The new American CREtailer
Why BAM and SPG will evolve retail while JCP and JWN wither
One part consumer brand, one part commercial real estate investor, one part logistics innovator. That’s the pandemic era blueprint for an ideal American retailer. At least according to my read of the last couple weeks of quarterly earnings releases from commercial real estate investors and retailers.
Since May 1st, Neiman Marcus Group has filed for Chapter 11, Lord + Taylor said it is looking to liquidate its stores, Nordstrom is closing 16 locations, JCPenney skipped another payment, and Macy's announced it will push-off reporting for a while because, you know, no news is good news.
In the same time, retail property owners and operators have disclosed that a lot of their clients aren’t paying rent and may not be able to for some time, or ever again. Within the retail shopping center sector - aka malls - Kite Realty Group collected only about 67% of its base rent due in April to earn top performer in the group. At the bottom of the bracket, Acadia Realty Trust collected just 50% of its rent.
This has caused savvy and deep-pocketed CREs with strategic and sensitive skin throughout the retail ecosystem to double-down on American retail in its hour, or perhaps era, of need.
Both Brookfield Asset Management (BAM) and Simon Property Group (SPG) recently launched a $5 billion fund to take non-controlling shares in retail stocks hard-hit by the global pandemic. This is both an act of damage control and aggressive execution a rare opportunity to quickly grow and diversify retail holdings.
BAM and SPG are highly integrated firms with investments throughout the retail ecosystem. They are major shareholders in shopping malls, and significant entrants in the retail leasing sector.
BAM also plays in the proptech sector, having committed about $300 million to investment in the space in 2018. Don’t be surprised if BAM spends more time in that sandbox in the future.
There’s clearly a strategy at work that includes acquiring assets, expertise and market share in critical areas of the retail supply chain.
In order for that strategy to work, BAM, SPG and other CREs must also sort-out retail’s voluminous digital automation wheat from chaff, and find other investment opportunities in industrial real estate, digital controls, and location data in order to understand how people and goods move around, and where land, buildings and capabilities must go in the future of American retail.
But even for organizations as big and smart as BAM and SPG, it’s tough to get foothold overnight in the ever-shifting B2B digital landscape.
To cross the chasm, it’s probable (to me, at least) that a future round of CREtail investment will include Silicon Valley and NYC-based firms with active portfolios in proptech, built world techs, and location-based data providers to the retail sector.
This new American CREtailer is an odd-duck now, but with a little time and some digital pluck, commercial real estate investors may be just what it takes to make the U.S. retail market fly again.