Hell's Kitchen Online 12/21/99

[kitchen]

Hell's Kitchen Online                               12/21/99
http://hellskitchen.net "All the News the Times Won't Print"
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IN THIS ISSUE ... Catching up on Costco News

1. Opponents Gear up for Costco's Next Proposal (Crains)
2. Costco Abandons Plans for a 14th Street Store (Times)
3. Costco Abandons Plans for Store at Armory Site (Villager)
4. Retail Explosion Expands to the Outer Boroughs (Real Estate Weekly)
5. Superstores Find Room in New York (Times)

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OPPONENTS GEAR UP FOR COSTCO'S NEXT PROPOSAL
Crains Insider, December 10, 1999

In the wake of Costco's decision to pull out of a 14th Street development in Manhattan, big box
opponents are looking to use federal anti-pollution rules to block the national chain from
building at store at 55th Street and 10th Avenue.

Costco has assembled a site at 55th Street and plans to build a 70,000-square-foot supermarket "as
of right," which would not need a special zoning permit. But there is a carbon monoxide "hot spot"
at 57th Street and 10th Avenue, which critics say would be exacerbated by the parking needed for a
nearby Costco.

One idea is to lobby state officials, who regulate the federal Clear Air Act, to use the
anti-pollution rules to force Costco either to scale back its plans or abandon the site. "It is
something we're looking at," says John Fisher, president of the Clinton Special District
Coalition.

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COSTCO ABANDONS PLANS FOR A 14TH STREET STORE
New York Times, December 11, 1999
By TERRY PRISTIN

Costco, the national warehouse club that is trying to establish a presence in Manhattan, no longer
plans to open a supermarket on the site of the 14th Street Armory, company officials said Friday.

The company's plans to build the largest food store in the city on a busy east-west artery had
drawn a huge outcry from nearby residents and local politicians, with threats of litigation.
Opponents said it would bring thousands of cars to the neighborhood without benefiting local
apartment dwellers who lack the storage space to shop in bulk.

Jeffrey H. Brotman, the chairman of Costco, denied that the protests had forced his hand, saying
his company had made the decision to pull out on its own, and not at the behest of Orda
Management, the developer of the site. He said that the cost of developing the store, which was to
be called Costco Fresh and would specialize mainly in food items, had risen by 30 percent in the
last year.

"The price kept going up, way beyond what we could afford to pay," Brotman said by telephone from
his office in Issaquah, Wash.

But organizers of the anti-Costco protest said they suspected that Orda feared having its project
tied up in court.

"I would like to think that they were trying to avoid coming in as a bad neighbor," said George
Watson, a chairman of the Chelsea-Village Partnership, a neighborhood organization, and one of the
leaders of the opposition to the supermarket.

The 14th Street Costco Fresh would have occupied 70,000 square feet, making it a little more than
half the size of the company's typical warehouse store but about seven times the size of most
supermarkets in the city.

Orda Management bought the armory from the state last year for $15 million. Three other bidders,
including Costco, had sought to buy it.

Long considered an eyesore, the structure, built in 1971, has not had a permanent tenant since the
National Guard moved out in 1995.

Orda plans to tear it down and replace it with a luxury condominium tower and other retail space.

Costco's exit paves the way for the McBurney Y.M.C.A., which is selling its building on 23rd
Street near Seventh Avenue, to move to the armory site.

But Pamela Bayless, a spokeswoman for the Y.M.C.A. of Greater New York, said Friday that no deal
had been struck and the organization is also considering other sites in Chelsea.

Pathmark, the regional supermarket chain, is also interested in opening a supermarket on the
armory site. Harvey Gutman, a Pathmark spokesman, said the proposed street-level store would be
about three-fifths of the size of the company's new supermarket in East Harlem.

Executives at Orda did not respond this week to several requests for comment.

Even with the collapse of the 14th Street deal, Costco is determined to make inroads in Manhattan.

The company, which has stores in Brooklyn, Staten Island and Queens, is planning to open a
warehouse store in East Harlem and on 10th Avenue between 55th and 56th Streets.

Although Costco abandoned plans for another store on 23rd Street and 10th Avenue because they did
not conform to the neighborhood zoning plan, Brotman said the 23rd Street site would be
re-evaluated.

The company is also bidding on a city-owned site on Orchard Street, where it hopes to build a
full-size store, Brotman said.

Costco, which charges a membership fee of about $40 a year, already has nearly 35,000 members in
Manhattan, company officials said.

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COSTCO ABANDONS PLANS FOR STORE AT ARMORY SITE
The Villager, December 15, 1999
By Albert Amateau

Costco's decision last week to drop plans to put a big-box grocery store in the project that is to
replace the 14th St. Armory was greeted with relief and celebration by community leaders in
Chelsea and the Village, who had vowed to block the chain store.

And the likelihood that a new McBurney Branch YMCA would take Costco's place in the armory
project, between Sixth and Seventh Aves., made the joy complete -- almost.

Pamela Bayless, YMCA vice president, said, "we are still very interested in that [the armory]
location, but we are also considering other sites in Chelsea." Bayless said the Y hopes to
announce early next month the sale of the 95-year-old building on 23rd St. near Seventh Ave. and
the purchase of a new location.

But, according to a report, Pathmark is also seeking 70,000 sq. ft. of ground floor space for a
superstore in the armory project, according to Harvey Gutman, a spokesperson for Pathmark.

Another fly in the ointment for Chelsea residents was that Costco could reconsider the property on
W. 23rd St. west of 10th Ave., which the discounter was about to sell because a zoning change made
big-box development more complicated. The new zoning was supported by neighbors who feared the
impact of big-box auto and truck traffic on Chelsea streets.

"We might shift our focus back to 23rd St. -- we still own it," Jeffrey H. Brotman, chairman of
Costco, said in a Dec. 13 telephone interview in which he confirmed that the 14th St. Costco was
no longer on the table.

He hedged, however, on the future of the 23rd St. location. "It's still for sale until we change
our minds. I have no idea about what will happen." he said.

The 23rd St. property was reported sold to Related Companies, a residential developer who had also
become a partner of Orda Management in the redevelopment of the armory. But Brotman said Costco
did not close on the 23rd St. deal because of uncertainty about whether there would be a Costco at
the armory.

Brotman claimed the intense opposition of Chelsea and Village neighborhood groups who were
concerned about the impact of Costco on congested 14th St. traffic was not an important factor in
quitting the armory project. "The big noise came from unions and supermarket chains," he said.
Costco is a non-union company that offers deep price discounts on bulk items.

The most important factor in deciding to abandon the armory project was that the cost of moving
into the project had "increased dramatically over the past few months," said Brotman.

Executives of Orda Management, the lead developer designated by New York State to replace the
long-vacant armory, did not return phone calls for comment on the matter.

But neighbors and elected officials claimed the victory belonged to all Costco opponents.

Arthur Schwartz, Village Democratic leader and a union attorney, said "I'm sure one of the
‘dramatically’ increased costs was the litigation we were planning. We had asked the Empire State
Development Corp. [the state agency that sold the armory to Orda management] for all documents
related to the disposition."

Schwarts acknowledged that Richard Litsky, of the United Food and Commercial Workers, played a key
role in bringing union and community groups together.

"I think it would be great if the Y moved there," Schwartz added. "It would be more than most
people hoped for."

Assemblymember Deborah Glick, however, said Costco's decision to abandon the armory was a good
first step, but "the next question is what will be the final use."

A new YMCA would fit the neighborhood better than Costco, Glick said, but she noted that the
original partner with Orda in the armory project was a developer of senior housing. "The idea
captured people's imaginations and we want to know if it is still a possibility," she said.

Glick, however, was dismayed that Orda Management even considered Costco as a tenant, especially
in light of the fact that the big-box firm had been a bidder for the armory and had been rejected
by New York State. "And the state did not object either," she observed.

City Councilmember Christine Quinn said, "we're thrilled that Costco is not going to be in the
armory project. It's a great victory for the neighborhood and the unions. And it makes me more
optimistic that we can stop them from going into 55th St."

Costco also owns property on 10th Ave. between 55th and 56th Sts. where it also plans to build a
70,000 square foot big-box store, but with the addition of customer parking.

Brotman said Costco plans to move forward with the 55th St. project which is as-of-right. Building
a Costco on the W. 23rd St. and 10th Ave, site would require a special permit, a process that does
not always work out for a developer and that almost always takes a year or more.

Assemblymember Dick Gottfried said, "Costco doesn't belong on 14th St. and for the same reasons
doesn't belong on 23rd St. or 55th St. and 10th Ave." The fact that the discounter does not accept
food stamps and requires a $40 annual membership fee, "are serious obstacles to people in our
neighborhoods," he added.

Costco also plans a mega-store for the 125,000 sq. ft. former Washburn Wire factory, which the
company owns on E. 116th St. near the F.D.R. Dr. The company has also submitted a proposal to the
city for property in the Seward Park Renewal Area on the Lower East Side.

George Watson, of the Chelsea Village Partnership said the prospect of a new Y in the armory is
not likely to raise noticeable opposition in the neighborhood. But he said the Partnership regrets
that there are no plans for affordable housing in the project.

The original plans for the project called for 40 condos and 140 assisted-living rental apartments
for seniors. Related Companies, the new partner, plans 200 market-rate apartments and 50 condos.
According to a report, the condos may be bought by New York University for faculty housing.

The concrete armory building which fronts 14th St. and has a back elevation at 15th St. has been
surrounded with scaffolding for the past three weeks in preparation for demolition. The new
project will have a maximum height of 125 ft. with a setback. Loading will be confined to the 14th
St. side.

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RETAIL EXPLOSION EXPANDS TO THE OUTER BOROUGHS
By Chris Havens
Real Estate Weekly, December 1, 1999

Well-located retail stores in Brooklyn, Queens, The Bronx and Staten Island can make more money
than comparable stores anywhere else in the United States. Once retailers get through the
intricacies of New York City real estate development, the rewards are huge.

Take the Home Depot in Flushing, for example. It was the company’s #1 revenue- producer in the
U.S. many times in the last few years. The Old Navy on Atlantic Avenue off Flatbush boasts over
$1,200 per square-foot in sales. A Children’s Place commands over $1,000 per square-foot in sales
on Pulton Street in downtown Brooklyn.

To create a successful store, reaching the nirvana of a hot location, retailers and their brokers
must overcome substantial obstacles. It can be worth the effort. From the broker’s perspective,
imagine how difficult it is to convince a client’s CEO, who understands the Atlanta or suburban
Boston market, to open a New York store in a place called Flushing. But when the store exceeds all
expectations, the risk and the leap of faith pay off, and clients can’t believe their luck and
your foresight.

However, to get to that point, some potential hurdles must be overcome. Three chief categories of
obstacles exist: land use problems; retailer expectations; and ownership issues.

Land use problems include: overly restrictive zoning; M-zones abutting residential populations;
small lot sizes; high construction costs; long development time-frames; and complex building and
zoning regulations.

Retailer expectations include: wanting only strip mall-style vanilla boxes, but in urban settings;
expecting oven-ready sites; requiring instant responses from busy real estate professionals;
demanding income averages to match their goals where the boroughs are economically mixed, unlike
the suburbs and many other cities; underrating the huge population density factor; missing the
radically under-stored nature of the outer boroughs.

Ownership issues include: multiple family-member ownership structures; long-term holdings
triggering big tax bills; attachment to place and family-owned businesses; unrealistic price
goals; and desire for a credit tenant when holding a non-credit tenant site.

Despite potential struggles, properly sited stores in the boroughs do extremely well. It is well
worth the effort.

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SUPERSTORES FIND ROOM IN NEW YORK
New York Times, December 20, 1999
By TERRY PRISTIN

Three years ago, the City Council defeated a plan by Mayor Rudolph W. Giuliani that would have
made it easier for warehouse-style superstores to come into the city. Undeterred, national chain
stores said this setback would not stop them from entering the lucrative New York market.

And it hasn't. Since 1996, about 40 superstores from well-known names like Kmart, Home Depot and
Target have sprouted in New York, and more are expected as retailers pursue additional sites. The
stores have fashioned themselves for the New York City market: to get around zoning restrictions,
some of the chains have had to squeeze themselves into much smaller spaces than they are
accustomed to occupying, while others have taken advantage of loopholes in zoning regulations --
for example, by putting most of their floor space in a basement.

With New York being the last frontier for such stores, often called big boxes, plans to build more
often evoke passionate opposition, especially in the city's more densely populated areas. But
there is little doubt that the stores are catching on with many New York consumers. Chains like
Target and Kmart say their New York City stores are among their top performers.

Earlier this month, Home Depot, the giant home improvement chain, which has six stores in the city
and is about to open another, filed a building permit application for yet another store in Queens,
not far from its 20th Avenue store, said Jesse Masyr, a zoning lawyer who represents Home Depot.

Last month, Kmart opened a store on Bruckner Boulevard, and Target plans to take over the site of
a former Stern's in Elmhurst.

Now Costco, the chain famous for its warehouse-style stores that sell industrial-size containers
of laundry detergent and 36-roll packages of toilet paper, is setting its sights on the middle of
Manhattan, planning to open what would in effect become the largest supermarket in the city.

The company recently had to scrap plans to build another supermarket, on 14th Street, but a
shopping center in East Harlem that would house both a Home Depot and a Costco recently made it
through the zoning review process.

Queens, especially, is dotted with so many superstores that Tom and Bonita Klein of Long Island
City say they have stopped driving to Nassau County to shop.

Instead, they make weekly trips to Home Depot on Northern Boulevard, spend about $300 a month on
staples at B. J.'s Wholesale Club in Queens and often go to the neighboring Target store to for
toys for their children. "They have good prices and a good selection," said Mr. Klein, who works
in fashion production. The Kleins patronize small stores only for produce and other perishable
items. "It's the Wal-Mart mentality, I guess," he said.

Some Manhattan residents are also fans of superstores. Debra Engel, a physical therapist who lives
on the Upper East Side, said that when she entertains, she drives to the sprawling Costco in Long
Island City. But as she loaded her trunk with sodas, crudités and a five-pound assortment of
cookies, she said she did not do her regular shopping at the wholesale club. "I don't have much
storage," she said.

It may seem as if the national retailers are descending on the city at a breathtaking rate --
Costco already has three stores in the city -- but Giuliani administration officials maintain that
the pace is not quick enough, and they contend that the number of new stores in New York falls
short of the number needed to compensate for the retail jobs lost in the last recession.

And, administration officials say, the existing zoning regulations -- drawn up a quarter of a
century ago in a failed effort to keep industries and lure new ones into manufacturing areas --
make no sense because they restrict only certain categories of retailing. Thus, movie multiplexes,
Home Depots and other giant retail outlets that were not envisioned when the zoning regulations
were changed in 1974 are proliferating while badly needed supermarkets are not.

City Council members deny that they hindered the development of superstores. "The argument was
that these stores could not come here without changing the law," said Walter L. McCaffrey, the
chairman of the City Council's zoning and franchises subcommittee. "That's obviously not the
case."

Under Mayor Giuliani's unsuccessful plan, any store up to 200,000 square feet -- bigger than three
football fields -- would have been able to establish itself in one of these manufacturing areas
without a zoning exception. Based on calculations of how many dollars city residents were spending
outside the city, administration officials said that abolishing the zoning restrictions could have
resulted in as many as 57 additional stores.

A major concern for opponents of the mayor's plan was the effect superstores would have on smaller
retailers. But so far, no one can be sure what the impact has been.

In Queens, for example, many people worried that the new superstores on Northern Boulevard would
destroy the shopping strip on Astoria's Steinway Street.

But Tony Barsamian, the chairman of the Steinway Street Business Improvement District, which
represents 300 stores, said his members have been able to compete effectively because they offer
more personal service. "We don't begrudge the big boxes," Mr. Barsamian said. "We wish them well
as long as we can get our share of the pie."

Claire Shulman, the Queens Borough president, said the Home Depot in Flushing has had a ripple
effect, bringing contracting and home decorating businesses into the neighborhood. "I've heard
that there has been an impact on the smaller hardware stores," she said.

"But on balance, it's been great for consumers."

Some merchants in Brooklyn take issue with that notion. "They come in here at the expense of the
existing businesses," said Peter Morisi, a pasta wholesaler. "The vast majority of people are
complaining that their business is not what it used to be." Mr. Morisi said he closed his retail
shop, the Macaroni Store, at Fifth Avenue and 18th Street, in 1997, in part because of the
competition from the new Costco in Sunset Park.

According to Giuliani administration officials, the inconsistencies in the zoning regulations are
hardest on the supermarket chains, which lack the resources of the other national retailers.

But Harvey Gutman, a spokesman for Pathmark, which is building or has opened eight stores in the
city since 1996 and also has its eye on 14th Street, said that supermarkets can find ways to
surmount the New York regulatory hurdles.

"Supermarket chains that are fixed in their view of what a store should look like -- the parking
always outside the door, receiving always in the center to the rear -- are going to be
disappointed," Mr. Gutman said. "Those willing to be flexible and creative will find a way to get
stores built."

In seeking a larger presence in Manhattan, Costco is trying to be both. The store it hopes to open
between 55th and 56th Streets on 10th Avenue would be based on a new model called Costco Fresh,
specializing in food.

Though relatively small at 70,000 square feet (the Long Island City store is 130,000 square feet),
it would be the largest supermarket in Manhattan -- about seven times the size of an independent
supermarket. There would be no parking.

Some of Costco's plans are meeting fierce resistance from community groups and elected officials
in some of the city's most politically active neighborhoods. Although Jeffrey H. Brotman, Costco's
chairman, denies it, neighborhood opposition is widely believed to have forced the company out of
a development that will replace the 14th Street Armory. Now Costco plans to re-evaluate an earlier
proposal to open a store on 23rd Street that was shelved because it did not conform to Chelsea's
new zoning plan.

Opponents say the stores would bring thousands of cars and trucks to their heavily traveled
neighborhoods and are not needed in Manhattan, where most people make do without cars or storage
space.

They also fault Costco for its $40 annual membership fee, saying it is out of reach for many
residents, and for its refusal to accept food stamps or the electronic debit cards that welfare
recipients use. Leaders of unions that represent supermarket employees have joined the fight
because workers in newer Costco stores are not unionized.

Mr. Brotman has pledged to limit truck deliveries, curtail noise and offer memberships to any New
York resident, not just those who work for large companies or belong to large organizations like
labor unions.

Most of the opposition to Costco is being fanned by competing supermarkets and labor unions, Mr.
Brotman said. "We're not coming to Manhattan because we want to fail," he said. "We don't think
that in these neighborhoods that the majority of people don't want us. We think that most people
do want us."