognized that.” 

Latella said food halls are attractive from an underwriting perspective largely because consumers seek “an experience” when dining but also are eager to support local restaurants. He noted that food halls with the right mix of retailers attracting local diners, coupled with a central bar area where adults can congregate, can yield higher occupancy and rents along with improved revenue. 

The food hall at Zero Irving illustrates the trend’s recipe for success. Zero Irving is a new office building and technology training center in Manhattan’s Union Square, developed by Ral Development and the New York City Economic Development Corporation in space that once housed a P.C. Richard & Son electronics store. Urbanspace opened a 10,000-square-foot food hall there a year ago with 13 vendors. 

In an effort to produce unique offerings, 25 percent of the food hall booths at Zero Irving were reserved for first-time restaurant entrepreneurs or those operating for less than four years. The food hall utilizes licensing agreements with the vendors, which in addition to benefiting the property owner can also enable more creativity from the individual businesses, according to Josh Wein, finance director at RAL. 

“It attracts the food vendors to be more willing to either start something new or expand on a concept and try different things when it’s a license agreement rather than making that long-term commitment on a lease with a restaurant,” Wein said. 

RAL had never included a food hall in a project before, but Wein said the developer liked the idea of using it as an amenity to draw office tenants to Zero Irving. The 21-story building, which was completed earlier this year, is 96 percent leased with rents ranging between $100 and $150 a square foot, according to Wein. This is despite increased hybrid working trends spurred by the COVID-19 pandemic. 

Bank OZK provided a $120 million construction loan for the overall Zero Irving project in 2019. Wein noted that financing food halls creates some challenges for lenders in terms of underwriting future rents.

“A lot of these food hall agreements are basically management agreements with a base rent that’s relatively low, and then there’s a revenue-share agreement with the landlord,” Wein said. “That is a little bit more difficult to get financed from a lender because, even if you as a landlord and an entrepreneur believe in the food hall plan, getting a lender to underwrite anything more than a base rent is going to be difficult.” 

On the other side of the country, the Westfield Topanga mall in Southern California’s San Fernando Valley added a 50,000-square-foot food hall with 27 Los Angeles area eateries and bars. The $250 million project from Unibail-Rodamco-Westfield and joint venture partner Earl Enterprises includes a 55,000-square-foot space at a former Sears site. It replaces a former food court housed in another area of the mall. 

Development firm Casazza Company also invested heavily in the food hall concept with Reno Public Market in Reno, Nev., which opened last year in the former Shoppers Square Shopping Mall. Casazza selected a food hall operator via a venue management contract that provides a detailed set of owner-operator deliverables, where vendors obtain license agreements. There is also a large central bar space leased and operated by Fireten Hospitality, an affiliate entity of Casazza. 

Mall owners like these with food halls will often utilize percentage rent leases with vendors due to financial and reporting structures required of most mall ownership entities, according to Phil Colicchio, a food hall consultant and executive director at C&W. Colicchio added, though, that “more enlightened mall owners” opt instead for a master lease concept for food hall operators, rather than leases, to obtain license agreements from vendors. He said this structure creates more transparency with mall owners, who are better able to report income to enable easier valuations of the properties. 

Colicchio noted that the pandemic spurred many property owners to deploy percentage rents with food halls. 

“Percentage rent is the common denominator between a license agreement and a traditional lease, and the pandemic helped it to become more acceptable since there was a recognized need by the landlord community for the restaurants to continue to operate,” Colicchio said. “For periods of time, the only way to accomplish that was through a percentage rent agreement.” 

Fran Faulknor, managing partner at Alpine View Investments, is in the process of developing a $6.8 million food hall project in South Lake Tahoe, Calif. Called Cascade Kitchens, the food hall will be developed on a 12,000-square-foot space that Kmart previously utilized as a warehouse. Kmart owned the property for about 30 years before Alpine acquired it in 2021 with a vision of creating the first food hall in the Lake Tahoe region.

Faulknor said she had previously explored tackling food hall developments and was particularly drawn to this opportunity given the property’s location in a touristy area with high rents for restaurants due to a lack of supply. The project will include a commercial kitchen that users can rent on a membership basis, which will be the first dedicated facility like this on Lake Tahoe’s south shore, according to Faulknor.

“Food halls are an excellent business model, especially in select markets and select situations,” Faulknor said. “Food halls, especially when they are well sited, can also be a huge benefit to the community both in terms of the way that they can provide really great options to local residents as well as tourists, but then also give an opportunity to young restaurant businesses to get their start without having a huge amount of overhead.”

The Cascade Kitchens project will utilize licensing agreements, which Faulknor said is beneficial for the property owner since it provides flexibility in working with vendors and sharing revenue. 

Alpine View closed a321`1 $4.7 million construction loan with Greater Commercial Lending (GCL) in November to help jump-start the project’s development, which is slated for completion in fall 2024. 


Source:  Commercial Observer

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Tech, Finance And Dining Fuel Wynwood Realty

Wynwood commercial real estate continues to flourish as several large tech companies, financial institutions and top food and beverage concepts continue to choose this desired neighborhood as their headquarters.

Over the past three to four years, Wynwood has been transformed thanks to vertical development, said Randy Carballo, senior vice president of CBRE Miami Office. With the extended variety of residential offerings now in Wynwood, corporations are competing to stay in this submarket.

“Rent levels have increased significantly, well north of 20%,” said Mr. Carballo. “The office product in Wynwood, a few years prior, was repurposed warehouses and smaller projects. Now, you have true Class A product, where construction and land costs have risen rental rates.”

In the Wynwood-Design District submarket, average asking rate per square feet is at $78.35 for Class A office space and $67 for Class B, according to Blanca Licensed Real Estate Broker’s Miami Office Market 3Q 2022 report.

The vacancy rate has declined since the highest point in 2020’s third quarter, from 53.5% to 27.7% for this year’s third quarter Class A office space.

The weighted average asking rate has increased 22.4% year-over-year, direct vacancy has also decreased 37.5% compared to the same time last year. There has been 212,316 square feet of net absorption – the change in occupied space, measured between this year and last year, with the space vacated and the newly constructed space. There also are 252,428 square feet of offices under construction as of this quarter, and 320,904 square feet of total space leased, according to the Blanca report.

Some of the new-to-market tenants include Knotel, leasing 38,400 square feet in Wyncatcher; MindSpace, leasing 30,000 square feet at The Gateway at Wynwood; and The Chef’s Warehouse, leasing 4,100 square feet of space in 545 Wyn.

About 1 million square feet of new development is coming online, Mr. Carballo added.

“Our team is representing LYNQ at Wynwood, which is a about 330,000 square feet of brand-new trophy office space on Fifth Avenue. And so, you’re continuing to see a flow of high-quality office space coming into this market for users who are looking for different offerings, but also large blocks of space that really don’t exist in the [overall] market.”

According to Colliers Miami-Dade County Office 22Q3 report, there are 40 office space buildings in Wynwood and the Design District and a total inventory of 1,955,890 square feet.

Colliers retail report for the third quarter shows 2,795,620 square feet of inventory for retail space and a total vacancy of 7.3%, with 9,010 square feet of net absorption,15,000 square feet of space under construction, and an average asking rate of $69.40 per square foot.

The growth in multi-family developments in Wynwood is opening the area’s retail and office submarket to be more of a live-work-play environment. “In a couple years, we’ll have north of 5,000 residential units in Wynwood,” said Mr. Carballo. “That’s saying a lot, because, two years ago we had less than 500 residential units there. So, the neighborhood is growing ten times, and with that comes new retail offerings, new food and beverage opportunities, new services into the neighborhood. Couple that with the future potential of the Brightline station coming soon… Wynwood has a long, long way to run, and it’s truly one of the more exciting neighborhoods than South Florida.”

In an October report prepared by Related ISG Realty with data from CoStar, the top retail leases in the Wynwood-Design District area in the last year include for 2610 N Miami Ave., leased by Metro 1 Commercial; 3711 NE 2nd Ave. for Eichholtz Furniture, leased by DWNTWN Realty Advisors; and 3800 NE Miami Ct., leased by Cushman & Wakefield.

The same reports estimate average asking rent for retail in Wynwood at $61.69, with 12.4% growth since last year.

Additionally, Endeavor Miami, the local branch of the global non-profit organization that supports entrepreneurs with the help of the John S. and James L. Knight Foundation, moved its Coral Gables office into Wynwood, a “strategic location” for the organization, said Claudia Duran, managing director. The new office is 3,000 square feet.

The Gateway at Wynwood, which has 24,041 square feet of flexible retail space and a total of 183,990 square feet of Class A office space, announced in May that tech start-up OpenStore is to lease about 26,000 square feet. At the same building, Baseline, an investment company, would lease 5,000 square feet of offices. Asian-Fusion Steakhouse Daliyah and Mizu Rooftop Garden are leasing about 6,000 square feet of ground floor space and 3,000 square feet of rooftop area, respectively.

Marcus & Millichap also moved its Miami office from The Waterford Business District, near Miami International Airport, into The Gateway at Wynwood, leasing 12,029 square feet on the seventh floor, paying substantially more than at its previous office space, the company announced in March. Venture capital company Funders Fund also leased 14,914 square feet on the building’s 10th floor, and Veru, a biopharmaceutical company, leased 12,155 square feet of office there too, according to the Business Journal.

PricewaterhouseCoopers, known as PwC, also closed a 38,409-square-foot deal at the 545 Wyn office building, according to the Commercial Observer; and Schonfeld Strategic Advisors has leased at The Dorsey, a mixed-use development in Wynwood, for a 20,000-square-foot space.

Other companies that have recently moved into the neighborhood include Spotify Technology,, Live Nation, Chase Bank and Spearmint Energy, a renewable energy company.

Experts agree that the emerging housing development in Wynwood is contributing to the densification of commercial real estate in the area. “So, you’re going to see more and more service-oriented retailers that need to service those customers,” said Drew Schaul, executive vice president of advisory and transaction services at CBRE. “There are certain retailers that service a daytime population, and then there’s a group of retailers that not only [service] the daytime population, but also the residential population that call Wynwood home.”


Source:  Miami Today

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