Commercial Real Estate: What's Around the Corner for Main Street?

Just before real estate mogul Donald Zucker dropped $9 million on an “assemblage” of properties in Sag Harbor — with frontage on Main, Washington and Division streets — there was chatter in the village.

Tenants began speculating. Nearby businesses took stock. The closures of mainstays La Superica, Lee Jewelers and Conca D’Oro still stung, even two years later, as imminent change lingered in the air.

They could feel it, and so could local real estate brokers.

“Sag Harbor commercial real estate is always in high demand,” according to Scott Strough, an associate broker with Compass in Sag Harbor. “The warning signs are in front of us, though, for change on Main Street. Rents, and the expected rental rates of landlords going forward, are forcing changes within the commercial district with the loss of long-term businesses.

“That's not a knock against any new business coming in,” he continued. “It's just a sign of the times — that rent and overhead within the Sag Harbor business district has become challenging. Investors looking at buying on Main Street for rental income have to balance return with tenant retention in their evaluations.”

[caption id="attachment_89342" align="alignright" width="542"] Illustration by Edward Littleford.[/caption]

For a glimpse into the future, Sag Harbor investors should look to their neighbors on either side, noted John Wines, licensed associate real estate broker with Saunders & Associates in Southampton Village, where he is witnessing higher turnover and vacancies than years past.

“Retail shops and restaurants continue to find it hard to cover the rising rents and other operating costs in a relatively short season,” he said. “That said, vacancies and turnover are nothing new in our area. Year after year, the spaces eventually rent. The real difference now is that many long-time, local stores and restaurants are disappearing and being replaced by new businesses.”

As rents increase, “long gone will be the mom-and-pop businesses,” said Jessica von Hagn, licensed real estate salesperson with Brown Harris Stevens of the Hamptons in Sag Harbor, and the effects are already showing in the village.

The Grenning Gallery moved from Washington Street to cohabitate with Black Swan Antiques, which recently downsized. Family-owned Bay Burger said goodbye after a 12-year run. The La Superica space only recently has a new tenant, and Espresso this week has been listed for sale. Country Lane and Adornments, two independently owned stores in the block of properties purchased by Zucker, closed shop two months after the sale.

“Country Lane closing is obviously a loss to the community,” said Lisa Field, an owner of the Sag Harbor Variety Store and president of the Sag Harbor Chamber of Commerce. “Vicki and Skip were very involved in the community — not only as business associates, but as friends. To that extent, is the morale down? Yeah, it kind of stinks.

“But then, on the same token, we’re still vibrant,” she continued. “We’re not lost. We still have a lot of great businesses, a lot of things to keep us going, to keep us here. We still have so much to offer. We’re not sitting around saying, ‘Poor us, the town’s changing, what do we do?’ We’re trying to find ways to adapt to it and stay vital.”

From a whaling village to a factory hub to a resort community, Sag Harbor itself is nearly synonymous with change, Field said — with not only its businesses, but also its entire economy shifting every few decades.

Town & Country’s director of commercial real estate, Hal Zwick, says he expects sales to slow, now that the village has reached its turnover peak.

“It’s an evolution,” he said. “Change, sometimes, is hard. I sold the Espresso building to the Sag Market people four, five years ago. If you remember, the first year, everybody was upset about losing Espresso. It was an iconic place. But people now love Sag Market, and it’s a local gathering place.

“Yes, Sag Harbor’s changing, but even the new stores that have opened in the last couple years, they’re not corporate major chains. They’re more independent retailers,” he continued. “Over the last 15 years, we’ve had one or two sales a year. I think the reason it’s standing out this year is that big block on Main Street and Washington.”

Originally listed for just shy of $12 million, the three contiguous properties were home to seven retail spaces, two offices, and three apartments on the second floor, as well as a single-family rental property, a building on Division Street and the only vacant lot in the village business district, where a three-story structure could be built, according to Lee Minetree of Saunders & Associates, who brokered the sale.

“Those stores that vacated once I sold the assemblage of properties, they thought the guy was gonna up the rent, which he did a little bit,” Minetree said. “There was quite a bit of activity going after those spaces, and he leased it — I’m not sure to who, but I know one is women’s apparel.

“A lot of people are talking about not wanting the flashy stores and the big-name brands, but I really don’t see any of that right now,” he added. “It’s hard to say, though. You never know what’s gonna happen.”

At this rate, concern hovers among business owners and locals alike, who are left wondering whether Sag Harbor will retain its historic and eclectic integrity that has made it a beloved village on the East End.

Opinions remain split.

“The village will not allow such drastic changes,” Zwick said. “Even if people want to change the exteriors of the buildings, they have to get approval and there are strict rules in place to keep the historic look of the business district.”

But Field disagreed, maintaining that Sag Harbor’s nostalgia factor is very much at risk, though the village is not the same place it was even five years ago, she said.

“Ideally, in a perfect world, it’d be great if everything stayed the same with all these businesses, but it’s not a perfect world — and it’s upsetting,” she said. “I don’t like seeing it, but on the same token, it’s also something we’ve watched going on around us. It’s happened in Southampton, it’s happened in East Hampton. Luckily, Sag Harbor was a little bit behind on the trend. It is upsetting, but it’s also just part of the evolution of all towns and villages.”