Leasing Retail Space During a Pandemic

Imagine that you’re the CEO of a successful, locally-based, fast-casual chain of restaurants when the pandemic begins. Like nearly any other operator in the restaurant industry, attempting to discern the future of your business is a critical concern, but it’s probably secondary to ensuring the very survival of your enterprise amid lockdowns, a recession, employee shortages and rampant health concerns.

Accordingly, it would be easy to forgive Abraham Chehebar — CEO of Carrot Express, a fast-casual chain with 11 locations (and counting) in South Florida — if his eyes hadn’t been on the horizon in those early pandemic days. And, yet, Chehebar decided that was the moment he was going to bring his concept to what is — in the best of times — one of the most challenging restaurant markets in the United States: New York City.

These were, indisputably, not the best of times in the Big Apple. As Steven Soutendijk — an executive managing director with Cushman & Wakefield who has spent nearly 20 years focused on the Manhattan retail leasing market — recently recounted to LoopNet, New York City was encountering its most challenging and uncertain period in at least a generation.

“There was a pervasive perception among a lot of people that everybody was going to move to the Catskills, everybody was going to move to Miami, and if you couldn’t do New York things, what was the point in living in an expensive shoe box,” Soutendijk said.

But Chehebar didn’t agree with that assessment. “When everybody runs one way, you have to go the other, as Warren Buffet says,” Chehebar told LoopNet.

Which is why Chehebar, having been introduced by a mutual friend, reached out to Soutendijk in June 2020.

“He expressed a tremendous amount of confidence in the rebound that New York was sure to experience,” Soutendijk said about his client.

“Once you open New York, you open the nation.”

Abraham Chehebar, CEO, Carrot Express
Let’s rewind for a moment, back to nearly a decade prior to the pandemic, when Carrot Express, which in addition to 11 existing locations in South Florida is set to add another 11 locations in the Sunshine State over the next few months, consisted of a single store in a rather inauspicious setting.

Chehebar had yet to join the company as its CEO, but the raw ingredients, if you will, had already been put in place by his future partner. Chehebar, a South Beach resident, kept hearing good things about a new casual restaurant in his neighborhood, even if the locale was a bit dubious.

“People kept telling me, ‘the food in the gas station is fantastic’,” he said.

Chehebar, a veteran of both the real estate and restaurant industries, decided to try the wares for himself, and he was impressed enough to join the company and begin developing a strategy to bring Carrot Express to the world. And New York was always a part of that plan.

“We have to open New York, because once you open New York, you open the nation,” he remembered telling his partner.

Though, seven locations into their South Florida expansion Carrot Express still didn’t have that New York outpost. Not that Chehebar had given up on the notion, but he was biding his time, perfecting his concept — and then along came the pandemic, and he realized that his moment had arrived.

When Chehebar initially made contact with Soutendijk in June 2020, the broker, to Chehebar’s surprise, advised patience. Soutendijk said that the market was softening, but he felt that it still had further to fall. A month later, Soutendijk reconnected with his new client and told him it was time to start looking at spaces.

But that process — touring sites and meeting with the team at C&W to discuss the market — looked very different in July 2020 then it would have just six months prior.

Pre-pandemic, Chehebar said his approach would have been, “Let’s hop on a plane and go to New York.” But with the pandemic in full bloom, Chehebar and Soutendijk agreed to employ a different methodology.

Soutendijk sent his client links to online listings and they conducted extensive and immersive Zoom meetings. Based on initial conversations, Chehebar and Soutendijk agreed to focus their search on the Flatiron District, “given its hybrid nature, it [offers] office, tourist and residential traffic,” Soutendijk said.

This led to a virtual tour. “We had every [available] space up in one window, with all the details and plans and discussion of the mechanical, electrical and plumbing systems, and then we would walk around the block virtually using Google Maps,” Soutendijk said.

Chehebar was particularly keen on one site, but the landlord was in discussions with a national retailer and seemed hesitant to commit. Working with Soutendijk, Chehebar identified a suitable alternative and drafted a letter of intent.

With the LOI in the works, Chehebar felt the time had come to tour the space in person. But even that process had to be conducted in a slightly different fashion.

“The logistics of setting up tours for Abe’s architects, contractors, etc. was challenging. That’s always a very simple thing in a non-pandemic environment, but we had to be very sensitive to COVID protocols, mask-wearing and social distancing, and all these things that made it very challenging to coordinate a bunch of schedules,” Soutendijk said.

Overall, though, Chehebar found that landlords were more welcoming and solicitous than he would have anticipated. “All the landlords were nicer,” he said with a chuckle.

This was not the reception Chehebar would normally have anticipated. “Coming with seven operating units [at the time] and negotiating a lease in New York is not that easy,” he said. “But during the pandemic, we were seen with different eyes.”

Nonetheless, that didn’t mean the process was straightforward — this was New York, after all. Just as Chehebar and Soutendijk thought they were approaching final terms at one site, the property owner suddenly began requesting additional (and somewhat onerous) guarantees.

Fortunately, the space that had initially appealed to Chehebar, 18 West 23rd Street, had become available again. The potential transaction with the national retailer hadn’t materialized, and the ownership was suddenly much more eager to come to terms with Carrot Express.

“There were a lot of tenants that were scared of doing anything, and all of them are kicking themselves.”

Steven Soutendijk, executive managing director, C&W
By the end of May 2021, Carrot Express had signed a lease at 18 West 23rd Street. Construction is currently being finalized at the site, and the restaurant is anticipated to open in November or December of 2021.

Soutendijk described the terms that Carrot Express achieved as “a great deal.” For his part, Chehebar also seemed pleased with the final transaction. “I’m happy,” he noted succinctly. The lease also includes various clauses to protect Carrot Express in the event of further government shutdowns.

“Every post-COVID retail deal in New York has incorporated some COVID protection language, because tenants, prior to the pandemic, were so underprepared and exposed,” Soutendijk said. “And, going forward, not only tenants, but real estate attorneys that they hire and brokers who work with them, like myself, are absolutely cognizant of the need for protections.”

However, Soutendijk also noted that the deal Carrot Express negotiated in May would no longer be possible today. He said that “there was a relatively brief window of time to take advantage of a pervasive sense, among many, that New York was not going to come back.”

Over the past six months, Soutendijk said the market has tightened significantly. “I don’t want to say the market is back to where it was, because that’s definitely not the case. There’s still a substantial amount of weakness in the market and it’s still definitely a tenant’s market, but a lot of the really good space got snapped up,” he said.

But for tenants that were willing to be bold, there was a moment of doubt, a brief liminal period when the future of New York seemed suddenly ambiguous. If you had the faith — both in New York and in your own business — that Chehebar possessed, unique and advantageous opportunities abounded.

“There were a lot of tenants that were scared of doing anything, and all of them are kicking themselves,” Soutendijk said. “Carrot Express absolutely plowed full steam ahead; there was just never any doubt.”