The 250,000 square-foot retail and entertainment complex known as Harlem USA was a milestone in the neighborhood’s 21st-century renaissance when it opened in 2000. The five-story, $65-milion development at the corner of West 125th Street and Frederick Douglass Boulevard spared residents the trek downtown to shop at Old Navy, work out at a New York Sports Club, or see a movie.
But now more than a quarter of Harlem USA’s space sits vacant. Tenants including Modell’s Sporting Goods, Chuck E. Cheese, and Buffalo Wild Wings haven’t been replaced since closing their doors three or more years ago. While anchor tenants Old Navy and the nine-screen AMC Magic Johnson theater remain open, last week credit-rating agency KBRA warned that the property’s owner could default on the $108 million mortgage and force investors to swallow a $26 million loss on what it calls a “loan of concern.”
Harlem USA is 26% vacant, according to KBRA. That’s 10 percentage points higher than the neighborhood average, according to a survey last year by the Department of City Planning. KBRA estimates the value of the complex has fallen to $82 million, which means its owners could be forced to pay down a chunk of the mortgage when it comes due next year. Refinancing the loan would require paying a higher interest rate than the existing 3.3%.
KBRA’s concern is misplaced, insists Harlem USA co-developer and co-owner Drew Greenwald, who has built shopping centers in the Bronx, Westchester County, and Washington, D.C.
He predicts the uptown shopping center will be fully leased within 12 months. He said a new supermarket is coming soon (he declined to say which one), and a high-end restaurant called Native is close to opening. Even at its 26% vacancy rate, he said Harlem USA is generating ample cash to pay the bills. He assures mortgage investors they won’t have to swallow any losses when the loan comes due next year.
Greenwald said KBRA missed the mark in its analysis: “I guess in this environment, everyone is on the lookout for trouble even where it doesn’t exist,” he said in an interview.
KBRA declined to comment.
In some ways, the disagreement reflects the differences between real estate developers and those who rate their work for institutional investors. Part of a developer’s job is convincing skeptics that even if things don’t look so bright now, the sun will eventually come out. At ratings agencies, analysts assess whether a property’s cash flow provides sufficient shelter from the storms.
The dispute in Harlem involves no ordinary shopping center. Located across from the historic Apollo Theater, Harlem USA was the neighborhood’s first property to house national retail chains. JPMorgan Chase financed the $65 million project, which the bank said was the largest investment by its community development arm and largest real estate development in any federally designated Empowerment Zone. The complex opened a year after a Pathmark supermarket came to the corner of East 125th and Lexington Avenue, Harlem’s first major commercial development completed since the 1960s. Gov. George Pataki visited the grocery store shortly after it opened.
The Pathmark was demolished after its site was acquired in 2014 for $39 million by Extell Development Co., which sold it two years ago for $82 million to the MTA so the agency could extend the Second Avenue subway. Harlem residents still have several grocery options. In addition to standbys such as CTown and Shop Fair, a Trader Joe’s opened on West 125th last July and Whole Foods came in 2017. Gap, Banana Republic, Chick-fil-A and other chain retailers line 125th Street, along with numerous independent shops.
Many chains followed in the wake of Harlem USA, which was developed and is still owned by Greenwald’s Grid Properties and Gotham Organization, a firm that has developed a total of 40 million square feet. The complex was 95% occupied in 2019, according to KBRA.
But several tenants closed shop when the pandemic upended their business everywhere. Modell’s closed all its 140 stores after filing for bankruptcy in 2020, while Chuck E. Cheese’s parent slimmed down its footprint amid a Chapter 11 filing the same year. The two vacated a combined 40,000 square feet of space at Harlem USA. Buffalo Wild Wings moved out of 10,000 square feet in 2022; other locations didn’t survive, either, including one in Times Square.
Greenwald is optimistic he’ll fill the space because Harlem’s solidly residential feel is attractive to retailers. Storefront vacancy rates in the neighborhood are the same as in Times Square and SoHo, City Planning data show, and lower than in the Chelsea or Tribeca, where they are 17% and 21%, respectively. Greenwald said he’s not concerned about a broader retail slowdown, noting that Midtown space left behind by failed outfits like Bed Bath & Beyond has been filled up and newcomers such as Primark recently leased flagship space on West 34th Street.
In the meantime, the Magic Johnson movie theater’s lease for nearly 70,000 square feet at Harlem USA continues until 2030 and Old Navy’s for 35,000 expires in 2028, KBRA said. The property is generating 170% of the cash needed to pay existing debt obligations, KBRA says, which suggests it can continue to meet expenses even if the new retail tenants don’t move into Harlem USA. Greenwald is confident they will.
“I’m not the least bit worried,” he said.
