Adaptive Reuse and The Future of Retail
Transcript
Atif Z. Qadir 00:10
Welcome to American Building. I'm your host Atif Qadir. Join me as we explore the skylines and strip malls, the crosswalks and rail crossings, the balconies, the buildings and the boroughs shaping the next generation of real estate. Let's build common ground.
Atif Z. Qadir 00:32
Today. Our guest is Jim Somoza, the Managing Director and Partner at Industry City. Industry City is a pioneering mixed-use campus in Brooklyn's Sunset Park, transforming a defunct waterfront industrial park into a vibrant hub for makers, tech startups, artists and manufacturers. The 16 building, 6 million square foot campus owned by Jamestown and Belvedere blends creative studios, light industrial spaces, retail restaurants and public plazas through adaptive reuse and smart placemaking. Notable sister projects by Jamestown include Chelsea Market in Manhattan and Ponce City Market in Atlanta, both of which I visited multiple times. I can say they're fabulous.
Atif Z. Qadir 01:21
Jim Somoza is an accomplished leader in real estate and hospitality. Since September 2016 he has served as the Managing Director and Partner at Industry City. Before that, he was the CDO, the Chief Development Officer and Partner at Crunch Fitness, the president of Chelsea Market and a Senior Director at Cushman and Wakefield, specializing in commercial brokerage. Jim also provided in-house legal counsel for the firm's activities across the New York Metro Area. He holds a BA from Syracuse and multiple JD degrees from New York Law School.
Atif Z. Qadir 01:58
Today we'll focus on Innovation Alley, the newly created pedestrian spine that connects five former factory buildings and unlocks the entire Industry City campus for foot traffic, for retail and community life. All that said, thank you so much for being here with us, Jim. You've seen everything from commercial brokerage at Cushman and Wakefield to hospitality at Chelsea Market. Talk to me about one of the early projects or moments that really sparked or created your interest for transforming underutilized spaces like Industry City.
Jim Somoza 02:33
It really all goes back to Chelsea Market. When I started my career in commercial real estate. I started as a commercial leasing attorney and then broker. And honestly, it was like this. One day, I was walking around Chelsea with my then girlfriend, current wife, and I looked, I saw this building, and I grew up in Manhattan tonight. I knew the area, but nobody really. There was no Chelsea Market. It was an old collection of buildings, which was the former Nabisco building. And I saw this building, I saw these really interesting sculptures that were outside and this brick, and it was just this beautiful building, I said. And I saw an entrance that made it look like it was like a shopping, you know, ground floor shopping center. And I wasn't aware of anything like that in this area. Back then, you know, there was no, it was actually a meat packing district, not MeatPa. It was actually that. And so for large portions of the day, there would literally be nobody there, because meatpacking tends to happen at late at night or early in the morning, and the rest of the day was very quiet.
Jim Somoza 03:36
We're walking around and said, What? What is this? And I saw the sign that said, Chelsea Market. So we walked in, and I that I can tell you, like, sometimes you can take things back to like a moment where you really have this 'aha' moment that was mine. So I walked in and I said, What is this? I saw the con- we called it the concourse back then. It was basically like our Innovation Alley or our Food Hall at Industry City. And I saw all these incredible storefronts, and most of them were empty at the time. This was probably 1994. And I saw all these sculptures and this amazing emphasis on the history and the historic nature of the project, not making things too nice and too shiny, highlighting the industrial texture of the building. And there was this huge clock in the middle that anybody's been in there that was there that almost made it look like an old train station. And there was this waterfall with this big broken pipe waterfall, and all these kind of sculptures, which were also really interesting, because they were like sofas sculpted out of stone. So from afar, they looked soft because of the way the talent of the sculptor, but they were stone, which I thought was just super interesting, and I just was blown away.
Jim Somoza 04:50
And I remember saying to my wife at the time, I don't know who did this, but I have to meet this person, and someday I have to work with them. And the combination of that and then traveling, I was always interested in markets. So I've traveled through Asia, Europe, and like my other moment, was the first time I went into the Mercado Centrale in Florence, which now is a little shined up, but back then it was very similar, sort of the Chelsea Market and rough around the edges in a good way. And those two things, and I said, I just really love this. Like when I go traveling, one of the first things I do is I go find the markets like Vietnam and Cambodia and Thailand and Japan and China all over the place. So that was the 'aha' moment. And years later, I ended up meeting Irwin Cohen, who was the prior developer of Chelsea Market, and we ended up working together, and I ended up joining up forces with him to continue the development of Chelsea Market, and that's how I got there.
Jim Somoza 05:55
And it happened through a bunch of different transactions of buildings around the area that he owned, that a client of mine bought, and then we got to meet each other, and then he said, Hey, you just you get what I do, and you obviously have great appreciation for it. It's funny because I was at Cushman and Wakefield, and I had other things to do, you know, I was in office leasing, and I was doing data center and things like that. And it was a period of, like, a month or two where he's like, where's Jim? Now, I wasn't in the office, and they're like, he's at Chelsea Market with Irwin. And that's how it happened. And it just went from there, you know, and he and he really taught me a lot, and then that led into meeting up with Jamestown. Belvedere Capital was the constant, you know, investor through the whole thing Jamestown wasn't in the beginning, but was later. And, you know, I learned a lot about how to do this, what we call adaptive reuse development, and it's just gone from there.
Atif Z. Qadir 06:51
Amazing. Okay, so for folks that have visited Manhattan or live in the city, they know that Chelsea Market is this huge honken ship of a building across from Google's headquarters. So there's a lot that went into making that such a personable, human-scaled retail environment. When you walked in, you described the things that you saw. Tell me, was this a like, were there offices upstairs? Like, were there all meat-related retail, like, butchers on the ground floor? What was there?
Jim Somoza 07:18
There was no meat-related in Chelsea Market. Chelsea Market actually was the Nabisco headquarters. It was actually a baking facility. The first Oreo cookie was actually made there. And so this goes back to the, you know, the 19th century, and that was Nabisco's headquarters, and they grew to the point where they left Manhattan and those buildings, it's really 18 buildings put together, and was fine for the baking in the 1800s but as you got to the scale that they became, they left New York City, and these buildings kind of sat there underutilized for many, many years. And at the beginning it wasn't even offices. It was a lot of warehouse, some manufacturing, things like that. The ground floor was nothing. Like it was some distribution. There was no retail, and this is prior to the redevelopment. There was no retail, and it really just only looked inward, like you didn't even think about, I remember, before I went in that time seeing this building, you didn't even think about entering it like it didn't even seem like that was possible. There was no main entrance on Ninth and 10th Avenue, as there is today.
Jim Somoza 08:27
The buildings were never appropriate for meat. It just happened to be next to the Meatpacking District. So those buildings for meat packing are, you know, one and two story concrete. There was a lot of wood in Chelsea Market, which would never make it appropriate for, you know, meat processing and things like that. So it actually was, it was just adjacent to that, and it was a baking facility. So there were remnants of different baking things, especially in the basement, old mechanical, old ovens and things like that, that have been left behind. But other than that, you really, you wouldn't have known really what it was used for before.
Atif Z. Qadir 09:00
So then you mentioned Jamestown comes in. They focus on place making. And then there's that future transaction that happens. I think Google purchased the building. And then from there, were there any, had you been like keeping tabs on the property and new tenants and things like that?
Jim Somoza 09:17
Sure, and not as much as I did. What happened was, you know, the Jamestown came in and really took the place making to another level, right? And so Irwin did a lot, but it was really Jamestown and Michael Phillips, who's the CEO Jamestown, who who came in. And everybody was afraid when Jamestown came in that they would ruin it. There were a lot of people that had a lot of affection for the building, and I would tell you quite the opposite happened. And that's normally what you see happen, right? We normally a bigger company comes in and really totally commercializes it and makes it something you know, far from what it was. And that's not what happened here, which I was really. Happy to see. And they just took it to another level, but with the same ethos, the same design emphasis, and the type of design and the type of tenants and highly curated tenants, as opposed to a bunch of nationals.
Jim Somoza 10:14
Nothing wrong with that, but in this particular project, that was not the zeitgeist of the place. And so they really took it and brought it to another level, and they opened up the basement, which, when I was there was just a basement, and now it's, you know, you've got Dixon's Farm Stand down there, and Bonitalia, and, you know, whole bunch of other things. And it's actually a space. And I it did not look like that 20 years ago. So they did a really great job. So then I got involved in this project, which is everybody together from the Chelsea Market days, right? So Belvedere and Jamestown, so this project was the first time I really worked with Jamestown and Michael. So I would go over there and take a look and I'm just very happy to see how they continued the mission, as it were.
Atif Z. Qadir 11:03
Amazing. So you went from one particular building and the focus of the retail and the tenant experience there, then to Crunch Fitness, which is multiple locations, but looking for a similar experience across all of them. And then eventually you made your way to Industry City. So evolution retail customer focused across all three different scales, different places. Talk to me about how you see your leadership style changing from role to role, namely because you mentioned in your description about Chelsea Market, the need of having all different types of people working together to achieve a difficult or challenging or inspiring goal.
Jim Somoza 11:45
Leadership style has pretty much stayed the same. I've just had to learn how to delegate more. I mean, that's you had with a lot of people. So, you know, Chelsea Market was a million square foot building, which at the time seemed huge, and so you did everything yourself. I mean, we had an office of four to five people doing that outside of the building employees. So then you come to a place like Industry City, and it's 6 million square feet and it's 16 buildings, and we own the streets and it's basically a city. And so you have to learn you cannot do all of that hands on, you know, at a micro level. And it's that's really just about working with the best people, right? And because you don't even have time to micromanage everybody. And that's not really my style anyway, my style is working with fewer, but great people that I know we're gonna talk if they run into a roadblock that they don't know how. You know they're not gonna just go out on their own, but they're gonna raise their hand if they need help. And you, you know, you work with people that get what you're doing.
Jim Somoza 12:53
So my style has had to, I've had to learn and look, I started as a broker, right? So what are you as a broker? You're basically a gun, you know.
Atif Z. Qadir 13:00
Relationships?
Jim Somoza 13:01
Yeah, it's all relationships, by the way, and that's the one thing that's consistent all the way through. But you're a little bit more of a, at Cushman and Wakefield, you're a gunslinger, right? You're like, you're doing your own thing. There is no delegation, per se, and so you have to learn how to do that. But I'm glad you said the word relationships, because that is the most important part of the whole thing, and it's really what, other than I really like old buildings and design and watching businesses grow, the relationship part is what's consistent across everything. It's one of the things I love about real estate the most is that it it is a relationship business, and it is not, while technology has certainly helped things, and, you know, it's helped efficiencies, there is no replacement for the relationship, right?
Jim Somoza 13:50
So, like I know basically everybody here at Industry City, if I have a new employee that comes on board, I can't just send them to one of these tenants to just start giving them thoughts or advice or, you know, direction, because they can be like, Who are you? So I have to do that in the beginning. And it's my job to start the relationship with these folks and the business owner, the tenant, whoever it is, because without that relationship, you just think about it. If somebody, if I walk into a space and I say, and they know me, and I say, hey, I'd really like you guys to be open later on Saturday. I just give an example. And then I'll say, Why? Because I'm seeing more people on Saturday. And because of my relationship with them, they will say, and hopefully they're good experiences with me, hopefully is they'll say, okay, that's we can listen to that.
Jim Somoza 14:42
If I were to send somebody who was a new employee, who had no relationship with that tenant, and say, I want you to be open, they'd be like, get the hell out of my store. I mean, what are you, you know, like? But that's just natural, right? That's life. That's just anything, you know, if you go into any store, like, and I'm big on that, I mean. I live in Carroll Gardens. I know all the shop owners, and if I ask them something, they're likely to work with me on it. When I first moved to the neighborhood, if I asked them something, they would be like and who are you? That's all about relationships, right? And it really helps it, and it helps in good times, and it helps in tough times, right? Because, and that's also with making deals, being a broker, being a lawyer, all of that, relationships the foundation. It's really the foundation of who we are as humans. And so all that's what this is, is just a big human experiment project.
Jim Somoza 15:37
And what we've done in Industry City is really take it to another level, and that is fostering relationships amongst our tenants. And you know, I use this example all the time. When I was at Cushman, we were in the CBS building, BlackRock, and there were three tenants in that building. It was us, Wachtel Lipton, the law firm, and CBS. We never interacted with the other two tenants in the building. You maybe saw people in an elevator, but there was no interaction. So there was no attachment to the building other than within your own office. There was no relationship to the building or with the building or with others. We do it the other way here, and that is our tenants do. And that's the ground floor that we built here, because it is also so spread out. There are many places for tenants to get together and create and build relationships, and that just goes into the next word, and that's community. That's what create, the relationships create the community. And the community is really what this place is all about. And people talk about that, use that word all the time. But this is true, and it's not even just, look the friendship part and the socializing part is great. We foster that, but what that leads to is collaboration on a business side, you know, they start figuring out ways to work with each other. There's a photographer who met a nonprofit who needs photos taken of their event, and so he or she takes those photos, and then this one gets involved in that.
Jim Somoza 17:04
And yeah, it's not even just the retail parts actually easy, where they one place, our chocolate place, connected with our ice cream place, and they made a collaborative flavor, right? That stuff happens all the time, but what I really find interesting is it happens on the upper floors. It happens in the offices and tenants who find ways to collaborate, and it makes them better by being here. That's what's really interesting, right? So you you come to IC, and you can avail yourself of so many different companies who are also looking to collaborate, because they come here with the collaborative relationship mind to begin with, right? They don't come here like, I'm just in these four walls. And I tell people all the time, like, if you're especially on retail, if you're not interested in being a part of this community, that's fine. There's nothing wrong with that. But then you should be on like Fifth Avenue and Park Slope and get a storefront and just do that. That's not a criticism, that's just what it is. If you want to be here, you want to be part of that. And we try to foster that and emphasize that, because it makes the whole place better than the sum of its parts. And that's something that we really focus on a lot. And I say this all the time, and I have many examples, people just by being here, their business actually gets better by being here, not because of the location that's there is the location, but because of the community of other like minded collaborators that they can then work with.
Atif Z. Qadir 18:36
Amazing. What I want to do is share some of the stats about Industry City, and then pivot towards the problem that we're going to be focusing in the the interview. Folks that have visited not visited Industry City, if you haven't visited, go visit. But in terms of the numbers, we're talking 6 million square feet. That's a lot of square feet. We're talking 16 buildings. We're talking about $450 million of investment. So capital investment, and we are talking about 650 businesses. So now let's lean into the problem, because it wasn't all cookies and cupcakes from the beginning.
Atif Z. Qadir 19:12
So I want to focus in on the circulation. So early on at Industry City, the biggest obstacle was the pedestrian access to this campus. So there's ground floors, loading dock heights, there's long blocks between building make it kind of uncomfortable for a pedestrian to keep walking, and it was really difficult to get around by foot. Can you walk through how your team identified the through line in terms of pedestrian access? Or how that eventually became an Innovation Alley?
Jim Somoza 19:43
Sure. So the first thing was loading so these buildings were warehouse and distribution buildings, which means even the ground floor is at loading dock height, so the ground floor is four feet above the street, and what would happen was where the loading dock. Docks, the original loading docks where they were, what we call sawtooth docks, right? So they were kind of like this, and they would be go out into the street. What that meant is trucks would back up to the loading dock. But because it's sawtooth, the truck backs up like this. It's hanging out into the street at an angle, and so that does that causes a number of problems. It backs up traffic. It blocks access through the street, but it also destroys any safe pedestrian access up and down the streets, because if a truck was backed up right to the building, there is no way to get passed without walking out into the street in front of the truck and around and doing that multiple times. I say this all the time. Nobody was going to come here with a stroller to walk around the back or the front with a 53 foot tractor trailer, right?
Jim Somoza 20:49
And it was unsafe. It prevented pedestrian flow. So the first thing we did was came up with something that we call gray sidewalks. So what we did was we built these sidewalks at the height of the ground floor, which is four feet above the street. And what we did was we added to that sidewalk. First of all, there was railing. So now you had a safe, contained sidewalk up and down, you know, the length of the building, taking people off the street. Nobody, no trucks would back up tight to the building because the sidewalk would prevent that. So you had that, but now you still had to have loading because these are still loading buildings. So we created these bump outs, so the sidewalk goes down, you know, the building, we have these bump outs that are actually loading docks. So when you look at them, there are gates. So now the trucks back in parallel to the building, instead of at an angle. And those are loading docks. The gate opens up and they still load out. They cross the sidewalk to get into the building, which is fine, because we don't do as much loading as I mean, these buildings were part of an active seaport, so the amount of loading that was done then it's not what we do. We still do plenty of loading, but not to that volume.
Jim Somoza 22:03
And that allowed, say, pedestrian access with plenty of loading, with the trucks pulling in parallel, which meant no blockage of pedestrian access, and no blockage of the street for a flow. That was a game changer, changed the whole thing. So there was that. And then there was something that we call Innovation Alley, which, if the buildings the way they are arranged, they are long and they have courtyards in between them, which used to be train yards. Actually, that's how the trains used to pull in from the seaport with goods, and they would get loaded up into the building. We had that. And then streets. So if you think about it, in buildings one to eight, which are our main what we call finger buildings, because that's kind of how they look. You go street, courtyard, street, courtyard, street, courtyard, street, courtyard, all the way, and you go up and down, because you have to go down to the street on stairs, because it's four feet above the street, and then back up.
Jim Somoza 22:57
And what you would have to do is you'd have to walk around the buildings to get anywhere. And these are very long buildings. They're full long city blocks. So we realized we needed something for pedestrian access to be able to cut right through the buildings from south to north, from buildings one to building eight, and we created this alleyway, which kind of functions very similarly to the concourse or the ground floor, food hall, whatever you want to call it a Chelsea Market, right? That's a very similar concept. And what that allowed us to do is have people be able to move easily across the campus. So what does that do? That's great for convenience, of course, great for visitors, but it's also great for the retailers.
Jim Somoza 23:37
And really, at the end of the day, if you don't have the retail on the ground floor, nobody's leasing the upper floor, right? If you don't have the placemaking, forget it. Because nobody's coming here with their offices if their people can't eat and drink and have fun and you know, all of that. And so that allowed us to create another retail corridor. So along the Innovation Alley is all retail. And the other thing that's interesting about it is that there was a concept, you know, we could have used elevator cores with lobbies that could have functioned similarly. The problem with that is that we also have, on the weekends, we have 50,000 to 150,000 people visit us every day. It would have been problematic to have all those people walk through and intersect with lobbies that need some security, right? Nobody really wants, upper floor doesn't, they're not looking for visitors other than their employees. So you'd have people walking up through the buildings and stairs and getting in elevators. So Innovation Alley has no office lobbies, no elevators on it whatsoever. It's used by both employees and workers here and the public to get across, but it doesn't intersect with the upper floor access, and that's done on purpose.
Atif Z. Qadir 24:49
Okay, so to recap, there's a lot of lot of interesting stuff there. So we talked about raising sidewalks to match loading dock heights. We talked about rerouting the truck access so it doesn't take over the streetscape. We talked about the dynamics of having folks walk through the site. We talked about the courtyards. So talk a little bit more about the challenges of the vehicle circulation throughout the site. So beyond delivery trucks, I'm guessing there were other cars that were moving through, and what you did with them in terms of, say, like parking.
Jim Somoza 25:21
So, yeah, that was an issue. It wasn't as big as the others, but that's about finding the right balance between, first of all, just having the loading docks not be sawtooth anymore, just like, alleviated a ton of that. But then you create parking places, right? And so really, you don't want parking that blocks loading docks, because people, it's still commercial. People need to load. And so that's really more art than it is science is figuring out that right balance. Because also you want people, because your retailers are right there. Now we have parking lots. We have huge lots on Second Avenue, on the western side of the project, but you also want people to be able to park in front of a retailer really quick and run in and grab something and run out. That's part of making sure you're keeping your retailers healthy, so that you keep the project healthy, because I, as I said before, without them, you're not leasing upstairs.
Jim Somoza 26:16
So you always have to keep your eye on that ball, because if you don't, you'll find yourself down the road, losing retail tenants, potentially, which will have a ripple effect across the leasing of the project. We have security and a parking operator that we do a lot of work with about talking about what's the balance right? And so even though we have to say no parking, we do permit for a certain period of time, and that's been more about kind of, really just staying on top of behavior and what that is, and trying to, you know, incentivize people to park in the parking lots. Our retailers can all validate for their customers. So that incentivizes people to go because, you know, if you're going to spend more time here than just running in and grabbing a steak from our butcher. We want to incentivize you to not do that on the street, because that takes away spots from others that are just coming to grab something. And some of the retailers, by the way, we need them to be able to park in front of their store for a minute to go in and grab something, or, you know, whatever. So we incentivize those folks to park in our lot by validating.
Atif Z. Qadir 27:22
A lot of those moves that you're describing in terms of allowing for the access to upstairs, the Innovation Alley, ease of getting to the parking locations. I've parked there before because I went to Williams and Sonoma to furnish my new apartment. So I'm familiar with that space and how cars interact there, but you're giving up leasable square footage. So talking about the folks in your capital stack, and how you talk about placemaking, which takes money and takes leasable square footage, versus the more kind of easy max out your square footage and max out your your rent possible. Talk about those conversations.
Jim Somoza 27:58
Sure. That's really about track record and reputation. If we had never done this before, and you talk to investors, et cetera, just like so Innovation Alley, for example, that was leasable area that we took that we don't get rent from, but what we said was we're going to get more rent from the retail that we're going to put along there than we ever would have gotten without it. And you know, you do certain things that you can't really tie. So can I tell you exactly how much dollar to dollar we made up? No, I can't. But we say, look at Chelsea Market. Look at Ponce City Market. Look at, you know, various other projects around the country that have been done. I think we've proven that we know how to do that, that we do it prudently, that we don't waste money. And so, yeah, it's funny, because when I, when I'm on panels, if it's a panel of bankers, I get that asked that question all the time.
Atif Z. Qadir 29:00
About placemaking?
Jim Somoza 29:03
Yeah, right. They and so they don't really know me, so they ask, and they look at me like, what you know? What is this kumbaya stuff that you're talking about here? And I go, Listen, it's not kumbaya. And here's the thing, if you look at our reputation, our track record, you'd be very happy to have invested in any one of our projects. And so it sounds like it's touchy feely. It is, to a certain extent, but what my line always is, it just happens to be great business also. So what you don't realize is, it may look like something, but if you really peel it back, it's great business. And the proof's in the pudding. If I had never done any of this, or we had never done any of this before, and this was our first project to do it, and we would get asked that question, all we would get a lot of pushback. We don't, because we've shown that we know how to do this.
Atif Z. Qadir 29:54
So from that perspective, I think what you're bringing up is this assumption that the success for retail is about its location, location, location and the ease of getting there, which totally makes sense. I just feel like that might be dated by 20 or 30 years. So given like the difference in generational interactions with retail, given that Amazon, with Amazon, you can get anything that you want right now, talk to me about millennials, my generation, Gen Z experiences, and how you think that's actually good money?
Jim Somoza 30:24
Oh, sure, that's a great question that I talk about all the time. So you're never going to replace location, location, location, right? But you also pay tremendously for that. You want to be on Fifth Avenue and 57th Street, you're going to pay, you know, $1,500 a square foot. So that's fine for Hermes and Gucci and LVMH, but with more destination stuff, which we are, you have to create something that people want to come to and that they want to see. So if you look around Industry City, our retail is very interesting. It's Japan Village, and it's a blacksmith, and it's a vinyl record store, and it's, you know, a lot of experiential stuff, climbing gym, punk place and and all of that. We do have national, like you pointed out West Elm, but look what we did with West Elm. That's an outlet. It's cash and carry. You got to be here to get it, and you will, because you'll get it. But so that's more interesting to us than a showroom, because it brings people here, and you have to come a lot because it rotates a lot. So from a national standpoint, we like that. But if we just did cookie cutter national retail, you're absolutely right. And I say this all the time, you could just go on Amazon and do that. And I do. There's many things, like, I just don't do Amazon because I do that. There's a convenience factor, right? I needed shampoo. I ran out of shampoo this morning on my way in the in the Uber here, I have four bottles of shampoo coming in my house, right? Because I that's a convenience thing, right?
Atif Z. Qadir 31:58
So I'm guessing Jamestown is okay with you saying that, right?
Jim Somoza 32:01
Yeah, let's say it. You know, it's reality. You know what? That's exactly the point. It's reality. If you don't face that, then you're not addressing what you can address, right? If you're just in denial on that. So you're not going to be able to get. We have a general store, which is for, you know, necessities and things like that, almost like a little bodega. So if you really need a tube with toothpaste. You know, you can go get that year, but nobody's coming here to shop for a tube of toothpaste, right? That's just a convenience thing. So what they come here for, and I like saying this because it's the current state, and it's the future of retail, and that is experiences, things that are different community, as I talked about before. And you know, we're doing, we have a lot of food and beverage here, but we really have been emphasizing, lately, more activity stuff. We have a board game bar that hits incredibly popular. It's so popular. We just did it as a pop up, a test of, proof of concept. It's busting at the seams. We're going to grow it.
Jim Somoza 32:58
We have tasting rooms with distilleries and, you know, brewers, we have all of that. We do retail. I mean, Japan Village, which is our most successful thing. I mean, you can't get anything in there on Amazon. You can't get an experience on Amazon. So, and for us, that actually really works, because let's, let's remember that of 6 million square feet, about 700,000 square feet of it is retail, and the remainder is upper floor, so bulk of the income comes from there. Nobody is picking their office based on whether or not their employees can get a tube of toothpaste or can shop for toothpaste or shampoo. They're just not. What they are is they're choosing places where their employees will be happy. A tube of toothpaste doesn't make you happy. Playing patank or being at the climb gym or doing a board game bar or learning how to blacksmith, that makes you happy, and that's the difference, right? And so we actually embrace this because we feel it's our strength, but it plays to the majority of the income that we make from these projects, which are the upper floors.
Atif Z. Qadir 34:05
What's really fascinating is about that time that I furnished my apartment with the really beautiful stuff from theWilliams and Sonoma, that actually was an experience as well, because the fact that whatever I picked up there and grabbed and put into my Lexus was not going to be there tomorrow, because that's a good deal. That experience aspect, I think, really dovetails well with a few stats that I want to share with you. 56% of Gen Z shoppers say that a fun in-store experience is an important factor in deciding where to shop. 60% of Gen Z expect a more engaging and interactive in-store experience beyond traditional stuff. And then this one's an interesting one is 75% of Gen Z still prefer in-store shopping over online, so there isn't this kind of monoculture aspect of just going to online for everything. And I think what you're picking apart is there's a lane, and if you really lean into that lane, then you can make more than a buck.
Jim Somoza 34:57
100%. And here's what's interesting for us. Because everybody thinks about our upper floors as makers, and we have plenty of those. But we also, we have biotech companies. Why are they coming here? Because their employees want to have the ground floor experience. Previously, in previous generations that I did some biotech work when I was at Cushman and Wakefield. You got out of medical school, you went into biotech, and then you were in an office park in Menlo Park, New Jersey, and they had a cafeteria, and you ate the same turkey sandwich every day, and you went back to your office and did that. They don't want to do that. People getting out. They want to have this experience. We have technology companies, we have AI companies, we have financial firms. We're actually starting new law firms here.
Atif Z. Qadir 35:41
Lawyers could be cool.
Jim Somoza 35:43
Yeah, you know, listen, I left, I went over the wall, you know, practicing. But I still sort of practice, you know, somewhat every day. But what we found is, you know, all of these, I mean, we can't, like we have technology companies and, like all of these companies that traditionally would want to be in Class A office building in Manhattan, their employees don't want it anymore. And all that gets to the remote work. So our advantage is we are closer to where people live, being in Brooklyn, but also people enjoy working here. And you didn't have, when you got out of medical school and you went to work for Pfizer, you didn't have the option of being in a place like this, because it didn't exist. Now you do. And we have a company here, like years ago, they would be in New Jersey, and they're growing here. They're staying here. They want to be here. They've renewed with us once. They've grown with us twice. And it's because of that, it's it's recruiting, and it's employee satisfaction. That is the most important thing. As somebody who runs and has run businesses, I can tell you that employee disruption, recruiting, turnover, is the most disruptive force to your company. It takes up so much time. And so you want to be in a place where you attract good people and you keep good people, and that's what we do.
Atif Z. Qadir 37:04
So a lot of our conversation so far is focused on the pedestrian experience and the retail, which is a key part of that. You mentioned a few times, the office. So the office square footage is the vast majority of the 6 million square feet. What do you see as the drivers or the opportunities to continue increasing the bottom line on the top floor? Like, Are there parts of that experience that you're describing that you can inject, like artwork in the lobbies, like that life continues upstairs?
Jim Somoza 37:31
All of that. So upstairs, it's more of a design thing. It's more of an aesthetic thing, because all of its tenants, technology, all the biotech, they don't really want to be at a public, you know, like, they want security and, you know, private like that. So we don't do like concerts on the fifth floor, right? Because they would, they would not be happy about that. They want it to be there. The upper floors are really about cool looking space, aesthetic, great elevators. We do a lot of art in our elevators. We push out a lot of information in the elevators and elsewhere about all of the events that are going on, because it's a very important that they all be aware of it. It's just, we just don't do as much of that. We have some we have some second floor retail, which is called the Makers Guild, which are, is kind of a hybrid retail maker. These people wanted studios, but they wanted some retail experience. They don't have to be open. So as a result, they don't have to be open seven days a week. If they're on the ground floor, they have to be open seven days a week. So that's kind of a little bit of a hybrid, but it's all about having things here that people on the upper floors find valuable.
Jim Somoza 38:41
We just don't do real activation. Now I'm saying that and but coming up in a month, we have something called Open Studios. So we do it from time to time. But if we did open studios every weekend, so open studios is public gets to come and go up in the buildings and walk around and go and the studio. You know, the tenants most, more makers and artists and things like that. They keep their doors open, and you can go from studio to studio. You could buy something. You get to talk to the artists. Get to learn, you know, that we, there are classes, there's all kinds of stuff. So we do that. If we did that every weekend, people would get tired of that, because there's actually, you know, they're they're working, you know, also. So you got to be very careful with how you do that. It's really more ground floor, second floor, and in some cases, we have things upper floors, like roof decks and things like that, that are just closer in proximity to where the upper floor tenants are. But we tend not to activate those as much, because people do need to work at the end of the day.
Atif Z. Qadir 39:38
I want to pivot towards the big picture and where there's opportunities to do some of the things that you've done in your projects, from Chelsea Market to this in properties all across the country. So we're seeing huge changes in the way that people work and the way that people want to experience retail, and there's a lot of square footage of office space that's most likely going to go into receivership or loans will default over the next two years, as the statistics vary, but it's two to 3 trillion of Office debt that's coming due the rest of this year and next year. What you described is how you can do that successful transformation from manufacturing to mixed use in a urban environment. There's another great example by Somerset development, The Bell Works Laboratory in Holmdel, New Jersey. That's an awesome project with Alexander Gorlin, the architect, and that one is a suburban office park that was converted to mixed use. So given the things you've seen, the things you've worked on. Start laying out a recipe book for a property owner that's looking to rejigger a suburban or like a near urban office park, or, say, a opportunistic young developer that's hungry that wants to make their name and do something like what you did.
Jim Somoza 40:57
Sure. I'll tell you, there is tremendous amount of interest in this and us doing this interview in the podcast today, I'm being asked to speak, it's almost hard to even keep track of the number of which I like doing, because you can see, I'm passionate about this. I like preaching the gospel of what we do. But I mean, it's if that's any indicator of people's interest. It was big at ICSC, I have two panels next. I'm doing up to probably like four to six panels a month at this point. And that's because people are really interested in talking about this, for what the reasons you just laid out. When you go to suburbs, it's tricky. So for us at Industry City, for example, we've got no residential here, but we have, we are in the middle of a densely populated Brooklyn, right? So there's a lot of people to draw from. Chelsea Market had tremendous residential around it, right? Tremendous residential density just to the north in Chelsea, and not Meatpacking at the time, but also the West Village just to the south, so that was a big help. So you have these different built in, people will still come to you destination, but there's still no substitute for having some density directly around you.
Jim Somoza 42:12
What gets tricky in the suburbs is that, and that project in particular, which we looked at years and years ago, they have a different challenge. Now, if you can build residential around your project, which I don't think that's zoned for it, and we're not either, but if you can do that, you're in really good shape, you know, like, you've got a real you've got another pillar there for that. You know, I have people that come in and talk to me about their projects, and they're like, oh, yeah, we're about to break ground on 30,000, this is true story, at 30,000 residential units, I'm like, you don't need any advice for me. So, you know, like.
Atif Z. Qadir 42:46
Go build it.
Jim Somoza 42:47
You should go build it like, you're like, in the year, and then it's you're gonna have your pick of what you want to do on the ground floor. Because that's not an adaptive reuse really, right? But trick with projects like that is, so there, the residential density around that project is very low. It's very much destination. So you have to do things that really attract people, maybe people that don't want to commute, they want to live around the area. So you have to do a lot of things on the ground floor that attract that. The problem is, is that you just don't have the foot traffic to support that. And the trap you don't want to get into is subsidizing all of this. We all do it in the beginning, but we all have a plan that's, you know, like on these projects, we have none of that anymore. All of our tenants do their own thing. Do their own activation. We used to have a big activation budget. We have zero. We used to have a restaurant here that we subsidize, that we don't do that anymore. And that's for a couple reasons. It'll bleed it dry eventually, and subsidizing things just doesn't give you the same experience. A subsidized restaurant is like a hotel restaurant. It's there because it needs to be there. And you came home from your meeting and the bar is still open, so you're gonna sit there before you go up to, you know, like that, but you don't get a true restaurant or, you know, experience.
Jim Somoza 44:11
So that's the thing about subsidized. It's, it's not authentic, and it and it will just kill you at the end of the day. So what you really do, and this is what you do a different part of mixed use. And this is what we've done with other projects here, and Chelsea Market, not Ponce. Ponce has a real advantage here. There is residential around the area, but it's also got the BeltWay is huge, right? So it's like there, it's the High Line. Basically it just funnels people you come right into it. So that's a different thing, right? These are all the ways of getting people there so you remain healthy, and you can do other things, but just different ways. But one of the ways that we've done it in the past, I said we did it here in Chelsea, is we went to wholesalers. We went to distributors, and usually starts with bakeries and things like that, and they're really looking for commerce areas. They're looking for baking commerce areas, produce, you know, whatever. And what we did was, we would do, and this is, this is actually, like, the secret, going back to the beginning of Chelsea Market, is how that worked. And you go to them and you say, Look, we're going to lease you distribution commerce area space, but you're going to do retail here.
Jim Somoza 45:18
They all hate that idea, by the way, because they're like, What are you crazy? You know, there's nobody here. We're not going to we're not going to do that. You know, well, you're not getting the space like that part of that's the quid pro quo, right? We're going to make a nice deal with you, but you're going to do that. And here's the thing, in the beginning, you as a developer, don't really have to worry about their retail portion of their business that much, because that's not really what they're there for. They're there for the other and so if it's slow in the beginning, it's not that big of a deal. And they're not doubling up their workforce, right? They're not doubling up their labor. And I use this story all the time. I like chocolates who has their commerce area production and retail for us. In the beginning, there was a bell on the door when you walked into the retail. And it's a tiny, tiny retail. The whole space is 7000 square feet. The retail is probably eight probably 800 square feet. Rest is all production. The bell would ring and the person making the chocolate would turn around and sell you some chocolates. It was as simple as that.
Jim Somoza 46:13
But the pitch that you make is, if you do this, first of all, you're getting the space that you wanted to begin with. You're getting your bakery space, and it's close to where your buyers are, you want to be able to distribute in different areas. You're going to help us lease the upper floors. And when we lease the upper floors, the people that lease those upper floors are going to patronize your retail because there isn't really much around you, right? So that's how it works, and having that retail on the ground floor allows you to lease the upper floors, which those people then come downstairs, and that's where they buy their sandwiches and get their drinks and their chocolates and things like that. And then what you're going to find out is now you're making retail margins. So to the baker who was selling their croissant at you know, 50 cents on the wholesale market is now getting $3 and they kind of like that math, right? Because that's how we're just going out into the wholesale distribution channel anyway. And guess what, if it doesn't get solved, it goes out in the wholesale distribution account, it just doesn't sit there. So it's a great model, and that's how you do it. You know that's really the trick behind getting this stuff started.
Atif Z. Qadir 47:25
For any folks that find this interesting, I find this super interesting. My research assistant, who's named ChatGPT, just handed me to two properties, information on two properties that are on the market that sound a lot like the ones we've been talking about in terms of redevelopment opportunities, there's 10 Mountain View Road in Upper Saddle River, and 15 Waterview Boulevard in Parsippany, both are close. I have no relation to either property, but that's just a quick example within a few seconds, you can find opportunities like this not too far away. And to recap what you said, make sure I didn't, I missed anything, Jim. Number one, it sounds like don't put time bombs in your pro forma. So that means don't do this subsidizing restaurants and retail stuff. Number two is just try to find some place to put residential to get a captive audience. Do some creative stuff with your retail, like wholesale production, also retail, so people have variety and how they can make money, so they're gonna be longer stable tenants. And then make the case for why office should be there, because they're a great driver of all of my other other assets. Does that sound like it?
Jim Somoza 48:30
And make those office tenants want to be there because of what you're providing, you know? Like, I'd say, when I was at CMW, I would do tenant rep work a lot, and I'd walk around, you know, looking for space, and I'd go out on a tour with the CEO, the CFO, the head of real estate, and all that. And as we would walk through properties, I would tell you their number one concern was not rent. It was a big concern. Don't get me wrong. It's not like it's not a concern. Number one concern was multiple: Are my people going to like this? Am I going to lose my people? Am I going to keep my people? Am I going to be able to retain talent? That is it. Now, I'm not suggesting they're going to pay $500 a square foot to get that, because there there is a financial component. But you have to create an environment where those decision makers feel good. I know of examples in my career where they didn't follow that, and they paid dearly for it, and people learned those lessons, and so that's what you have to just create that place that those tenants want to be.
Atif Z. Qadir 49:34
I think now I want to start putting the bow on this really beautiful present of this conversation. I've really enjoyed it, and I hope you have as well. You have done, or have you worked on and been responsible for two really iconic development projects in New York City. There's opportunities all across this country in terms of these types of projects. At a certain point, I'm thinking you're going to have the itch to look at what's next. What do you think is left in your career that you want to accomplish, like, where what is, what is in your head, besides Industry City?
Jim Somoza 50:08
I look forward to the opportunity to work with other developers in a different capacity. Right? These projects are very long time horizon projects, and so you think to yourself, how many more of those do I have in me? Not from a physical or stamina standpoint, just from a duration standpoint, you know. And so to me, I like, I'm thinking about the opportunity to, and I don't want to call it consulting, because that's not really what I want, but to work with other folk in the suburbs, by the way, or overseas. You know, I took a trip to the Philippines last year with the Brooklyn Chamber of Commerce, and all they wanted to do was talk to me about all of this. And so you say, well, maybe there's an opportunity to go and travel and do this stuff, but they have to preach the gospel, as I was saying, and, you know, teach and help them know how to do this, because it really doesn't come natural to people. I will tell you that, like, that's why it's kind of easy for me to, like, spill the secrets in the special sauce.
Jim Somoza 51:19
Because it's really It sounds easy if you're in it and you do what we do, but it's actually not. It actually does not come natural to most people. It's like, when I have the conversations with bankers when I'm on a panel, this stuff just doesn't come natural to them. They're like, is that a Class A office building, and what's the NOI and what's all you know, which all important stuff. But I think looking forward to the opportunity to work on multiple projects, maybe at a higher level, I'd have to be convinced that the team or the developer kind of bought into this, or is accepting, I don't want to say bought in, that's not what it is, is accepting of and kind of gets it. Because what you don't want to do is you don't want to, I don't want to be like a talking head, and then, like, nothing like this actually happens. And like, you know, like that. It has to be somewhat real. But I would look forward to opportunities like that.
Atif Z. Qadir 52:12
Amazing. We've had a really amazing conversation.
Jim Somoza 52:16
It's been very fun. I really appreciate it.
Atif Z. Qadir 52:18
Yeah, thank you so much for your time, Jim. And thank you so much to our listeners for listening in.
Atif Z. Qadir 52:25
I'm Atif Qadir, and thanks for joining me on American Building. If you enjoyed this episode, be sure to subscribe on your favorite listing app and leave a rating and review. America's housing crisis is one of our greatest challenges, but what are the real solutions? Hear from the developers and other industry experts driving meaningful change. Get our exclusive guide, Housing in America: Eight Ways We Can Solve Our Way Out of a Crisis at americanbuildingpodcast.com.