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North Water Street, Downtown Edgartown, Edgartown Shops, Martha's Vineyatrd Commercial Real Estate

 

New Tisbury businesses deem first summer season a success

By Janet Hefler September 2, 2011 MV Times 

As another summer season winds down and Labor Day approaches, three owners of new downtown Vineyard Haven businesses called their first season a success. Despite a sluggish economy with iffy conditions for starting a business, they said they do not regret their decision to take the leap. Although there are no sales figures from previous years for comparison, the owner of a new swimwear shop, a new fashion studio and design studio, and a women's collection boutique said their businesses are off to a good start, and they are optimistic about the future.

 A lovely bunch of Kokonuts

Over Memorial Day weekend, Alex Srulovic and his wife Fawn opened Kokonuts, a swimwear and resort wear shop, at 38 Main Street, in the space formerly occupied by the Jabas Gallery. "All in all, we're happy with our decision and with our first season," Mr. Srulovic said at his shop on Monday. "The economy has not been the greatest, but it could have been worse."

The Srulovics opened their first Kokonuts shop on the island of St. Barts in the French West Indies, followed by one in Delray Beach, Fla., and one on the island of Majorca, off the coast of Spain. Mr. Srulovic said he and his wife had planned to expand their business with a store in the northeast and were considering Martha's Vineyard, the Hamptons, and Nantucket as possibilities. On a visit to the Island in April, they looked at some commercial properties to lease and found what they were looking for in Vineyard Haven.

"We liked the space because it is on Main Street, it was available right away, and no one else is doing the same type of business," Mr. Srulovic said. "We sell a lot of jeans and dresses, as well as swimwear, and none of our clothing lines are sold elsewhere around here." He and his wife also considered Edgartown as a possible location for their new shop, but were dissuaded by higher rents and lack of an available space on the town's main street. One hurdle the Srulovics encountered in their new endeavor was finding summer employees and housing. Fortunately they found a place to rent around the corner from the store, and Mr. Srulovic is pleased he can walk most places rather than use a car.

Asked about the economy's negative impact on starting a new business, Mr. Srulovic said it was more a matter of finding a new location to expand an already established business. Although he is new to business on Martha's Vineyard, he has the advantage of being a seasoned business owner with knowledge of what sells in his shops and what doesn't in this market. The Kokonuts shop in Delray had its best season ever this year, Mr. Srulovic said. He brought his top-selling items in Florida to Martha's Vineyard. Mr. Srulovic said he would likely change some of the inventory for next season based on his observation that the Island's fashion scene is a bit more conservative. He plans to close the shop for the off-season, probably at the end of September and return to Delray where his daughter attends high school.

 Stina Sayre makes a move

Across the street and just up the block, Swedish-born fashion designer Stina Sayre relocated her design studio and boutique from Beach Road extension to 43 Main Street on June 25. "My first season here has been incredible," Ms. Sayre said. "I've gotten great responses from people in the new location." Her previous studio/boutique was about one-fifth the size of the new one. Recessed lights, white walls, and glistening wooden floors lend the feel of an art gallery to the space, to draw attention to the clothing, she said. Ms. Sayre describes the shop's wares as "women's clothing and accessories, in the urban minimalist style."

Most of her fabrics come from Europe, particularly France and Italy. Ms. Sayre said she made the move to expand her business to gain more space and exposure. Although well aware of the poor economy, she said, "I was ready this year to do it — the day comes around when either you do it or you don't."

 She kept her business in Vineyard Haven, where she and her family live, for convenience. She works and designs everything in her studio, which is open every day from 10 am to 6 pm. Ms. Sayre said her boutique differs from most fashion stores, since customers have a unique opportunity to meet the designer and see her at work among her sketches, patterns, and swatches of fabric. Plus, they can get clothing she designs fitted for them.

The Collection at the corner 

At the corner of Main and Union Streets, The Collection is tucked under the Leland building, down a flight of stairs. Owner Kerry Quinlan-Potter, who is also a full-time real estate agent for Lighthouse Properties, opened the new shop in May. Women's shoes, clothing, and accessories are showcased on wooden displays made by her husband, contractor Bill Potter of Squash Meadow Construction. She said she wanted the store to be a space where women would feel comfortable hanging out.

"The feedback has been fabulous," she said. "People are happy with the presentation, the atmosphere, and the inventory. We've definitely been selling shoes." Ms. Quinlan-Potter said she wanted to have her own retail store for years, as a creative outlet.

"Real estate is a challenging business to be in, especially in the winter, and it's not easy to keep yourself inspired," said Ms. Quinlan-Potter, who comes from Montreal. "This is really a way to take some of the edge off for me during the winters here." She decided to move forward with her plans for a store when Shibori, which previously occupied the corner shop, went out of business in March.

"It's not a good time to start big, but when the opportunity presented itself, I could see myself able to do it all, to have an office here for my real estate work, in an environment filled with pretty things," Ms. Quinlan-Potter explained. Her 9-year-old daughter also spends time with her there. She said she picked Vineyard Haven for her year-round business because it's more of a year-round town. She plans to replace summer shoes, beachwear and cover-ups in the winter with scarves, hats, tights, leggings, socks and boots. "This summer was definitely an eye-opener as to what retail businesses in Vineyard Haven have been going through all these years," Ms. Quinlan-Potter said.

With many vacant storefronts and few restaurants, Vineyard Haven lacks the nightlife that Edgartown and Oak Bluffs have, which is a challenge for downtown businesses, she pointed out. "The thing that was shocking to me is that I had ambitions to stay open until 8 pm, but everything dies at 5," Ms. Quinlan-Potter said. "People here have no reason to be out and about and strolling around. The town would do well to loosen up its permitting and take steps to encourage new businesses." In the meantime, Ms. Quinlan-Potter has leased her store space for three years. "We'll see how it goes; I have high hopes," she said. "This definitely has enhanced my quality of life. It was a goal of mine for a long time and I absolutely have succeeded."


2011 Commercial Real Estate Liquidity Issues

While the broader economy is starting to turn around, the commercial real estate sector continues to struggle due to reduced operating income, property values, and equity. Additionally, commercial practitioners continue to experience difficulty in obtaining construction and land development loans, small business loans, short-term loans for capital improvements, and refinancing for mortgages.

Problems Impacting Commercial Real Estate Industry

Three main problems continue to negatively impact commercial real estate financing: bank liquidity, an equity gap, and a contraction in small business lending.

1. Bank Liquidity

Plummeting commercial real estate values have forced many regional and community banks – a significant source for commercial real estate lending – to take steep write-downs, resulting in bank failures and a reduction in credit.

2. Equity Gap

Over half of all commercial mortgages are currently “underwater” and many lenders are now demanding that borrowers come up with additional capital to cover this gap – especially problematic when a loan needs to be refinanced.

3. Small Business Lending

Credit to the small business community has declined, leading to a decreased workforce and business failure. This has also elevated commercial vacancies, forcing prices to fall thus placing even more pressure on community banks and reducing credit – accelerating a negative economic cycle.

NAR Solutions

Accelerated depreciation – NAR endorses legislation aimed to help incentivize equity investment in distressed CRE properties by granting investors a one-time 50% bonus depreciation. At least 80% of the investment must be used to reduce the outstanding balance of debt, with the remaining going towards capital improvements.

Basel III – The Basel Committee on Banking Supervision announced new, higher capital standards compelling banks to boost common equity requirements to 7% by 2019 to withstand future periods of financial distress. While the goals of the new requirements are commendable, NAR supports efforts to ensure that Basel III does not reduce liquidity in commercial real estate credit markets.

Credit union lending – NAR supports raising the cap of credit union business lending from 12.25% to 25% of total assets. Similarly, NAR supports the Obama Administration’s proposal to raise the cap to 27.5% of total assets for well-capitalized credit unions.

Covered bond market – As credit markets continue to decline, the creation of a covered bond market in the

U.S. will be essential to increase liquidity. Already in use in Europe and Canada, covered bonds represent a potential complementary funding source in the U.S. housing financial system as well as an alternative to securitization that could help address ongoing refinancing challenges in the commercial real estate sector.

Help banks clear their balance sheets of toxic assets – NAR believes that policy makers should pursue measures to encourage more private-equity investment in small financial institutions in order to turn around and recapitalize struggling banks and bring back much needed equity into the banking system.

Lease accounting

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have proposed new accounting rules that would force many companies to capitalize commercial leases onto their balance sheets. Larger balance sheets would force lessees to shorten lease terms to minimize costs. Since lessors raise financing by using the leases and the value of the property as collateral, the amounts they can borrow in the future could be reduced if lease terms are shortened. NAR will continue to combat these proposed accounting rules.

Mortgage insurance program – NAR supports legislation to create a mortgage insurance program for commercial real estate assets to cover the equity gap (the difference between the current appraised value of a property and the debt currently servicing the property) faced by many borrowers. The program’s structure would limit eligibility to properties found to be income-producing and viable in the long term. The insurance would also be for the short term and designed to cover the equity gap until the markets rebound.

Small Business Administration 504 and 7(a) loan programs – NAR supports making the Small Business Administration (SBA) loan process less arduous for potential borrowers. NAR believes an extension to the SBA’s 90% guarantee as well as the elimination of loan fees will provide much-needed relief for commercial real estate practitioners as well as other small businesses. Additionally, NAR supports the inclusion of “non­owner-occupied” properties as part of the SBA’s 504 refinance program.

Small Business Lending Fund – Under the Small Business Jobs and Credit Act signed into law last year, the

U.S. Treasury is authorized to create a $30 billion Small Business Lending Fund (SBLF) to give troubled community banks both the capacity and incentive to increase their small business lending. Specifically, banks can voluntarily apply for funds that would be repaid over time. The U.S. Treasury will finalize rules for participation in the program. NAR encourages the U.S. Treasury to set borrowing terms that will not deter banks needing capital from participating in the program.

Term extensions – For commercial borrowers that are making their monthly payments, a simple term extension in lieu of a refinance makes perfect sense. However, lenders are currently not offering these extensions due to pressure from bank regulators. NAR will continue to push the banking agencies to provide clear and consistent guidance related to commercial real estate loan workouts.

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