1) The Rise and Spread of Food Halls

Before the pandemic, food halls were one of the hottest trends. One may think that the pandemic would have killed the concept of communal dining.

Somehow, food halls were able to make it out of the pandemic relatively unscathed. Out of a reported 82 new food hall openings during the pandemic, only 15 closed.

Now, with a reported 364 total food halls, and 120 in development, food halls are coming back in a big way, and a new trend has emerged.

While food halls have thrived in cities, they are now making their way to the suburbs and tertiary markets.

Trip Schneck, a managing director at Colicchio Consulting, a food service and hospitality group, estimates that 40% of calls regarding food halls are in major cities, 40% in suburban and tertiary markets, and 20% are college campuses.

Here’s why food halls have thrived:

• Rise of “foodie” culture - Millennials and Gen Z consumers love trying new foods from around the world

• Reduced risk with multiple concepts- if one concept underperforms, you can swap out with a new one

• Drive foot traffic - a food hall can serve as an attraction and amenity for mixed-use developments

• Vendors benefit from low startup and operating costs

Key Insight→

Food halls are expanding outside of major cities. While most food halls were only in major urban areas just 10 years ago, the concept has grown and expanded to suburban and tertiary markets. As the pandemic spurred the growth of the suburbs, it also gave rise to food halls in those locations to serve suburban dwellers.

2) The Story and Strategy Behind the Flatiron Building Residential Conversion

In case you are not familiar, the Flatiron saga has been quite a ride. The building has been sitting vacant for the last few years and dealt with internal ownership disputes.

The building went up for auction earlier this year and the highest bidder won with a $190M bid but failed to make the initial deposit.

A second auction was required, and GFP Real Estate and partners won with their bid of $161M. They also stated that the building would likely need $100M in renovations.

Last week, it was reported that the ownership group plans to convert the building to 40 residential units.

Much has been written about the challenges of these conversions.

However, with a narrow 10k SF footprint and plenty of windows, the Flatiron may make for a great conversion.

Here’s what a back of the envelope analysis looks like for the 225k SF building as a resi conversion:

• Acquisition Cost: $161M

• Estimated Renovation Cost: $100M

• Estimated Net SF (75% efficiency): 168,750 SF

• Estimated Breakeven Sale Price per SF: $1,546

• Average Sale Price per Unit to Breakeven: $6.5M

With a median condo sale price per SF of $1,472 in September 2023 and sale price per unit at $1.6M, the project would need to significantly outperform to turn a profit.

One thing going for the team is that the Brodsky Organization is coming in as a joint venture partner on the deal. With projects like 135 E 79th Street in the portfolio, with an average sale price of $12M+, they know how to build and sell a luxury product.

Considering this is an iconic and historic building, and there is a team in place that has successfully completed luxury residential projects, I wouldn’t be surprised to see them pull this off.

Key Insight →

Real estate sometimes requires a pivot. The Flatiron Building is ready for a change. Although it existed as an office building for many years, there is a stronger demand in NYC for housing, and if the project is well executed, the Flatiron should have the history and name recognition to command top dollar.

3) The Housing Market is Stuck.

It’s tough to be a homebuyer in today’s market.

Houses aren’t selling, inventory is low, and prices aren’t coming down enough to spur demand.

September home sales fell 15.4% from a year ago and hit a 13 year low.

Even though home sales are falling, the median home sale price is up 2.8% from a year ago, now at $394,300!

Mortgage rates just crossed 8%, the highest level in 23 years.

Current inventory sits at a 3.4 month supply, below a 5-6 month supply in a healthy market.

Key Insight →

The housing market needs a catalyst. Buyers are waiting on lower rates or lower prices and potential sellers don’t want to give up their current mortgages for a new one over 8%. It’s going to take lower mortgage rates or another major market catalyst to shake up the housing market.