BAM, SPG hedge CRE portfolio bets with Retail prop-up

Major CREs move to protect integrated retail investments

COVID-19’s effects on human mobility continue to have serious impacts on the commercial real estate industry as major investors move-in to prop up struggling retailers and shopping mall operators.

Brookfield Asset Management (BAM) and Simon Property Group (SPG) recently announced a significant investment fund with the explicit purpose of taking non-controlling shares in retail stocks hard-hit by the global pandemic. These are at once acts of damage control and a very sound strategy for major commercial real estate investors to protect their diverse retail ecosystem portfolio. How so?

BAM and SPG are both highly integrated firms with vertical investments throughout the retail ecosystem -- not just providers of CRE or retail real estate funds, but major shareholders in shopping malls and significant players in the retail leasing sector. 

BAM’s $5 billion fund, which is focused on retailers with $250 million-plus in annual revenue and at least two years of operation, is a complement to initiatives made through that company's Property Partners group, which has already made significant investment in retailers Aeropostale and Forever 21. BAM also has significant holdings in mall operators and through its retail leasing unit, making the CRE a very concerned stakeholder in the retail industry.

As Rich Depuis of the Motley Fool wrote: “That was the rationale behind the retail investments Brookfield Property made in partnership with fellow mall owner Simon Property Group and brand management firm Authentic Brands Group. Forever 21, for example, represented a significant presence in its malls, accounting for approximately 2% of SPGs base rents.” 

That’s just one retailer. Think of the impact of SPG and BAM’s entire portfolio of retail clients. So, while getting people back into physical retail locations is not their direct challenge, it is the fulcrum on which BAM and SPG’s future retail strategy balances. No matter how things go, all bets are hedged.

Simply stated, if the global pandemic is controlled and normalcy returns, human beings start moving around again, strong location retailers recover, and the trickle-up reinvigorates the CRE’s on two counts: a resurgence in retail leasing revenue stream, and a gain on the investment in those retail stocks.

If, in the much more likely scenario, COVID-19 permanently changes human mobility patterns, traditional retailers with limited funds will simply wither and die. But strong retailers, backed by smart money pushing them to adapt to ecommerce and digital logistics, will survive and thrive. 

The major CREs that provide those funds will be in a position to use their broader market presence and superior diversification to become major stakeholders in warehousing and industrial real estate projects in support of the new American supply chain.

Scott Valentine, Editor

Scott is a prolific editor specializing in B2B tech. His work has appeared with Forbes, the WSJ, Thomson Reuters, the Guardian, VentureBeat, the CBC and many more. Scott's clients include top retailers, analytics companies and investors. As a marketing and communications executive, Scott has been part of $1.5 billion in exits, and counting.