12/02/08

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Luxe on top, burgers below

A McDonald's is hard to miss on the ground floor of Gramercy by Starck.

In the promotional book for his swanky new development, Gramercy by Starck, Philippe Starck stated that "with this beautiful building, I hope people will see it and say, 'Oh, I want to live there!'"

They might also gaze at the façade and say, "Oh, I want a Big Mac!" Or, "Oh, I forgot to fill my prescription!"

It's impossible to miss the McDonald's on the ground floor of the French designer's sleek glass condo at 340 East 23rd Street. The entrance to the ubiquitous fast-food joint melds with the façade, framed by a vertical and a horizontal yellow stripe and a vertical slash of red.

The golden arches consist of a square two-foot-by-two-foot sign featuring the mustard yellow logo on a dark red background that juts out perpendicular to the building's face.

In addition to the McDonald's, a CVS also occupies space at the building.

The pairing of such mass-market retailers with a luxury building like Starck's is just one of many seemingly incongruous real estate matches in Manhattan.

But, according to Keri Eckhaus — an on-site broker at Gramercy by Starck who works for the Shvo Group, which is marketing the development — the juxtaposition at the building has not ruffled buyers. The presence of CVS and McDonald's, which had yet to fry its first burger in mid-June, have barely affected sales, Eckhaus said.

In mid-June, only 20 out of 207 apartments remained unsold after sales opened in May 2007, she said.

"People talk about the McDonald's, but it doesn't make or break sales," Eckhaus told The Real Deal. "There are separate ducts and vents, so no one's going to smell French fries or anything."

Many of the buyers already live in the neighborhood, and fewer than 40 percent come from abroad, she said. Available apartments in mid-June ranged from a $590,000 studio to a $3.6 million three-bedroom penthouse with northern, eastern and southern exposures and a hot tub on the wraparound deck.

So how did McDonald's end up on the ground floor of a starchitect's building? For starters, it owned one of the three parcels that made up the building's footprint and negotiated a favorable deal to sell its air rights and occupy the new space, said Alan Miller, president of Eastern Consolidated.

Miller represented the developer in the CVS deal. Omnispective Management bought the ground-floor retail condo. CVS leased the space for 25 years with four five-year renewal options.

Such deals can be complicated, especially when an establishment like McDonald's has an agreement with a franchisee at a particular location, said John Ciraulo, vice chairman at Massey Knakal. It's rare to see any type of food establishment at a high-end condo, or even a five-star restaurant, because such uses are frowned on, he said.

"McDonald's is a big landowner and has realized that its holdings, especially in Manhattan, are one- and two-story structures with lucrative air rights," he said. "Because they're not in the real estate business, they're starting to agree to sell their assets. In this case, they leveraged their ownership of the land to strike a good deal," Ciraulo said.

The Starck building is not the only high-end residential tower with a lower-end national retail chain at its base. The Millennium Tower condo, framed by Columbus Avenue, Broadway, and 67th and 68th streets, has a large retail space on its ground floor to accommodate a multiplex cinema and a Gap clothing store.

Gene Spiegelman, executive director of retail services at Cushman & Wakefield, brokered the retail space at 15 Central Park West, perhaps the epitome of retail-residential incongruity. The building, arguably the most lavish new construction in Manhattan, is anchored by a Best Buy, which occupies 46,000 of the 85,000 square feet of retail space.

The retail space averages $325 per square foot for ground-floor space and $75 for the second floor and lower levels. The lease with Best Buy has not had any impact on condo sales, said Spiegelman: One seller sought $15,000 per square foot for one apartment at the condo building.

"The people who move into these luxury buildings are going to snap up several flat-screen TVs and computers," said Spiegelman.

He added, "Best Buy really raised its level of design to conform to the architecture; everyone who enters the store says it's a lot nicer than they thought it would be."