The Real Reason So ManyStores Are Closing
There is a dynamic impacting all of retail that needs to be addressed,namely, the myth of a retail apocalypse.
We have heard for years now about thedeath of brick-and-mortar retail at thehands—or is that the thumbs—of e-commerce. Indeed, according to Business
to offer subsidized or provide housingfor employees, though it’s unclear whatthe driving force for those programs are,and if they are effective,” Russell says.
Housing isn’t the only focus of theseuniversities. Cornell University owns486 properties, which are the most ofany Ivy League school. ColumbiaUniversity has spent $6.3 billion on itsnew Manhattanville campus expansion.Universities want to create a diverse portfolio of investments, and real estate is anessential part of that, according to Russell.
“We see most of these universitiesreducing their endowment’s dependence on domestic marketable securities, and reallocating to real estate andprivate equity,” she says. Russell says theuptick in real estate allocations has beenmost noticeable at Yale in the past 20years. The University of Pennsylvania hasbeen investing in surrounding communities since the ’90s. The school is nowPhiladelphia’s largest private employer.
The Great Recession also could bemaking banks and alternative lendersmore cautious, prompting them toadopt a wait-and-see approach.
“ It all happened so quickly. In 2008
that’s exactly what happened. There
were loan commitments. People used to
think a commitment meant a commit-
ment. A lender was committed to making
a loan. They found out, and these are
seasoned professionals, that a commit-
ment is not a commitment,” Weede said.
“You do not close until you close. In
essence, this is the same way. It’s not that
banks are bad institutions. They have to
have the money to lend the money.”
“This world is becoming smaller and
smaller every day so people are impacted
by the global economy. You are seeing the
impacts on airlines, cruise lines. Spirit
Airlines will be fine. Carnival Cruise Line
will be fine, and the airlines will be fine,”
Sanchez-Medina said. “But if you have a
business that is an ancillary business to what
they do, that’s going to have real impact.”
Hernandez suggested all deals will
follow the wait-and-see approach his
“But the increasing investments made
with commercial partners [likely led by
UPenn’s example] is something that has
expanded to other schools,” Russell says.
“Brown’s investment in South Street
Landing is an example of this. And it
surely isn’t limited to just the Ivy League
Universities—all universities with large
endowments likely have a stake in real
estate assets as part of their portfolio.”
University holdings are expanding
beyond housing and offices. For
instance, Dartmouth College maintains
a portion of the Appalachian Trail. But
that’s not all.
“In terms of asset holdings outside ofthe university’s mission, one of the mostinteresting findings was around holdings outside of the core areas of interestfor these Universities, such as acres ofagricultural and vacant land in Texasand Montana, and the sheer size ofCornell’s land investments,” Russellsays. —Les Shaver
Insider, some 1700 stores are expected toshutter this year. A short list wouldinclude Pier 1, which expects to close 450units; the Gap, which will click off thelights in 230 stores; ditto Chico’s, at 200of its properties; and Forever 21, whichwill close 178 stores. This data was alsobrought out in a recent webinar conducted by the Institute of Real EstateManagement on Trends for 2020.
Certainly, the consumer press salivatesover such headlines, in the grand old if-it-bleeds-it-leads tradition, and simplisticallypointing to our home shopping as thedriver. Happily, the business press takes amore nuanced view. There are underlying reasons for the ongoing trend of storeclosures, and yes, while e-commerce has ahand in it, the reasonable response to thisapparently dire news would be to ask thefollow-up question: Why?
If people are shopping differentlytoday, and they are, it is not to the exclusion of brick-and-mortar venues, butrather to those brands that have notbeen able to think in an omnichannelstrategy of bricks-and-clicks workingtogether. It is to the exclusion of formatsthat are simply old and tired, and neverforget the devastating impact of simple,old school poor management.
If online shopping was killing traditional retail, why then are the likes of theHome Depots and Macy’s—that’s right,Macy’s—typically counted among thenation’s top 10 internet retailers?Because they have jumped that hurdle ofhow to marry the two shopping trends.(Macy’s is shuttering stores that are nonperforming, putting its capital into morerobust omnichannel strategies.)
Smart owners are getting into the gameas well, and they’re ramping up theimmersive experience that shopping canbe, extending the definition of shoppingby folding in restaurants and other amenities, from Instagram walls to trampolineparks. The American mall is not dead. It isbeing redefined, as is all of retail, net leasetenants included. Times of redefinitionare also times of great upheaval, and theannouncements of store closures are butthe tip of that transitional iceberg.
And so, the next time you read aheadline blaring the closure of this orthat iconic brand, take a breath. Stepback. And ask: “Why?” —Jonathan Hipp
“That would be the recommendedapproach for any transaction right now,although it’s not always possible withhard closing dates. When possible, ashort-term pause allows parties in transactions to avoid making decisions with long-term consequences based on the eventsof the last few days,” Hernandez said.
That’s what Weede and his clients aredoing as they wait to see what pandemic-afflicted markets will look like.
“I am confident ultimately we will beable to work the deals out,” he said.—Lidia Dinkova