Today’s Retail Investor: The Worst of Times, or the Best of Times?
To many, eCommerce is a virus, destroying big-box stores and leaving empty shopping centers in its wake. To others, eCommerce is a necessary disruption, forcing an often staid industry to prune their portfolio, innovate and adapt to a new age of consumer.
One thing is certain: the loss of traditional retail has created a sagging feeling for many store owners and landlords. However, if you plan, now’s the time to turn retail disruption into cash-flow glory.
So, how do you as an investor read the tea leaves? How do you grab a latent opportunity at a logical price and backfill it, repositioning your assets and creating stability and success?
The Only Constant, Is Change
Over the past two years, owners of malls have seen almost a 10% increase in vacancies. Grocers such as Aldi and Lidl, while strong in equity, take up very small footprints, leaving middle-market and larger grocers scratching their heads. Powerhouse REITS like Blackstone and Kimco are pruning their portfolios, with the latter selling off a billion dollars’ worth of assets last year.
But if you’re able to adjust your eyes on the present and plan for the future, you’ll see new trends of growth. Amazon is buying up vacant mall spaces across the country, turning them into warehouses and logistic hubs. Vacant retail becoming industrial fulfillment centers is another
trend. You also have gym formats, storage, office space, hotel, residential, health care use – all creative options for reviving stagnant or sinking retail locations.
It takes the right investor to see the opportunity woven into the current state of retail.
Understanding the Challenges
For generations, retail real estate has been a stable asset, leaving some legacy owners with an impractical tendency to hold onto or overprice a now-fading asset. How do you time your offer to the owner, and deliver the news that while the center looked stunning in the ‘80’s, expectations of low cap rates for retail might best be left to the era of big-hair?
Additionally, what if a property still has a loan on it? Are you going to assume the current loan or will you need to take on additional equity to use for redevelopment?
You’re not really going to buy that center and then ask, “now what do I do with it?” are you? You’ll want to have a thorough and realistic merchandising plan in place and established connections with tenants interested in filling your space.
Zoning is another issue. Does the current zoning work with your vision-thing? If not, how do you change the zoning in a way that gets community buy-in? Just look at Amazon recently pulling out of Long Island. Even if you think you can get the zoning, are you setting your property up for death by community association? Do you know enough about the community to predict how the local political and economic leadership will view your turnaround plan? You might have boots on the ground, but are they laced, ready to preempt community concerns before your money goes hard?
The Importance of Investment Council
To succeed in CRE investment you need someone who understands the current landscape and situations of all parties involved in the transaction, allowing you to pinpoint the right time to buy. But you’re wise to want more than just the right opportunity.
In addition to knowing where and when to invest, you need someone to help you find a suitable lender, attract additional equity to use for redevelopment, navigate the zoning for that redevelopment and help fill your new space with the right tenant mix. And, more than ever, make sure you have someone by your side who is embedded in the community: because the community isn’t just the home of your equity, it’s your customer.
Come Collaborate with Us
At Trout Daniel & Associates, our end-to-end approach helps you turn your investment, no matter the challenges it faces, into a successful, vibrant business that has the support of the city or town in which it resides. We have the experiences and relationships you need to navigate lending, zoning, tenant occupancy and more.