The rise of the pop-up is unstoppable, especially with businesses needing only small and short-term commercial spaces. Today, William Morales and Stephanie Badillo of the Badillo Development Group talk about repurposing commercial space and real estate. As the bigwig in development that specializes in commercial real estate projects globally, she shares her take on the real deal of rentals these days. She shares to us her knowledge on pop-ups and how these short-term rentals have boomed. Lastly, Stephanie lets us in on her thoughts about what their roles as developers are in the niche.
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Repurposing Commercial Space In Real Estate With Stephanie Badillo
Using Vacant Retail Store Fronts As Popups
On this show, I have Stephanie Badillo. Stephanie, thank you for being on.
For the audience, someone like Stephanie, I don’t run into too often that has the knowledge of real estate for a lot of years. Having her here and talk about real estate which is a subject that we both love, it’s important because of her knowledge. Wait until you hear her speak. I could shut up and let her talk and I’ll be fine. Stephanie, how are you?
I’m good, thanks.
It’s a pleasure. On this show, we want to talk about repurposing commercial space in real estate. If you could explain that to my audience, what’s happening out there?
Repurposing commercial real estate is my favorite topic of the day, aside from Alto de Colina. That’s got to be my number one but this is my number two. There is a lot going out there because landlords own buildings, we all know this. What are they going to do with these buildings? We’re talking about commercial real estate and they have to figure out ways on how they’re going to get tenants now because as you know, retail is now dead due to Amazon. We’ve got to figure out ways on how to repurpose these types of real estate. It’s something that’s happening all over with subscription services and everything is a subscription nowadays. We’ve had the rise and the fall of big retailers like Toys “R” Us and Sears. We are left with hundreds and thousands of square feet of retail space that we don’t have any use for. Office spaces are now turning into co-working office spaces. Ideas are now coming out with me, myself in my development company, helping landlords to figure out the re-purposing of those spaces.
What’s amazing is it’s for me someone who does traveling that might go from taking a bus or walking. I see all these spaces that are available. To me, as someone that’s traveling around the city, it has an impact not only on the owner because now you are losing that revenue but is it going to have an effect on the tenants? Are the landlords looking to raise the rent even though now we have these new rental laws that we’re going to touch on and maybe down the road? Steph, my issue is what are the landlords doing about this?
It’s the buildings. They own the building and they have to figure out. They’re desperate for tenants. Traditionally, in a conventional commercial lease, you would have a tenant come with years of having a legitimate business that’s successful, that’s showing that you’re a profitable business. Some of the criteria to even get a lease from a landlord to rent commercial space can be tedious and has been in the past. They’re locking you into five years and ten years and back in the day even up to 40 years. We heard about CBGBs and they’re closing their musical facilities that had been in place for many years and a lot of restaurants and mom and pop shops and things that have been around commercially had these long commercial leases that don’t exist anymore. You don’t have that. That’s what we mean by retail is dead. We’re not just talking about clothing stores.
We’re also talking about restaurants and all types of commercial uses for those first-floor spaces. As well as large commercial office space, it’s mainly because of technology, to be honest. That’s what the impact has been because now we have the technology, we can order everything online and Amazon comes with their drone and delivers it at your doorstep. They even have services where they can open the door to your home and put the package inside. Because of technology, you don’t need to have as big of office space. You can work anywhere. I work off my iPhone, my iPad, unless I have to show space to a client, I don’t need to be there. I can work anywhere. I can be at Miami Beachside. Technology is what has been the driving force behind all of this.
That’s easier said and done with technology. At the peril of the owner of the landlord, is it because some of these retailers don’t have the proper funding for them not to last more than 3, 5 years?
That’s definitely part of it. There are a lot of start-up companies, there are a lot of small businesses that don’t have 3 to 5 years’ worth of income tax forms. They don’t have big investors that are backing them in order to launch their products and to sign. Nobody wants quite frankly to make a 5 to 10-year commitment anymore. They don’t have to. You’re dealing with the co-working spaces now. We work in Convene and Knotel who are taking on the responsibility of the longer leases but then subdividing them and subletting these to individual smaller business owners. You have the pop-up shops that are coming along, taking over the retail spaces. It could be a brand that’s launching online and using social media. Instagram is a big facilitator of launching companies and YouTube. You can operate out of your basement or out of your bedroom, you can have a business. Rent a pop-up shop for a day or a week or fashion shows, the whole garment. We’re sitting here in this building which is in the garment district which no longer exists either. This was filled with sewing and clothing companies that had their whole entire staff producing for the fashion world and it doesn’t exist anymore. Every aspect of retail has been affected by this.
Talk about more about the pop-up stores because that’s a fascinating subject to get into because I’ve heard of places like Ricky’s that they’ll rent out a week or two of Halloween.
That’s a seasonal product, that’s seasonal renting. Those are some of the short-term solutions that we’re talking about. That’s exactly where the market is going and where it is and has been for a few years now. I don’t see that changing. I see that continuing to grow, those types of businesses. We work as a pioneer in the sense that they were one of the first people to recognize that. This is a service that is needed to be able to have space that you can lease on short-term without having a long-term 5-year to a 10-year commitment with a smaller business that potentially can grow. A lot of big businesses, believe it or not, are using these temporary spaces and these short-term lease spaces as well to launch other products that they have. Walmart and Home Depot, they’ve been scaling down. Starbucks has scaled down. Those types of companies have been scaling down and opening up what they call brick and mortar locations and supplementing them with these pop-up shop ideas.
For the landlord, some of them are open to it now. How do you get the word out to the rest of these landlords that are hardheaded that they want that 10-year, 20-year? It doesn’t exist anymore. How do we get the word out to these landlords that this is as profitable as a 10 to 20-year lease? You’re having these pop-ups depending on what it is, whether it’s a Ricky’s or a fashion show like you mentioned.
In New York City, landlords are still pretty stubborn. They’re used to this conventional way of these. Think of it, put yourself in the position of being a landlord and you own the building. You only have somebody’s credit score and what their earnings have been for the last 3 years. This is typically what they would be asking of a commercial tenant and it’s not all invasive. It is for the landlord to feel secure that he is going to give you this space in good faith for the next 5 to 10 years and that you’re going to be profitable so that you can pay your rent on time and fulfill that 5 to a 10-year lease. For the landlord, it’s more about the security of being paid because no landlord wants to face eviction and the company is going out of business and not being able to fulfill the terms of their lease. It gets messy in the court system and everything like that. To speak on behalf of the landlords, that’s what they are concerned with. You’re asking them to take a lot of risks with the temporary space or short-term space. We don’t know if they have the credit or not.
Do WeWork and Convene and all these other companies research? I believe they are now but when they initially started, they weren’t as much. They were like, “You’re going to pay $600 a month for a 10×10 space and we’re going to give you a year lease.” That’s it. There’s no credit check, nothing. They’re getting a little bit stricter with that now but certainly not as the old conventional landlord way. Landlords are having to open up their minds and taking bigger risks such as WeWork who are now leasing and owning the entire spaces. Even when WeWork was talking about purchasing the Lord & Taylor building and that deal fell through. Me as a landlord, I’m going to take a risk on co-working spaces. This is what the big articles that we’re hearing every day in the news that’s coming up with we work and how it’s like the rise and fall of this empire that was built. What is it built on? It’s like a house of cards. It’s going to be coming down. They are billions of dollars in debt and they have yet to make a profit. That’s a big risk for a landlord.Technology is one reason why many commercial spaces are dead because we can order everything online. Click To Tweet
Now, they moved their IPO back indefinitely. Stephanie and I talk about this almost every other day about WeWork and everything. Do we have Amazon as the killer of all small retail? Are we blaming Amazon?
No. Amazon is good for business. It’s not good for my concierge in the building because he’s got a new job that he never knew. He thought he was just picking up the phone and introducing guests in and out. Now, his package overload has taken over the entire concierge. This is in New York City because in New York City, we have doormen and we have concierge, it’s fancy here. It was like the Brooklyn Bridge. The Brooklyn Bridge was made for horse and carriage and now all of these cars and trains, that was in its original design. That’s what’s happening with a lot of these buildings. Where do we put all these Amazon packages?
Amazon now has these stores. They might have rent out space, the lockers. I’ve gotten through lockers. It all depends on the landlords but the newer generation is more open to having these pop-ups. Even if it’s a one-day thing, the new landlords, the younger ones and not the old school is definitely more open.
You can be ten years old and starting your own business and have a pop-up shop. You could create a website using Squarespace or any of these other sites that are out there. You can do everything yourself from creating your own website to doing your own social media and handling your own social media. These are the new millionaires. Having this flexibility and being an entrepreneur, because I’ve been an entrepreneur my whole life, it’s an exciting new world, a new way to do business but it is affecting the brick and mortar, the real tangible real estate, which is what real estate is. It’s real property. It’s something that’s an actual existing structure that’s not going anywhere. You’re still going to have entry fulfillment centers to be able to store these products that people are purchasing. You’re always going to need to have warehousing. Those are the types of commercial spaces that are booming right now. It’s like a storage space and manufacturing facilities. Those things are popular. It’s great to invest in storage facilities all of a sudden.
You need the space. Unfortunately, some of these apartments, it’s smaller and smaller for a higher price but now you need somewhere to store your overflow of furniture or clothes. Do you see now with the new commercial developments that are happening around the city, it seems like every other block has a new construction? Are we going to see these new buildings? I’m going to be honest with you, I have not noticed, are they going to have the commercial structure down below? Are they going to have that first-floor store available, that leasing space?
The future of commercial is that it’s merging with residential. It’s no longer the residential or the commercial. It’s going to be together. We call those mixed-use buildings. Traditionally, it was retail on the bottom. The first couple of floors would be commercial and then the rest would be residential. You see that now in the Hudson Yards Project for example. That’s a wonderful combination of where the future is going. They had the ability to do this from the ground up and create this entire community within New York City, in the middle of Manhattan, in an area that was the Jacob Javits Center for many years. People will walk that long couple of blocks walk that we used to have to go from Penn Station to get a train to go to Jacob Javits Center. We have this amazing new world that’s been shown to us, this utopian society that’s been created where they’ve merged brilliantly residential and commercial spaces and shopping.
There are all kinds of experiences. This is something that companies like Airbnb are working on. It’s the combination of not just having a place to stay or a traditional hotel model but also combine it with experience and some kind of a tour. It’s something that is going to go beyond the actual use of the space. That’s what where the future is going. People are getting involved in the experiences of things and having that experience in the space. If you can create that for them and a lot of it is the buzz that you see on Instagram, “Kylie Jenner is going to have her new pop-up make-up thing in New York.” In five minutes, everybody rushes down to the store and it’s sold out within seconds or a couple of minutes. That’s the hype. That’s what it is.
You’re talking about Hudson Yards. If you ever come to New York City or you’re a resident here, you go down to the Hudson Yards because it’s pretty much a country tour itself. It’s amazing the views, they got the vessel. I could go on and on. You’ve got to go down there because it’s a whole different society now when you see from the ground up how it was built.
It’s not yet completed, it’s still on their ways. If you go down and you look at the architectural renderings of what the space is going to be ultimately, it is amazing. I consider it to be a utopian society side of town. It’s super high tech.
Do we see the future of department stores still being viable for people to buy clothes? Do we see Macy’s still?
I don’t know. I’m not an oracle. There are certain visions I could have but I’m not that tapped into the future of that. I know from projects that interest me and the types of projects that I like to work on. I’m environmental. I reached a level in my career where I say no a lot because I do not want to work on anything that has any negative impact on the environment anymore. My mission and purpose in life are to work on these ecological projects that are going to have sustainability and if that’s going to carry my name on it, I would like to pin that down for generations to come.
We get into this type of business or any type of entrepreneurial thing to leave a legacy and to leave it to our children or to someone better to take it to the next level. I know you’re not an oracle but for the next 6 months to 1 year, what are you looking to work on? We talked about the Brazilian project a while ago. What’s next for Stephanie Badillo in America?
I don’t know. I think that this project in Brazil is going to boom and start my career in a lot of ways. I’m working on projects that interest me and I’m a spiritual person. I encounter people every day that I run into that are blessing me with these amazing projects. I’m working on something that has been interesting because it’s in the medical field. One of the new hot things here in the city is medical condos. They don’t have them all over the country yet but that’s another area that’s going to expand because it’s the ability to own a condo. A physician can own his own condo but then it’s commercial. It’s confusing because is it residential, is it commercial? This is what I’m talking about. It’s the merging of the residential and the commercial together.
You can own a condo and then you can use it as an income producer because you can have 2 to 4 offices or however many. You can have 12 to 20 offices and sub-lease them to other physicians. For example, you’re doing a residency at NYU Medical School or you are a physician at NYU and you’re there three days a week but you want to have a private practice. You don’t want to sign a 5 to 10-year lengthy lease. There are a lot of financial burdens when you open up a commercial space because it’s a raw space or it was somebody else’s space and now you have to renovate it. You have to tear it down, you have to alter it to your specifications of what your business is and you have to transform that and that costs a lot of money.
The studio is also a good example here at Smash where the owner has taken a lease and has converted them into individual studios and then he rents them out. He rents them out per hour. He rents them out per day. He rents them out monthly and he’s got all these different options. He’s right there with what exactly what we’re talking about. He’s gone through the expense of lifting the floors and patting the walls and doing all the sound stuff that would cost a minimum of $250,000. When you’re in the music industry, it’s expensive any type of tool even from the soundproofing of the room and the architecture that’s involved before you even add any of the expensive audio equipment and things like this into it. They’re taking the burden off the individual. That’s another appealing thing that the whole concept of turnkey, what does that mean in turnkey we hear that a lot? Turnkey means it’s already outfitted for you, just move in whether it’s a residence where all the furniture’s are already there. You bring your toothbrush and your suitcase and your clothes and you move in or a studio like here at Smash where it’s already done for you. You bring in your equipment and you’re ready to go.
This also goes back to WeWork in the co-working space. It’s the ability to network amongst other people like yourself. As an entrepreneur for many years, I was isolated and alone. Sometimes, that can stifle your creativity because you’re not in an office environment where you would normally be working a 9:00 to 5:00 job and you’re interacting with other people. You may not have that if you’re an entrepreneur, just be you or it may be 2 or 3 other people. If you’re placed in a situation like a co-working space, then it’s opening up the opportunities for networking with like-minded people and sharing things. It’s opening up of the world and the universe to communicate with one another too which is a great thing, the transferring from the old to the new.
I wanted to go back to renting the office because for those of you who may not know, I do have a full-time job. Doctors are now doing procedures in their office.
They want to have a private practice and it’s expensive. The equipment for medical facilities is expensive.
I wanted to touch back on that. Most of these doctors now do maybe two days but the reimbursement for their pocket is more when they do it in their office. More of these doctors are doing procedures even though it’s for outpatient. It’s 1 or 2 or a couple of hours and they’re out. They can’t do surgery but they’re getting more money in their pocket.
That’s where the medical condo is. It is, “I’m a doctor and I want to lease out this space and it’s 1,000 square feet and I don’t have to go through the expenses or receptionists. We share a receptionist with 2 or 3 other doctors and everything is included.” That’s another thing. Everything is inclusive now which I love. I don’t know about you, but I hated the old days where you had the separate cable bill and the electric bill. Everything is included in other words. You pay one flat rate for whatever the monthly cost is to lease the space. That’s another thing that we see now. Everything is all included. The Wi-Fi is included, the cable is included, the electricity is included and you don’t have to worry about those little bills anymore. These are some of the incentives that the landlords are providing to customers. They are providing all kinds of things to attract people, to be honest whether it’s months free rent or giving you a 13-month lease or a 14-month lease or even a 16-month lease. If you’re willing to commit to that, they’ll give you two months free. They’re coming up with a lot of creative ways on how they can structure their leases that go against the traditional to conventional uses.
Stephanie, you said it all. If you want to go on, please do. For me, being a fan of real estate, I’m learning as I go especially with commercials. I’m more residential and that’s my passion. Seeing what’s happening out there in New York City, me traveling every day, walking and taking the bus. I see the developments that are happening in the city. You being a developer, isn’t this an exciting time for you now?
Yes, it’s been a long time it’s happening for me. I’ve only been doing this for a few decades. It’s nice to see the world catch up to me.The merging of residential and commercial spaces is the future of real estate. Click To Tweet
Thank you so much for being on the show. You said it all. If somebody wants to get in contact with you, what’s the best way?
You can reach me at Stephanie.Badillo@KW.com. I’m with Keller Williams Commercial. I’m an agent for them there. I also have my own real estate development company, Badillo Development Group. You can reach me there at BadilloDevelopmentGroup@Gmail.com. I also have a website, www.BadilloDevelopmentGroup.com.
Thank you so much for taking the time out of your busy schedule to be on the show.
Thank you for having me, Willie.
Thank you. I’ll definitely see you soon.
- Stephanie Badillo
About Stephanie Badillo
Stephanie Badillo is a real estate developer that specializes in commercial real estate projects globally. She began her career over 30 years ago when she founded her company. Through her artist view, design sense and building abilities she has worked on numerous projects throughout the world.
She started her own development company in 2015 and is focused on working solely on sustainable, passive solar and net positive developments. In addition Stephanie is licensed in Commercial Real Estate in her home town of New York State.
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