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NEW YORK CITY-To the developer, owner or grocery chain looking for a potentially recession-proof and, perhaps, highly profitable investment opportunity, consider this: New York City, the most densely populated city in the United States, is experiencing a shortage of grocery stores and supermarkets, particularly in lower-income areas where lack of access to fresh produce contributes to higher rates of diabetes and obesity. Hoping to impact health outcomes by encouraging greater private investment in supermarket-challenged areas, the Bloomberg administration is proposing the Food Retail Expansion to Support Health program, or FRESH.

Through enticing zoning initiatives, the proposed action, set to be voted on by the City Council sometime this year, seeks to “facilitate the development of stores that sell a full range of food products,” with an emphasis on perishable items that are fresh.

“Part of what the incentives are meant to do is attract the attention of the business community to the opportunities they’ve been missing out on,” Ben Thomases, New York City’s first ever food policy coordinator, tells GlobeSt.com. He and representatives from other city agencies spearheading the proposal believe that “landlords, developers and supermarket operators haven’t quite put together that the growth of population in these communities, and the lack of high quality supermarkets, is a lucrative opportunity.”

In fact, according to research by the Center for an Urban Future’s City Limits magazine, 1.67 million New Yorkers have, on average, less than one square foot of grocery store space each. Of those, 74,178 have no grocery store at all. More recently, the Department of City Planning summed that up more grimly, saying that three million New Yorkers are caught in areas with limited access to fresh produce, areas of the nation’s largest city it calls “food deserts.”

The stats tell a typical tale of urban sociological disparity. According to a 2008 study by the New York City Economic Development Corp. and the Departments of Health and Mental Hygiene and City Planning, a good number of the fresh food denied, live in low to moderate income neighborhoods. That lack of easy access and choice contributes to the fact that some city neighborhoods are home to some of the nation’s highest rates of diabetes and obesity and all the ills that come with it.

“We have wealthy neighborhoods in Manhattan where less than 10% of the adults are obese, and low income neighborhoods in the South Bronx, north and central Brooklyn where more than 30% of the adults are obese,” says Thomases. “Even if you factor out median income or mean educational attainment in an area, you still find that the presence or absence of a quality grocery store makes a substantial difference in health outcomes in that area.”

John A. Williams, senior managing director at Savills, tells GlobeSt.com that investors are willing, and are in fact, “eager” to invest in the city’s targeted neighborhoods. “We’ve seen performance levels that are among the tops in the nation,” in lower income areas that had been traditionally under-served by supermarkets.

For example, the 50,000-square-foot Harlem Pathmark, which anchors an $85-million retail complex, has been one of the chain’s highest-grossing stores since opening in 1999, according to the NYCEDC. According to a report from the Canyon-Johnson Urban Funds, the Harlem store generates sales of around $800 per square foot.

The proposed FRESH program chose 19 of the city’s 54 community districts as the test fields for the program. Among them are neighborhoods in Northern Manhattan, the Bronx and Brooklyn, with a special target district in Jamaica, Queens. All the districts showed population growth from the 1980 census to the last official count in 2000, unlike a number of economically challenged areas in other parts of the country.

For example, the area served by Brooklyn’s Community Board 5 grew from 154,932 residents in 1980 to 173,198 in 2000. The Bronx’s Community Board 4 grew from 114,309 in 1980 to 139,513 while Manhattan’s CB12 saw a growth spurt from 179,941 to 208,414 in 20 years. Estimates indicate even greater population growth over the years since.

Thomases says despite that growth, supermarkets–many of which had left in the 1970s and 1980s–have not yet returned en masse. He says that some of the tepidness about returning was because rents had gotten so expensive. “When the real estate market was booming so rapidly, rents in those neighborhoods went from being really depressed to being speculatively very high.”

The city’s Planning Commission says the FRESH initiative includes a zoning text amendment with a series of incentives allowing developers and retailers to get certain zoning benefits if they will put a food store in their development. “Having zoning initiatives for building a grocery store is unique,” says Barry Dinerstein, senior planner at the New York City Department of Planning.

Among the nuts and bolts of the proposal he explains to GlobeSt.com are incentives to residential developers. They will be allowed to increase floor area by one foot for every foot of grocery put into the development, with a maximum of 20,000 square feet. Another incentive eases parking requirements, and the plan also increases the size of as-of-right stores in M1 districts, where development is capped at 10,000 square feet, to 30,000 square feet.

The Department of Planning stresses bringing the grocery stores to the people, since the city’s neighborhoods are pedestrian-centric, meaning that New Yorkers are more likely to walk to their local grocery store than most places in the nation. The department also notes that since New York City is a built environment, stores no larger than 30,000 square feet can usually be built on most commercial corridors.

Williams tells GlobeSt.com that from the “developer’s standpoint, whatever incentives go into place and allow you to get bigger spaces for tenants” are an inducement. “Obviously, larger supermarket chains would like to operate in the manner they are accustomed to.”

The larger stores “like to be as cookie cutter as they can,” he says. But those companies “are willing to modify concepts and prototypes to get into urban areas.”

As part of an effort to incorporate community concerns, the new zoning was modified to require that any grocery store that comes in be first referred to the local community board. “We assume that will alleviate fears that might exist within the communities, and also provide the operator with insight on the community” he’s investing in, says Dinerstein.

He adds that once the FRESH plan is passed, a point person will be coming on board to handle the new program. Dinerstein says the Planning Department has been in conversation with people who build and develop grocery stores, as well as those who specialize in apartment buildings.

The department has upped its dialogue with people in the supermarket industry including major wholesalers who distribute into the targeted neighborhoods. Dinerstein tells GlobeSt.com that as soon as the City Council approves the proposal, the initiative will begin a major marketing effort at attracting grocery stores to those neighborhoods.

“Obviously, the economic situation doesn’t make it ideal to open new stores or build new buildings,” says Dinerstein. However, he adds, “if you look at what’s happening with retail, food sales are holding their own, unlike sub-sectors like apparel.”

And, people have to eat. Data from industry trade association the Food Marketing Institute shows that nationwide, supermarket sales in 2008 were up around 5% from the year before to $547.1 billion.

In areas of New York City, where grocery stores are rare, or non-existent, the average price of basic fresh food items–like milk–trends more expensive than areas served by quality supermarkets.Thomases says he’s aware of the issue, and has heard of the FRESH initiative.

But, he says “in any economic system, when there are barriers for new players, it weakens competition for the existing players, and in a more competitive environment, that would create a situation where the existing supermarkets would have better products and competitive prices.” That often motivates shoppers to commute to other areas for their food shopping.

According to the multi-agency ’08 report, the city has the potential to capture around $1 billion in lost grocery sales to suburbs. The report says that loss alone is enough to support more than 100 new grocery stores and supermarkets in New York City. Enticingly, the report promotes the theory that having nearby food retail serves as a selling point in residential real estate listings.

Nonetheless, future supermarkets in New York City neighborhoods will be determined by the private sector who make the investment decisions of when, where and how food retail will be developed. “The challenge on the financing side is pretty straightforward,” according to Williams. In fact, he says that’s not such a big obstacle. “If you have a good solid sponsor or developer, the banks have been traditionally eager to lend in the areas the city is targeting,” since the lenders stand to win points from the community reinvestment act.

Thomases goes further, saying “the FRESH program is designed to create partnerships between developers and supermarket operators. It’s designed to be a win-win.”

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