Investing in retail condos.

Urban retail property is emerging as one of the strongest sectors of the real estate industry. Anticipating this important trend, W&M began in the early '90s to evaluate the potential of retail condominiums, especially in New York, where so many well located owner-occupied buildings contain prime retail space in addition to the residential above.

Having made five very successful retail condo acquisitions to date, with additional purchases under consideration in New York and other key cities such as San Francisco, Chicago, Miami and Boston, we view this as one of our most important investment initiatives.

As property that is owned separately from the residential portions of buildings, retail condos represent a pure play in the future of urban retail real estate. But this type of investment is not for everyone. For one thing, some lenders shy away from it because of the other ownership interests in the buildings. Moreover, the retail investor has to understand and accommodate the goals of those other owners in order to maximize the overall value of the property to everyone's benefit.

Our multi-generational experience in all types of New York property has helped us meet the criteria for successful urban retail investment here. In addition, with many years of experience in managing real estate, we have been able to provide value engineering and assistance, when requested, to the residential boards of the properties where other ownership's interest exists with our in-house expertise.

The retail condo sites we've acquired to date are store complexes at 10 Union square East; 77 West 55th Street; the northwest corner of Broadway and 72nd Street; the entire block on the northwest corner of Broadway and 8th Street (in partnership with the Rose Organization); and 1010 Third Avenue.

The Third Avenue address is a good example of what we seek in retail condos, and how they work. We like retail components of high-rise building in 24-hour, seven-day-a-week, center-city locations, with residential, office, entertainment, and retail components, and mass transit very nearby. Situated below a condominium owned by a residential co-op, 1010 Third Avenue is across the street from Bloomingdale's flagship location and a block away from the former Alexander's site, now owned by Vornado. There are five subway lines on the corner, literally steps away. Across Third Avenue is one of the city's longest established movie theater complexes. This site is truly a retail jewel.

Accordingly, we are repositioning the property. The second- and third-floor spaces, which are currently occupied by office users, will be converted to multi-level retail space, connected with ground floor space and access.

However, upgrading a retail condo is usually only part of the task at hand. Doing it right generally also requires a great deal of coordination and patience, both in understanding and working with the co-op or condo boards, and in comprehending their structure. Each board has its own unique problems to deal with, and each has its own personality, as does 1010 Third's. It also helps that we are long-term owners and always looking to upgrade the properties we buy, which, of course, pleases those boards.

Yes, retail condos can present structural, facilitation and financing difficulties. But having said all that, I must add that there's one pretty obvious lesson: If the buyer knows how to overcome those difficulties, then retail condos can be a profitable part of a real estate portfolio.