John Usdan's real estate empire in Philly rents to Urban Outfitters, Zara, and H&M
New York-based Midwood Investment & Development rents spaces to some of the biggest names in retail in Center City. Its CEO John Usdan first began investing in downtown Philadelphia in 1998 and has since amassed a retail real estate empire along Walnut and Chestnut Streets.
Developers like John Usdan try to pick "hot spots" before they happen.
Midwood Investment & Development LLC, the real estate firm Usdan's grandfather founded in 1925, has focused on that. It picked Center City Philadelphia in 1998, and Usdan has since become one of its biggest landlords.
He's amassed a retail real estate empire that now includes swaths of Chestnut and Walnut Streets, housing such top retailers as Urban Outfitters, the Cheesecake Factory, Apple, H&M, and Zara.
The CEO since 1981, Usdan said Manhattan-based Midwood has evolved into a national player with 140 properties. About 40 are in Philly; 10 include apartments. Other holdings are in New York and Boston. The privately held company has recently started acquiring land in Pittsburgh, Los Angeles, and Washington, all in urban-core areas.
Usdan, 59, remains bullish on Center City even though rents are about 10 percent down from last summer's peak year and vacancies have popped up on Chestnut and Walnut as chains shutter stores to prosper in an online world.
"There is a transition with some of the older, traditional retailers [Knit Wit, Talbots, Ann Taylor Loft] closing stores," he said. "I'm not at all concerned about the health of retail. In any market, there are winners and losers. With e-commerce, retailers are changing their store models, and there is a lot of disruption."
The fundamentals began shifting two decades ago, and why Midwood homed in on Center City.
"When we came to Philly, it was a 9-to-5 shopping day, and with the busiest day of the week, there wasn't much variability; it was Monday through Friday, and Saturdays and Sundays were the slowest," he said. "Now, Saturday is the busiest and second is Sunday."
That's not all that's changed:
In 1998, the city was creating 1,000 new units of housing per year. Now, it's over 4,000 units annually. "Everyone predicted a glut of housing, and there still isn't" one, Usdan said.
Center City is growing in population after decades of losing residents. "There was a decline until 2010, when the city's population started to grow to reverse a 60-year trend."
There's a highly educated residential base downtown. "When we first started investing in Center City, 30 percent of the population had B.A.s and the median household income was $35,000. Now the median income is over $80,000, with over 60 percent of those living in Center City holding undergraduate degrees and 30 percent with graduate degrees," he said. "With job and population growth and increases in disposable income, retail rents will ultimately rise in lockstep with them."
Back in 1998, Usdan said, retail space was renting for $30 to $35 per square foot. Now it's over $200 per square foot for the best corners.
"Because the city's so rich in history and has all these great historic buildings and amazing places where you want to congregate, it's exactly what the demographic moving to Philly wants," Usdan said. "It's why you see a migration from the suburbs to the city, and why the traditional shopping-mall experience is in decline and urban retail is on the rise."
JLL's Lauren Gilchrist said Philly's millennial population, those ages 18 to 34, has grown the fastest among the 10 largest U.S. cities over the last decade.
Anthony Signore, general manager of the Cheesecake Factory, said he deals with Midwood's property manager regularly over the restaurant's day-to-day operations. "If I ever need anything — like an alarm going off for no reason — they are very quick to respond."
Larry Steinberg, an executive vice president at CBRE Inc., was among the first brokers to work with Usdan, nearly 20 years ago, on a package of 18 Center City properties.
Since then, Usdan "has had more impact on our retail high street than any other developer," Steinberg said. "He was first to recognize that Walnut and Chestnut Streets were undervalued and that high street [luxury, high-end] retailers could thrive here."
Douglas Green, managing principal at MSC Retail, said Usdan was an early believer in restoring a vibrant retail and restaurant scene to downtown. "Midwood has focused on growing their portfolio with brands and tenants that are accretive to the overall merchandising mix within Center City."
Green described Usdan as "admirably patient, yet very methodical and deliberate."
Sometimes maybe too much. He's been known for "sitting" on some key buildings — putting forth several proposals over the years to develop them, but never moving on any. Some say he can also play hardball, extracting rents that may be out of balance with what a tenant can afford or what the space is worth — as when he rented 10,000 square feet to Verizon at 1430 Walnut St. two years ago.
"Verizon isn't exactly considered a high-end tenant," said one broker, who declined to use his name out of fear of losing Usdan's business. "But Verizon offered him a boatload of money, like $200 per square foot, and he took it."
Usdan said what determines rents are supply and demand and productivity of the tenants — their sales volumes.
"We don't lower rents," he said. "When there's an imbalance of rent vs. store productivity, we shouldn't do a deal."
He did sign with Just Salad, which opened its first Philly location in July in Knit Wit's former space at 1729 Chestnut St. The healthy eatery has had long lines, Usdan said.
And Midwood recently signed a deal with MAC Cosmetics for the corner of 18th and Chestnut. "We rented to them at a much higher rate than what you can usually command on Chestnut Street," Usdan said. "The space is between 1,000 and 1,100 square feet but with 20 square feet of frontage [storefront facing Chestnut Street]. That visibility translates into sales."