Domestic Private Investors Become the Fastest-Growing Buyer Pool for Multi-Tenant Retail Centers

Over the last five years, private property buyers have consistently taken market share away from REITs in the retail sector.

Private investors have become the fastest growing buyer pool for retail centers due to low interest rates and an increase in 1031 and 1033 exchange activity, according to research from brokerage firm Stan Johnson Company and Real Capital Analytics (RCA).

Private domestic investors represented approximately 72 percent of the buyer pool for multi-tenant retail in 2018, based on sales volume, according to Stan Johnson and RCA. That’s a significant increase from around 42 percent in 2014.

The recent uptick in private capital in multi-tenant retail is due to three reasons, according to Duff.
First, the new supply pipeline in the retail sector has been low in recent years. This has helped shore up occupancy levels and rents, in spite of high store closing numbers. In addition, private buyers do not have to answer to shareholders, giving them greater flexibility than publicly-traded REITs to pursue these types of investment opportunities, Duff notes. (The share of publicly-traded REITs investing in multi-tenant retail has shrunk to 5 percent of the overall sales volume in 2018 from 33 percent five years ago, according to Stan Johnson and RCA research.)

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Where Are Cap Rates Going in the Four Core Property Sectors?

Experts predict little change in either direction in the first half of the year.

With late 2018 jitters gone and investor optimism returning, the commercial real estate market should experience mostly steady cap rates through the first half of 2019, although there are particular market segments and geographies that could experience some bumps.

“On the interest rate side, I think everybody has dismissed, at least for the time being, the inflation threat so that kind of stress on pushing cap rates higher isn’t there right now,” says Manus Clancy, senior managing director of applied data, research and pricing with Trepp. “We went through a tough period in December when people were jittery. Now everybody has taken a deep breath; they don’t feel like the wheels are falling off either the U.S. or the global economy.”

Still some changes, although potentially muted, could be in store. Recent trends suggest there is little room left for cap rate compression, according to Matthew Schreck, quantitative strategist with online real estate marketplace Ten-X. “We expect increases to both interest rates and spreads to drive some loosening in cap rates in 2019 across all property types,” he says.

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Mall Landlords Embrace Once-Spurned Popups to Revive Dead Zones

Macerich Co. is offering 180-day leases to sign pop-up tenants.

(Bloomberg)—It wasn’t that long ago that retailers looking for space at shopping centers would get paperwork only for a multiyear lease.

These days mall landlord Macerich Co. is offering 180 days.

Last month, Macerich launched BrandBox, a leasing program that allows online sellers to dip their toes into the bricks-and-mortar universe with a temporary pop-up store. The first one, featuring six retailers, is up and running at northern Virginia’s Tysons Corner Center, with plans to expand to at least five more states. The leases are six to 12 months, and the store walls are flexible, meaning Macerich can switch up the layout to accommodate different numbers of shops.

“Instead of selling real estate, we’re selling a solution,” said Kevin McKenzie, Macerich’s chief digital officer. “That’s an entirely new process, culturally, for our company.”

Macerich, which owns more than 50 shopping centers, is trying to reclaim some of the industry’s mojo. Big-box stores such as Sears and Toys “R” Us, once anchors that drew crowds ready to spend, have filed for bankruptcy. Malls, over the years, have struggled to attract foot traffic. Signing retailers to long leases and hoping none of them takes a trip to bankruptcy court is starting to look like an outdated formula. Kids these days, at least the ones with the money to shop, aren’t into brand loyalty. They’re into Instagram.

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Opportunity Zones, Marijuana-Related Properties and Retail Assets Among Best CRE Bets for HNW Investors in 2019

Wealth management experts and CRE professionals discuss the types of properties HNW investors should pursue in the coming year.

As high-net-worth (HNW) investors zone in on commercial real estate opportunities for 2019, Opportunity Zones, multifamily, marijuana, retail and industrial are emerging as some of the key areas to watch.

Real estate investments made next year by HNW investors should be weighed against rising interest rates and the prolonged economic expansion, according to Doug Brien, co-founder and CEO of Oakland, Calif.-based Mynd Property Management, which specializes in multifamily assets.

“For deals to make sense, investors will need to make sure cap rates remain high enough to balance out rising interest rates,” Brien says. “In my opinion, a long-time horizon should be incorporated into any investor’s strategy if they’re acquiring properties at such a late stage in this rising interest rate environment.”

Ross Yustein, chairman of the real estate department at New York City law firm Kleinberg Kaplan Wolff & Cohen PC, echoes the cautious approach espoused by Brien.

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Amazon, Mass Merchants Win on Black Friday; Malls and Guns Lose

Brick-and-mortar sales during the Thanksgiving weekend went down 6.6 percent, according to RetailNext.

(Bloomberg)—The presents may not yet be wrapped and under the tree, but at least they’re in transit with a tracking number. With spending increasingly moving online, a new set of winners is emerging as the Black Friday holiday shopping weekend comes to a close.

“We are seeing a fundamental shift in who’s considered winners and losers coming out of Black Friday this year,” Bloomberg Intelligence analyst Jennifer Bartashus said. “Whether you’re talking about department stores, mass merchants or specialty apparel chains, consumers are voting with their online spending and driving this evolution.”

Prognosticators went into Thanksgiving expecting this holiday shopping season to be one of the best since the recession, possibly rivaling the boom days of the mid-2000s. The economy is growing, gas prices are low and median wages have been rising. But not everyone can come out on top. Here’s a look at who’s having a merry season — and who’s out in the cold.

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Sears Bankruptcy Likely to Inflict Pain on Mall Owners for Years

(Bloomberg)—As Sears Holdings Corp. goes through bankruptcy, retail landlords wondering how they could be impacted might want to look at a 2015 deal.

Mall owner Macerich Co. struck a agreement that year with the struggling department-store operator to redevelop a 300,000 square-foot store at Kings Plaza Shopping Center, a high-traffic mall in Brooklyn, New York. Three years and $100 million later, Macerich finished work on the space, which has been subdivided and leased to Burlington, J.C. Penney, Primark and Zara.

After Sears filed for Chapter 11 protection early Monday, Macerich’s lengthy — and expensive — process is worth keeping in mind. Other mall owners, who have been grappling with the retailer’s store closings and diminished ability to attract shoppers for years, must now contend with the possibility of a full liquidation, which would mean a glut of retail real estate in an already oversupplied market. For now, a majority of stores will continue to operate.

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Wall Street Investors Increase “Big Short” Bets on CMBS Retail Loans

In 2015, “The Big Short” movie based on the Michael Lewis book chronicled a handful of investors who struck it rich by betting on the failure of subprime residential mortgages. Some investors are making a gamble that retail-backed CMBS loans could be the next “big short.”

Hedge fund company Alder Hill Management is one high-profile player shorting CMBS with high concentrations of retail loans. The Wall Street Journal first reported on the hedge fund’s short 18 months ago, followed by a more recent story in early August that said the hedge fund made an additional short investment on 2012 and 2013 era loans. Earlier this spring, Bloomberg also reported that Deutsche Bank and Morgan Stanley had both recommended buying credit protection against, or shorting, segments of CMBS with heavy concentrations of retail loans.

Some people are looking at retail loans as the next “big short”, says Manus Clancy, senior managing director and the leader of applied data, research, and pricing departments at Trepp. “There are some similarities, but there are a lot of differences,” he notes. One difference from the subprime short is that there were very few investors taking those short positions. “In this case, you have a pretty good amount of people on either side, meaning longs and shorts,” says Clancy. In addition to Alder Hill there are about two dozen investors that have either already taken a short position or are looking at the opportunity, he adds.

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What Retail Apocalypse? Ask Some Department Stores, But Not All

(Bloomberg)—Adapt or die isn’t just a tenet of evolution: It’s also the reality faced by the U.S. department-store industry. And some are doing it far better than their rivals.

Although the chains are often lumped together with other mall mainstays when lamenting the “retail apocalypse,’’ this past week’s earnings reports underscore just how different department stores’ strategies are amid a wider brick-and-mortar slowdown.

Nordstrom Inc., for instance, posted same-store sales that were almost four times higher than expected after drawing in buyers for both its full-priced and discounted merchandise, powered by a massive anniversary sale. At the other end of the spectrum, CEO-less J.C. Penney Co. saw its stock plunge to historic lows as it put more items on clearance to get rid of excess inventory. And for Macy’s Inc., which beat virtually every estimate set by the market but still disappointed investors, it seems the jury’s still out.

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The Mall is Dead. Long Live Bricks-and-Mortar?

Recently, GGP shareholders approved the Brookfield Property merger deal by a wide margin. Sure they did. The value was reported to be in the range of a 6 percent cap rate, a number that any self-respecting, not fee-driven real estate owner would consider aggressive.

Yes, I have heard the commentary. The cap rate was on the low side because the properties are Class-a, located in great locations and therefore protected from the “retail apocalypse” (if that’s still a thing). Also, GGP has begun to convert many of these malls into more experiential facilities, which serves as proof positive that they will overperform in the new age of retail. Now that I mention it, what in fact is the new age of retail? Have retail tenants even settled on a proven new-age prototype around which we can build new-age properties?

For the record, brick-and-mortar retail will long outlast Amazon’s break-even flirtation with retail. That doesn’t change the fact that GGP’s portfolio does not represent the stable investment touted by the various commentators. I think the only question that remains is whether it is a redevelopment or a covered land play.

Something everybody in retail seemingly agrees on is that the department store is a new subset of endangered species. When Sears finally brings its going out of business sale to an end, all its stores will close—including the “class-A” locations. In 2009, the Wall Street Journal published an article titled Empty Mall Stores Trigger Rent Cuts, highlighting the effect of co-tenancy clauses on retail properties. This property-killing clause can be found in almost every retail lease, entitling tenants to rent reductions and even terminations if occupancy (including unowned portions) drops below a predetermined threshold. To quote the article, “The result is a ripple effect, as failures trigger co-tenancy violations, which in turn lead to canceled leases, more vacancies and more violations” and ultimately the demise of an otherwise healthy property.

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Shopping struggles: These 11 retailers may not survive 2018

The retail apocalypse is entering its ninth year.

Many North American retailers were wiped out in the “retail apocalypse” which started in 2010. Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) growth, the rise of fast fashion retailers, reserved spending habits after the Great Recession, and dying malls crushed countless retailers.

Some retailers survived the downturn by closing stores and expanding their e-commerce presence, but others weren’t as lucky. Let’s examine eleven retailers which could struggle to remain relevant this year.

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