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Thomas D. Kearns


Vacancies in Co-op Retail Space

Retail storefront vacancies in Manhattan seem to be increasing. I was reminded of the recent change in Section 216 of the IRS code making it easier for a co-op to own its own retail space when I looked out of a bus window at a large vacant store on Madison Avenue. If that building is owned as a co-op and the co-op owns its own retail space, the co-op is taking a big monthly hit in revenue. If the co-op's monthly maintenance charges are based in part on rent from that now vacant store, the co-op will have a significant shortfall. I can just imagine being on a co-op board which sends a notice to shareholders that Lady's Dress Shop Inc. has filed for bankruptcy and is no longer paying its rent necessitating a shareholder assessment. Imagine what a shareholder who is poised to close on the sale of his or her apartment will say about that. Perhaps there still remains a good reason to master lease the retail space to an operator who will take on the risk of default in return for the possibility of profit over the term of the master lease?

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