Commercial Investment Real Estate Summer 2020 | Page 24

Tabeek, CCIM, managing director at Newmark
Knight Frank in Las Vegas. “Unfortunately,
local mom-and-pop businesses, which
generally operate on a shoestring budget,
are being hardest hit.” However, while some
retailers do not have the capital to weather
the downturn, others are using the situation
as a catalyst to shift gears and concentrate on
specific portions of their business, she adds.
“We will certainly see some iconic retail
brands, public and private, close multiple
stores, and perhaps proceed into bankruptcy,”
says Patrick Luther, CCIM, managing principal
of the National Net Lease Group at SRS
Real Estate Partners. However, there isn’t
quite “blood in the water” yet, he says. In the
interim, many landlords have worked with
tenants on rent abatement or deferral requests,
and in turn have negotiated their own
forbearance with lenders on loan payments.
In addition, some retailers are finding added
assistance through forgivable loans funded
through the government Paycheck Protection
Program. Landlords also are offering a helping
hand to retailers. For example, Brookfield
Asset Management is spearheading a $5
billion retail revitalization program that will
help recapitalize retailers in markets where it
has properties.
The retail industry has grown accustomed
to constant churn created by bankruptcies
and portfolio repositioning, as well
as the arrival of new concepts and trends.
Coresight Research recorded a total of 9,275
store closures from major retailers in the U.S.
in 2019. On the positive side of the ledger, the
industry also posted 4,454 new store openings.
In fact, year-to-date through April, the
firm was tracking retailer announcements for
RETAIL FACES A
MIXED PROGNOSIS
2020 new openings that were outpacing store
closures at 2,971 to 2,210, respectively. However,
it remains to be seen how significantly
COVID-19 will delay or derail those previously
announced store openings.
The pandemic is going to shake out a
lot of retail tenants for a lot of different reasons,
notes Emil Gullia, CCIM, an executive
vice president and principal at Retail Specialists
LLC in Atlanta. One of those reasons
is heavy debt loads. Private equity players
that swooped in to provide needed capital
for struggling retailers following the Great
Recession of 2007-2009 have become grim
reapers for the retailers they helped save, says
Gullia. Heavy debt levels are now being exacerbated
by the decline in sales.
RECYCLING VACANT SPACE
Looming store closures will put landlords
in a familiar position of backfilling vacant
space. Essential retailers and internet-resistant
tenants meeting daily consumer needs
will remain a sought-after category for retailers.
However, commercial real estate brokers
and service providers may need to get
creative to find solutions in an environment
where replacement tenants could be difficult
to find. “The new buzz words are going to be
repositioning and repurposing real estate
uses,” says Walter S. Clements, CCIM, president
and CEO at Dean Realty Co. in Kansas
City. For example, the traditional model of a
bank with a big open lobby and four or five
drive-thru lanes will be less relevant because
the pandemic has accelerated the move to
online and mobile banking. “Even prior to
COVID, if you ever had to go into a bank, it
was like a ghost town,” says Clements.
COVID-19 will likely further accelerate
the trend for landlords to adopt mixeduse
strategies to diversify income streams
and have different traffic drivers. “I think
whole swathes of retail will be reimagined
as non-retail use,” says Gullia. For example,
some malls situated in evolving trade areas
may see their empty anchor stores be redeveloped
as Amazon fulfillment centers. These
malls that were developed in the ‘70s, ‘80s,
and ‘90s were built in areas of traffic with
good access, desirable demographics, and
growth. Those trade areas may have shifted,
and some malls have become redundant in
their offerings, he says. “I do think there is
a lot of real estate that will be recycled into
something completely different,” he adds.
Closures are always a tough pill to
swallow. Yet, in some cases, closures also may
create needed opportunities to get rid of tired
retailers that weren’t generating traffic or excitement.
“There will likely be opportunities
to reposition properties, and landlords will
be able to strengthen their tenant mix with
retail concepts that are more viable in today’s
world,” says Tabeek.
However, the experiential strategies
that landlords have leaned on in recent years
to revitalize properties may be on hold — at
least for now. Those categories that have been
instrumental in the transformation of retail
— food, fitness, and fun — are among those
sectors hardest hit by COVID-19 and new
Neighborhood and Community Shopping Center Effective Rent Growth
0.6
0.5
Effective Rent Growth (%)
0.4
0.3
0.2
0.1
0.0
Q1 Q2 Q3 Q4
2015
Q1 Q2 Q3 Q4
2016
Q1 Q2 Q3 Q4
2017
Q1 Q2 Q3 Q4
2018
Q1 Q2 Q3 Q4
2019
Q1
2020
Source: Moody's Analytics REIS
22
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
SUMMER 2020