2019 Real Estate Symposium Report: Opening Discussion on Retail and Public REITs
By Angela Wang ’21 and Maura Lewkowicz ’20
The retail real estate industry witnessed significant changes and transformation over the last several years. The 2019 Real Estate Symposium kicked off with an opening discussion on Retail and Public REITs with prominent industry leaders, Kenneth Bernstein, President and CEO of Acadia Realty Trust, and Jim Sullivan ‘89, President of Green Street Advisors.
Sullivan started the discussion by providing the audience with a backdrop of the current debate in retail, some have suggested that brick and mortar stores are dying while others have said that all retailers cannot solely just operate online. Bernstein responded by noting that it is a confluence of events and that there are both cyclical changes and secular changes. Department stores will be fundamentally different in the future. Instead of sourcing the relationship with customers to department stores, retail brands realized that they need to own their relationships and the pathway to success is to keep physical locations.
Acadia Realty Trust has been successfully achieving superior risked adjusted returns through building and managing their retail portfolio. Sullivan asked about Bernstein’s specific thoughts on retailers and grocery stores in Acadia’s portfolio. Bernstein noted that Target has been their largest tenant and it has done a great job investing in both physical stores and in their omni-channel approach. Whereas T.J. Maxx has consistently done well with their physical stores but has paid less attention to its omni-channel. Thereby illustrating that it is not a one size fit all approach that all retailers can adopt. Different retailers will have different strategies.
Sullivan pointed out that half of Acadia’s portfolio is grocery-anchored and asked Ken’s thoughts on Amazon’s acquisition of Whole Foods. Bernstein said that grocery stores are not immune to the disruption. Grocers will also need to figure out how to get consumers into the store to shop, how it can fulfill in the store, and how to deliver to people’s homes efficiently. The acquisition is a wakeup call for the industry and retailers are experimenting with new and more innovative strategies. For example, Kroger and Walgreens have partnered together and created a pilot program named “Kroger Pickup,” a one-stop shop for consumers to purchase both groceries and pharmacy online, and the order can be later picked up at a convenient time and Walgreens location.
The discussion then opened for questions from the audience, where Bernstein was asked to speak a bit more on the current leasing trend. He spoke on how leases are getting shorter and landlords will need to be prepared for high turnover in the future. Although, there can be a lot of negotiation on the terms of the lease, in the end, it tends to return to the fair market value every 2-5 years. However, rents have decreased by up to 50% in some of the markets and this has allowed retailers to operate profitably in these spaces. Bernstein closed by noting that there are opportunities in retail real estate, and few investment committees are dying to invest in retail, so there are more opportunities to explore in this space.
Angela Wang is a member of Columbia Business School Class of 2021 focusing on Real Estate Investment. She serves as AVP of International on the Board of Real Estate Association. Prior to CBS, Angela worked as Vice President at Trinity Street Capital Partners in New York City, where she raised equity for the first private equity transaction of the company and closed commercial mortgages on 50+ projects in various US markets. She has 6 years of experience in real estate finance and is a CFA Charter holder. Angela graduated from Central University of Finance and Economics in China in 2012 and from Columbia’s MSRED program in 2013.
Maura Lewkowicz is from Germany and received a BA in International Economics, Management and Finance from Università Bocconi in Milan. Maura has worked in real estate investment and development, specializing in hotel properties, in Europe and the Americas. She also received a Hotel Investment and Management and an Architectural Design certificate from Cornell, as well and she is an active member of the USGBC and AHLA. At CBS she also holds a VP role in the Hospitality and Travel Association.