On tall windows up and down Walnut Street - the luminous shopping district that is Philadelphia's mini-Madison Avenue - two words are spreading like chicken pox these days: "For Lease."Steve Gartner, president of Metro Commercial Real Estate, does not get it.
The recession has provoked a reversal of fortune for a glitzy avenue near the towering new condos and old-money brownstones that embody exclusivity in Center City. Retail landlords who commanded top-dollar leases just a few years ago are scrounging for wealthy suitors.
A dozen retail properties on a 41/2-block stretch of Walnut west of Broad Street - banks, two marquee restaurants, a jeweler, chain boutiques - are shuttered this year, compared with zero just two years ago, brokers say.
The woe reaches over to Chestnut Street, where on one once-sizzling block, a handful of distressed tenants have switched to month-to-month leases and others have shut down, said Larry Steinberg of Michael Salove Co.
With low rent offers dominating, landlords will wait till 2010 for better deals. Many are "well-heeled," said Steinberg, whose firm represents several property owners.
"We have received a lot of lowball offers on these spaces, and the landlords have resisted," he said.
Steinberg has been hustling all year to fill the Brasserie space on the 1600 block, whose proprietors shut down New Year's Eve so the landlord could replace them with a higher-paying tenant.
"A landlord's not going to do a long-term lease that locks him into an artificially low rent because he's panicked to do a deal," said Steve Gartner, president of Metro Commercial Real Estate, another Center City player. "You don't want to lock into a bad long-term situation."
Huge demand for retail space is not coming back. Within reason, any tenant that pays is a good tenant. Those holding on, hoping for higher rates will lose tenants to those willing to bargain.
In general, those who cannot lower lease rates because they are undercapitalized are headed for bankruptcy. And that landlord kicking out a paying tenant in January deserves to go broke for greed and stupidity. It's as simple as that.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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