Investors are, of late, very interested in owning retail properties in Manhattan. Two weeks ago, Vornado Realty Trust announced that it had entered into an agreement to provide about $450 million of equity for a one-third interest in a joint venture to acquire Toys ‘R’ Us, which owns and leases real estate in the city. Last Thursday, Vornado announced it had entered into an agreement to acquire the retail condominium of the former Westbury Hotel for $113 million. This property occupies the entire Madison Avenue block front between East 69th and 70th streets and contains about 17,000 square feet. The retail space is fully occupied by luxury retailers such as Cartier, Chloe, and Gucci, which have leases that expire in 2018. The purchase price of about $6,647 a square foot is possibly the highest ever paid for retail space in America.

A partner at the real estate mortgage financing company Haves, Pine & Seligman who also serves as a principal of the outdoor advertising company Vector Media, Marc Haves, questions whether these retailers can be profitable while paying the highest retail rents in the nation. “All of the high-priced stores along Madison Avenue, at a rental at close to $1,000 a square foot per annum fail to become economically viable stores for the retailer. Instead, these rents are paid as a form of national and international advertising expenses.” he said.

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This weekend, the Final Four of the NCAA college basketball will be held in St. Louis. Similar to the Final Four is the final round of bidding, held this past Monday in Manhattan, for the sale of the land marked five-story, 28,000-square-foot Rhinelander Mansion located a few blocks from the former Westbury Hotel, at 867 Madison Ave. on the corner of East 72nd Street. The seller is a German fund operator, TMW, which bought the property in 1997 for $36 million, or $1,300 a square foot, for the Polo Ralph Lauren flagship store. I anticipate the property will fetch a price of about $78 million, or more than $2,800 a square foot.

The executive managing director at Studley, Woody Heller, who is co-brokering the sale of the Rhinelander Mansion, said, “This is one of the purest deals in the market, in that it is a single tenant triple-net lease to a high profile and very successful tenant, who has been in occupancy for over 20 years in one of the most beautiful and rare and desirable retail properties in Manhattan. The lease was recently recast at market, and there are very few transactions of this nature, which ever become available in Manhattan. As a result, this will be a true indication of the market’s tolerance of low-cap rates for market rental and leased premier retail.”

Madison Avenue from East 57th Street to East 72nd Street is considered by many real estate leaders to be “the Golden Mile,” which has become the most expensive retail strip in the world. The chief executive officer of Rockrose Development Corp., Henry Elghanayan, whose company owns the office building at 645 Madison Ave. at 61st Street that also contains Ann Taylor’s North American flagship store, said, “Madison Avenue is the place to have your flagship store in the United States. It’s not just about sales. It’s the billboard effect. Stores do not need to cover their rents through sales. Much of the rent can be expensed as advertising.”

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Last month, the Macklowe Organization announced that it plans to install a 32-foot glass cube at the Fifth Avenue entrance of the GM Building at 767 Fifth Ave. The cube will serve as an entrance to the below-grade retail space. A 25,000-square-foot Apple store will reportedly serve as the major tenant.

In addition, the owners are extending the base entrance of the building by 10 feet along Madison Avenue to create a two-story retail space.

The president of The Related Companies, Jeff Blau, who co-developed the 2.8 million-square-foot Time Warner Center at Columbus Circle with Apollo Real Estate Advisors, told me that “the sales at the center are exceeding $1,000 per square foot, the highest in the nation.” As I wrote on February 3, MacFarlane Partners agreed in February 2003 to purchase 49.5% of the retail space, the office space not occupied by Time Warner, and the parking structure of the Time Warner Center. Under the terms of the agreement, the purchase prices were not set until two years later on January 31,2005. Last week, the transaction was completed, and its value was estimated to be between $425 million and $500 million.

Earlier this month, Equity Office Properties Trust announced it had entered into a contract to purchase the Verizon building at 1095 Avenue of the Americas. Last July, Equity purchased the 380,796-square-foot office component of the Merrill Lynch Financial Center at 717 Fifth Ave. The balance of the building, consisting of the retail component of about 84,000 square feet, was sold to a partnership of the Fiel Organization, Lloyd Goldman, and Stanley Chera. They paid $192.5 million, or $2,292 a square foot.

The senior director at Cushman & Wakefield, Joanne Podell, said, “What I find interesting in the purchase of the retail condominium on Madison Avenue and at 717 Fifth Ave., is that in each instance the buyer was an investor, not an owner-user. In the case of Hugo Boss, the lead tenant at 717 Fifth Ave., the lease is below market and there is great upside for the investor.”

Lloyd Goldman, one of the principals who purchased the retail space at 717 Fifth Ave., said, “Our game plan is to negotiate and take back some of the space from Hugo Boss on the 2nd and 3rd Floors. We will then convert the space into prime retail space and lease the space at rents for retailers as opposed to office space. In addition, we are creating a condominium space at this location, which can be sold at much higher than we paid.”

A principal at Thompson Hotels, Michael Pomeranc, said, “The shortage of investment realty other than office buildings that is for sale has caused a frenzy of alternate real estate investment. Retail condos in New York parallel residential values because they are a function of each other, they require little management when fully occupied, and are financeable, and present a new source of value for sellers who want to spin off their ground floors, and a new source of value for those that recognize the value increase potential as buyers.”

During the past 12 months, a limited number of retail sites were sold. Last May, Vornado Realty Trust announced it had acquired a two-story, 62,000-square-foot free standing retail building at 25 W. 14th St. for $40 million, or $625 a square foot. The seller was a joint venture of Mark Holdings LLC and Apollo Real Estate Advisors L.P., which had purchased the property in 2000 for $13 million when the building was vacant for a period of years. The joint venture gutted, renovated, and subsequently leased the site to Clay, a gym and spa, and the Guitar Center.

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Last year, prominent domestic and international investors sought to own retail properties in Manhattan. The managing director of Eastdil, Douglas Harmon, was responsible for two major sales of properties. In July, he arranged the sale of the retail condominium of Borders bookstore at 465 Park Ave., at the northeast corner of East 57th Street. The Shorenstein Company paid $23.2 million, or $545 a square foot, for the 42,600-square-foot site. In September, DryTank, a Greek shipping magnate who had never purchased a site in New York, bought the 73,000-square-foot retail condominium that included the ground floor, basement, and mezzanine level of the office tower at 420 Fifth Ave. Dry Tank paid $34.8 million, or $476 a square foot, for the site, which has as tenants CompUSA and Au Bon Pain bakery.

Millennium Partners are marketing for sale an 80,000-square-foot retail condominium at Lincoln Square in its mixed-use property located at Broadway and 68th Street, according to Real Estate Alert. The retail tenants are Barnes & Noble and Banana Republic. Based on recent sale trends and the long-term leases, it is expected that the sales price might exceed $100 million, or $1,250 a square foot.

The executive managing director of valuation services and capital markets at Cushman & Wakefield, Brian Corcoran, said, “Investors in the current market have an intense appetite for well-situated retail properties along prime corridors in Manhattan. These properties are trading at capitalization rates within the 5% to 6% range. This is well below the average return for retail outside of Manhattan, and is a clear indication of investor perception for prime irreplaceable retail property in major urban markets such as New York City.”

Manhattan has become the retail capital of the world. Travelers from around the world visit the city, spending money in our hotels, restaurants, and retailers. The limited supply of Class A retail sites in Manhattan helps fuel the intense demand for retail properties.

Mr. Stoler is a television broadcaster and vice president at First American Title Insurance Company of New York. He can be reached at mstoler@nysun.com.