Battered IHOP could close up to 100 restaurants

Up to 100 IHOP restaurants could close, said parent company Dine Brands Global, after third-quarter sales fell 19 percent. (Getty)

Up to 100 IHOP restaurants could close, said parent company Dine Brands Global, after third-quarter sales fell 19 percent. (Getty)

In these times, even pancakes can’t cheer us up.

The parent company of IHOP restaurants said sales fell 18.7 percent in the third quarter, triggering a review of underperforming locations. As many as 100 might be closed.

“We’re evaluating only greatly underperforming restaurants that we currently believe are not viable coming out of the pandemic,” IHOP’s president, Jay Johns, said on an earnings call.

The company, Dine Brands Global, also plans to close about 15 Applebee’s restaurants, according to the Wall Street Journal.

Untold numbers of restaurants across the country have closed since March after indoor-dining restrictions were implemented to stop the spread of Covid-19. Several states including New York have now authorized indoor dining again — but with tight capacity limits. And with the threat of transmission still top of mind, it may not be enough to keep many afloat.

IHOP, which states on its Twitter page that “any home can become a house of pancakes,” has seen a bump in online and delivery orders since the restrictions took effect. But with so many people working from home, the loss of commuters stopping by for breakfast has hit sales hard.

The downsizing of IHOP’s restaurant staple puts a dent in the company’s expansion plan, which saw its restaurant count jump from 1,579 in 2014 to 1,710 at the end of 2019, according to the Journal. Currently, 1,425 IHOPs are open for indoor dining.

[WSJ] — Sylvia Varnham O’Regan

Cushman’s $3B debt load poses default risk

Cushman & Wakefield CEO Brett White and JPMorgan CEO Jamie Dimon (Cushman & Wakefield; Getty)

Cushman & Wakefield CEO Brett White and JPMorgan CEO Jamie Dimon (Cushman & Wakefield; Getty)

Cushman & Wakefield, which is under water on its $3.2 billion debt load, could be headed toward a default if its Covid-battered earnings continue to decline.

The Chicago-based real estate services firm is the most highly leveraged company among its major competitors, thanks to a pile of debt loaded on by the private equity firm TPG Capital in the lead-up to Cushman’s 2018 initial public offering.

A big part of that financing — Cushman’s $2.7 billion first-lien term loan — is currently about 4.5 times the size of the company’s earnings, according to analysts at William Blair. If that figure climbs to 5.8 times, it could be considered in default under the terms of its credit agreement with lender JPMorgan.

“If they get above that, that’s a conversation they’ll have to have with their bankers,” said Moody’s analyst Thuy Nguyen, who covers Cushman’s debt.

Nguyen added that there are a few significant steps before default becomes an issue, and that Cushman has a sizable cash reserve it can use.

“We think they have ample cushion,” she said.

A spokesperson for Cushman, headed by CEO Brett White, said the company started 2020 with a “robust balance sheet and strong cash position.”

“We are facing this period of economic uncertainty in strong financial shape — with significant liquidity of $1.8 billion and a service line mix that generates nearly half of our revenue from recurring streams like property and facilities management,” the spokesperson said.

Cushman’s earnings were down 32 percent in the second quarter to $118.8 million, according to its most recent financial disclosures. And analysts expect things to be worse for the industry when CRE firms begin reporting third quarter earnings in the coming weeks.

How much longer the pandemic plays out and how much deeper it hits the CRE sector will determine how many of those firms fare.

Wiggle room

Cushman’s debt has what’s known as a springing financial covenant — an agreement that gets triggered if the company draws down about $400 million of its $1 billion credit revolver with JPMorgan.

As of the end of the second quarter, Cushman hadn’t drawn down anything on the revolver. And the company has a pile of cash it can use totaling $875.5 million, after it issued $650 million of new corporate bonds in May.

There’s also some accounting wiggle room that muddies the picture a bit. The EBITDA figure Cushman and its bank use to measure the financial covenant is different from the figure the company reports publicly each quarter.

The former includes things like deductions from earnings and expense savings the company can include to help improve its debt ratio.

“They have plenty of add backs on top of EBITDA,” explained S&P Global analyst Dio Mejia.

One expert called that kind of accounting the “private equity special,” referring to the terms companies like TPG negotiate when leveraging up companies. In fact, Cushman’s debt sets it apart from its CRE peers like CBRE, JLL and Colliers International — both in the form of its financing and its sheer size.

Cushman’s overall debt of $3.8 billion eclipses its market capitalization of $2.56 billion and gives the firm a net leverage ratio of 3.7 times, according to equity analysts at William Blair. That’s much higher than CBRE (.6 times), JLL (1.1 times) and Colliers (1.5 times).

And those firms use more conventional financing like credit revolvers and long-term corporate bonds. None have first-lien loans — essentially a mortgage — on the books like Cushman has.

Real estate services firms in general usually don’t carry large debt loads, because they have few if any physical assets to serve as collateral. Cushman, though, has paid off a significant amount of the debt TPG placed on it through proceeds from the IPO, and improved its fiscal position. And experts said companies don’t usually get caught off guard by financial covenants; they’re something firms can plan for ahead of time and negotiate with their lenders.

Still, Cushman and others face a big unknown when it comes to the pandemic. With revenues from leasing and sales commissions declining, the big CRE firms are relying on steady revenue from streams such as their property management contracts. But even those may be in jeopardy.

Vornado Realty Trust, for example, disclosed earlier this month that it is laying off 72 building service workers at three office buildings around Penn Station and on Park Avenue in New York.

Cushman was recently reported to be in talks to acquire Newmark, and possibly do a merger with JLL.

William Blair analysts in August noted that Cushman’s debt load often comes up when the talk turns to potential mergers and acquisitions.

“Management continued to say that Cushman’s current leverage is not prohibitive in getting incremental deals completed in this environment, although it will likely remain disciplined and complete only deals with valuations that are highly attractive,” the analysts wrote.

Politics & property: How election results could affect REITs

With third-quarter earnings seasons just around the corner, REIT analysts took a look at the sectors of the industry that are most likely to benefit from a Joe Biden win or a Donald Trump win. (Getty; iStock)

With third-quarter earnings seasons just around the corner, REIT analysts took a look at the sectors of the industry that are most likely to benefit from a Joe Biden win or a Donald Trump win. (Getty; iStock)

From the trajectory of the economic recovery to the finer points of local tax laws, the outcome of the 2020 election is expected to have a major impact on the real estate industry, including publicly traded real estate investment trusts.

With third-quarter earnings reports just around the corner, REIT analysts with Mizuho Securities USA looked at the sectors of the industry most likely to benefit from a Biden victory or a Trump re-election and selected a handful of representative companies for each scenario.

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 6)

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 6)

“We would view a Trump win as a net benefit for non-gateway markets, especially in the Sun Belt (red states), given Trump’s reluctance to provide federal funding to coastal, gateway ‘anarchist’ markets,” the analysts said in their third quarter earnings preview. (“Gateway” markets are loosely defined as “blue states” like New York and California.)

“The focus on domestic trade by the Trump administration also bodes well for the Sun Belt region given the heavier focus on manufacturing versus the coastal markets,” according to the report.

As such, Mizuho’s “Trump Basket” includes companies concentrated in non-gateway, Sun Belt markets like Houston multifamily REIT Camden Property Trust, Dallas single-family rental giant Invitation Homes and office REIT Highwoods Properties, based in Raleigh, North Carolina.

Another type of REIT that stands to gain from a Trump win is office landlords with government and defense tenants like Maryland’s Corporate Office Properties Trust, which mainly owns office buildings in Washington, D.C.

“Given the massive fiscal spending to combat the impact of the Covid-19 pandemic, the concern is that Biden would need to reduce the deficit and balance the budget, even though he is generally supportive of defense spending,” according to Mizuho’s analysts.

(While Biden has put forward a plan to raise taxes on households earning more than $400,000 and corporations, he is not expected to balance the federal budget, which was running an annual deficit of more than $1 trillion even before the pandemic and has not been balanced since the Clinton administration.)

On the flip side, the “Biden Basket” includes companies with more gateway-city exposure like Sam Zell’s Equity Residential and office landlord Boston Properties. (By the same reasoning, landlords like SL Green, Vornado Realty Trust, Paramount Group, and Columbia Realty Trust would also fall in this basket, although they are not named in the report.)

Also at stake in the election is the fate of the Affordable Care Act, which could have an impact on health care REITs such as Birmingham, Alabama-based Medical Properties Trust, which owns hospitals in 34 U.S. states as well as six European countries and Australia.

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 4)

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 4)

A number of policies backed by the Biden campaign could have major impacts on the real estate world if enacted.

The proposed elimination of 1031 “like-kind” exchanges would be negative for REITs overall, reducing transaction volume and liquidity while increasing the gap between bids and asking prices, Mizuho analysts say. Triple-net lease REITs could take a major hit, given their appetite for acquisitions.

Meanwhile, the repeal of caps on deductions for state and local taxes, which is also a Democratic priority, would likely boost the residential real estate market in blue states with high taxes, notably New York, New Jersey and California.

The report also takes a close look at several ballot measures in California that are set to shake up the local real estate industry. Proposition 15, which would reassess the tax bills for commercial properties worth $3 million based on fair market value, has a lead in the polls and has received support from Biden.

Meanwhile, polling on Proposition 21, which would let counties and cities impose rent control on residential properties not built within the past 15 years, is more evenly split between supporters and detractors, with a large portion of voters still undecided.

Somewhat counterintuitively, Mizuho analysts note that tax policies supported by the Biden campaign could prove beneficial for REITs in particular, if not real estate in general, thanks to the tax advantages associated with them.

“An increase in corporate taxes and capital gains tax rate makes REITs relatively more attractive than other asset classes,” the report states. “A change in tax law, however, requires congressional action, suggesting that a ‘blue wave’ is further needed for REIT stocks to see any post-election momentum.”

Democrats need to flip four Senate seats to capture a majority of that chamber, but could also control it by flipping three and winning the White House.

Aventura office complex Optima inks new leases

Tere Blanca and the Aventura office complex (Credit: Google Maps)

Tere Blanca and the Aventura office complex (Credit: Google Maps)

Four companies signed leases for a total of 36,000 square feet at Optima, a three-building office complex in Aventura, including the first tenant of the complex’s 28-story tower that is still under construction.

Blanca Commercial Real Estate, which brokered the deals, declined to disclose lease terms for space at the complex at 21500 Biscayne Boulevard.

But brokerage founder Tere Blanca said that Class A office market rental rates in Miami-Dade County haven’t been negatively affected by the pandemic. “We expect continued leasing momentum at Optima as companies evaluate their next move,” she said via email.

Blanca added that the leases are not short-term deals. “We are finding that most companies are eager to get back to the office, and are looking ahead to provide a long-term workplace experience that especially gives employees flexible spaces to work safely,” she said.

Kawa Capital, an asset management firm, was the first to sign a lease in August for Onyx Tower, which is under construction at 1010 South Federal Highway in Aventura, according to a press release.

The tower has an expected delivery of the first quarter of 2021. An online listing for the tower says 15,200 square feet of space starting at the tower’s 10th floor are available in January. Rents from the 10th floor to the top of the tower range from $55 a square foot to $60 a square foot, according to the listing.

WM Partners, a middle-market private equity firm focused on the health and wellness industry, signed a lease in March for 11,401 square feet of the finished nine-story White Tower. Aurele Properties, a real estate investment firm, signed a lease in August for 2,000 square feet of space at the tower.

Medical spa and clinic Makeover Aesthetics signed a lease in September for 4,000 square feet of space in the finished four-story medical office building called the Red Tower.

Other tenants in the Optima complex include Luxe Residential, Soffer Health Institute, SimpleMD and the headquarters of Benihana.

Developers Jose Bromberg and Ariel Bromberg acquired the 1.6-acre site for $5.5 million in July 2008, records show.

Employers are signing office leases despite Covid-19 leading to more remote work. Investment management firm J. Goldman & Co. recently signed a lease expansion at a South Beach office building for $92 per square foot, reportedly a record for South Florida.

And even with an onslaught of new office supply and the economic impact of coronavirus, office landlords did not give tenants a rent break during the second quarter, according to a report from JLL.

Blackstone buys Roku’s Silicon Valley office buildings

Blackstone’s Stephen Schwarzman, Roku CEO Anthony Wood and Coleman Highline in San Jose (Blackstone; Wikipedia Commons; Coleman Highline)

Blackstone’s Stephen Schwarzman, Roku CEO Anthony Wood and Coleman Highline in San Jose (Blackstone; Wikipedia Commons; Coleman Highline)

A few months after making a blockbuster deal in Hollywood, Blackstone Group is making another big bet on streaming video with the purchase of a San Jose office property leased to Roku.

Blackstone’s non-traded real estate investment trust, BREIT, will pay $275 million, or around $770 per square foot, for two buildings in the Coleman Highline development, Bloomberg News reports.

Roku moved its headquarters to the property last year and has nine more years on its lease. The digital media company rents 730,000 square feet of office space at the complex, which was developed by Hunter Properties.

In August, Blackstone bought a 49 percent stake in Hudson Pacific Properties’ $1.65 billion Hollywood production studio and office portfolio.

Netflix leases 31 percent of the space, and ABC, Disney and CBS/Viacom lease are among the other main tenants.

San Jose has attracted attention from major Bay Area companies in recent years, according to the Mercury News. Adobe is expanding its office complex in downtown San Jose. Not far away, Google has proposed a 79-acre office-heavy mixed-use development near San Jose’s Diridon Station. Apple has been buying properties for an 85-acre campus in north San Jose.

[Bloomberg] — Dennis Lynch 

Multifamily project in Palm Beach County advances

Multifamily project in Palm Beach County advances

Multifamily project in Palm Beach County advances

A proposed 348-unit multifamily project between Lake Worth Beach and Wellington received approval from Palm Beach County officials, but it still has a long way to go before construction begins.

The Palm Beach County Planning Commission last week voted 8-to-5 to approve zoning changes, with some board members concerned about the number of residential units and the building height proposed for the project.

Staffers wanted to cap the number of future units at 284 and limit the building height to three stories. The project would be built on land currently used for agricultural and equestrian purposes and owned by companies managed by Sheldon Rubin.

Jennifer Morton of JMorton Planning and Landscape Architecture told The Real Deal that the project has another public hearing Oct. 28. After that, Palm Beach County commissioners would decide on adoption and rezoning aroundt March. She estimates that the project is still two years away from starting construction.

Morton told the county’s planning board at its meeting last week that capping the number of units would affect the project’s success, saying the developer originally sought 378 units. The cap would mean 64 fewer total units and 16 fewer workforce housing units.

The developer agreed to staffers’ desire for a quarter of the units to be dedicated workforce housing and agreed to reduce commercial space at the development from 140,000 square feet to 26,000 square feet, Morton said.

Called “Polo Gardens,” the development would have 17.5 units an acre on about 26 acres, more units per acre than other residential developments in the area.

Nearby Lake Worth Royale has 14 units an acre, with 370 total multifamily units on almost 50 acres. Fields at Gulfstream Polo has about 10 units an acre, with 140 townhouse units on almost 16 acres.

The board heard a letter from the Lake Worth Road Coalition opposing the project, fearing the area was becoming too congested. The coalition also sought a ban on fast food in the new development. Morton said the developer had agreed to the coalition’s demand to not allow a gas station at the development.

Rubin acquired the land from various owners starting in 2014, spending at least $7 million, according to records.

Among other proposed developments in Palm Beach County, a mixed-use project with a 158-bed, 117,000-square-foot adult living facility in Boynton Beach scored a $27 million construction loan in April. And an apartment complex on part of the Boca Dunes Golf & Country Club, developed by The Richman Group, scored a $57.4 million construction loan, also in April.

How’s the industry doing? TRD wants to hear from you

The Real Deal is rolling out a new survey to better gauge the current state of the real estate market. We will be using the results in the coming weeks to inform any stories about market sentiment and where real estate professionals think things are headed. Don’t worry — responses will be kept anonymous and it won’t take more than 10 minutes.

Thank you for your participation! And as always, please email any news or tips to [email protected]

TRD’s State of the Market Survey

The American mall: A survival guide

The death of the mall is an idea as ingrained today as the waft of baked pretzels and department store perfume less than a generation ago.

Even David Simon — who took the country’s leading mall owner public in 1993 and continues to reign over the firm — has his doubts.

“Do we have too many malls?” Simon Property Group’s CEO rhetorically asked investors during the company’s second quarter earnings call. “Sure.”

David Simon, Simon Property Group

David Simon, Simon Property Group

Traffic at the country’s largest malls dropped 51 percent in the first eight months of 2020 compared to the same period last year, according to data provided to The Real Deal.

The Covid-induced emptiness comes as real estate investment trusts squabble with retailers over lease payments and struggle with their own mortgage bills. “The biggest issue for malls is their debt and lack of access to capital,” said Alexander Goldfarb, a senior analyst at Piper Sandler.

Such problems were underscored last month when Brookfield Property Partners and Nandar Realty each punted on mortgage payments at individual malls, catapulting the shopping centers into special servicing. Meanwhile, two of the biggest malls in the country — the Mall of America in Minneapolis and American Dream Mall in East Rutherford, New Jersey — have missed millions of dollars in mortgage payments.

A recent Credit Suisse report noted that 25 percent of U.S. malls are set to close by 2022 and the no-frills website lists centers that have already shuttered.

“There will be a lot of shopping malls that simply won’t survive,” said Michael Soto, research director at Savills.

There is, however, a mall-half-full version of this story in which the REITs that cut their losses and reposition can endure, a view held by Soto and a number of brokers, analysts and even some owners.

Weathering the storm, experts say, depends on following a few strategies: partnering with e-commerce companies including 800-pound gorilla Amazon, swapping out department and clothing stores for grocery and health retail, and even leveraging nostalgia for the mall as a community gathering space.

Malls may not return to their former glory — or ever again symbolize U.S. consumerism — but they can survive. Here’s how:

Embrace the saboteur

Retail developers tend to see Amazon as an enveloping force of evil that has severely weakened brick-and-mortar stores and made lenders reluctant to invest in physical shopping centers.

Barry Sternlicht, Starwood Capital Group

Barry Sternlicht, Starwood Capital Group

“They are demolishing the Main Streets of America,” Starwood Capital Group’s Barry Sternlicht said of Amazon in a May interview with TRD.

After all, as mall REITs saw declining revenues in the second quarter, the Seattle-based company raked in $106 billion in online shopping sales, a 40 percent year-over-year leap.

But Amazon has become so omnipresent, analysts and brokers say it might actually be wise for mall owners to embrace their enemy. One such partnership that may already be in the works entails using mall space as Amazon distribution hubs, or “fulfillment centers.”

“The argument is that if you want to have a viable long-term mall, we’re all taking emergency steps to get through this together, and that’s why this is a pill that might need to be swallowed for now,” said Casey Sobhani, head of DLA Piper’s U.S. leasing practice. “It’s a good argument, because it’s a true argument.”

Casey Sobhani, DLA Piper

Casey Sobhani, DLA Piper

Simon Property reportedly entered into talks with Amazon in August to convert space now leased by imperiled department stores such as J.C. Penney and Lord & Taylor into fulfillment centers. (Simon Property also teamed up with Brookfield to buy J.C. Penney out of bankruptcy.)

Messages left with Simon Property were not returned.

“The brands that sold clothing did so well in the past, but it is now a bizarre, different time.”

Jay Luchs, Newmark Knight Frank

A spokesperson for Amazon declined to discuss those negotiations but told TRD that the e-commerce giant has warmed to malls. Amazon has even opened 23 bookstores in both enclosed and outdoor shopping centers throughout the U.S. — perhaps a cruel irony for former mall stalwarts such as Borders and Waldenbooks that argued they were pushed out of business by Amazon.

“It made sense to open a bookstore, because books is how Amazon began,” the spokesperson said. “There are still things people want to touch and feel before bringing them into their home.”

Besides 4,500-square-foot bookstores, Amazon is also opening pop-up shops in several malls. A store at Unibail-Rodamco-Westfield’s Century City mall in Los Angeles, for example, is currently showcasing rotating televisions for sale.

Some smaller mall REITs want to go one step further: Offer Amazon and other e-commerce sites affordable rents and other concessions in exchange for incentivizing shoppers to come pick up their purchases.

Lou Conforti, CEO of Columbus, Ohio-based Washington Prime Group, said he sees distribution hubs replacing department stores as the anchor tenants that draw customers into the mall.

“Amazon is a partner, not an enemy,” Conforti maintained. “For us to completely negate and stiff-arm a mode of getting a good or a service — primarily e-commerce [products] — to a consumer is the dumbest darn thing on the planet.”

Find new essential tenants

Jay Luchs, a retail broker at Newmark Knight Frank, argued that “malls are confused as to who is going to stay and who isn’t.”

“The brands that sold clothing did so well in the past, but it is now a bizarre, different time,” he said.

Department stores such as Neiman Marcus and apparel chains like the Gap, the backbone of American malls in the late 20th and early 21st centuries, have either stopping paying rent, face bankruptcy, or both.

The “inessential” tag for many retailers amid the pandemic, Luchs said, mirrors the pre-Covid trend that consumers no longer need the mall for clothes — just as malls no longer need department stores to anchor their space.

Jim Sullivan, a managing director at the financial services firm BTIG, said it would be a “good trade” said for malls to replace their department stores with anything that would help bring in more wanderers. “Retailment” options such as restaurants like the Cheesecake Factory and Dave & Buster’s are a proven traffic generator, even as malls reopen, Sullivan argued.

In contrast to that, along with fading department stores, are essential tenants: pharmacies, grocery stores and other businesses that have seen increased foot traffic and in-store sales amid the pandemic.

Thomas O’Hern, Macerich

Thomas O’Hern, Macerich

During Macerich’s second quarter earnings call, its CEO Thomas O’Hern practically serenaded supermarkets. “We think it’s a great use,” he said. “In many cases we’ve had interest from the grocery store but we haven’t had the space.”

With J.C. Penney and Macy stores on their way out of several Macerich-owned malls, O’Hern said, “it’s going to give us the opportunity to do more of that.”

Another business with perhaps a more reliable customer base is medical clinics.

Gary Weiss, a commercial real estate leasing agent in Century City, pointed to the Westfield Century City mall’s recent placement of a walk-in UCLA Medical Clinic as a shrewd idea — perhaps the patient strolls around the shops after getting a clean bill of health.

More radical ideas, Weiss said, include converting movie theaters into public storage space. “Even when these theaters were built there was the idea that one day people would stop going to the movies, and these could be repurposed,” he noted.

Perhaps the most “essential” mall tenant yet is to be found in the struggling Mall of America. The Minnesota Transitions Charter School is paying a monthly cost to lease space at the 5.6 million-square-foot property, the Minneapolis Star-Tribune reported earlier this month. The charter school was damaged in the unrest following the killing of George Floyd.

School officials told the paper that the mall could lead to “job shadowing and internships for students” as well as using the mall’s famous indoor roller coaster for physics lessons.

Curate space with purpose

More broadly, for some, the typical U.S. mall — once seen as a den of mind-rotting teen consumerism — is now being reimagined as a public square.

“It’s work. This isn’t: I’m gonna sit back on my ass in the mall office and wait for the rent checks to come in.”

Lou Conforti, Washington Prime Group

One retailer lessor mentioned using mall space for voting booths and community meetings, for example.

Dominic Lowe, Unibail-Rodamco-Westfield

Dominic Lowe, Unibail-Rodamco-Westfield

“We’re evolving beyond the mall,” claimed Dominic Lowe, executive vice president of design, development, and construction for Unibail-Rodamco-Westfield. “We want to reshape our asset to become a more diverse micro city or micro village.”

In order to assure lenders and maintain a baseline relevance to customers, each mall may need to more intentionally define its focus.

“Mall operators need to find ways to make the mall experience less homogenous and more curated,” said retail strategist Marshall Kay. “Some have operated more like the owners of flea markets, who are filling stalls.”

For some high-end urban malls in Los Angeles and New York, Newmark’s Luchs noted, that can be as simple as doubling down as a spot for luxury brands.

But such curation may not play out the same way in smaller markets like Peoria, Illinois.

Lou Conforti, Washington Prime

Lou Conforti, Washington Prime

Conforti of Washington Prime, which has malls in Peoria and other mid-sized cities throughout the Midwest, said his general managers walk the downtown streets and seek to lure businesses that can provide an antidote to (often struggling) national chains.

“It’s work,“ Conforti said. “This isn’t: I’m gonna sit back on my ass in the mall office and wait for the rent checks to come in.”

Local tenants could help malls’ hoped-for reputation as community gathering space.

“Communities have used shopping centers as a way to provide a sense of normalcy,” said Sandy Sigal, CEO of Woodland Hills-based retail REIT NewMark Merrill. “That is the role retail is going to play in the long term.”

Keep an e-friendly mindset

Brokers and analysts say they would like to see mall REITs use tech to their advantage instead of viewing it as a threat to their business models.

Specific innovations include virtual reality advancements for “virtual dressing rooms.”

“Mall-based apparel retailers can utilize virtual dressing rooms to attract customers back to stores to inspect products, yet offer the safety of not having to try them on physically,” said Jie Zhang, a professor of retail management at the University of Maryland business school.

Another example cited is the widespread use of radio frequency identification technology, or RFID, which tracks inventory, making it easier to ship products from store to store and reduces the labor costs of refilling inventory.

Beyond any specific fixes, many mall owners are frustrated with tenants they view as not trying to modernize.

Sigal, at the California-based mall owner NewMark Merrill, grumbled that Covid non-rent payers like Bed Bath & Beyond are guilty of “self-inflicted” damage.

But perhaps the onus to modernize rests more on the mall than the tenants.

Reposition, in part

While mall REITs have their fair share of financial troubles looking ahead, many of the malls still sit on extremely valuable property.

“Communities have, in a lot of cases, been built up around these malls,” said Donald Bredberg, managing director of the retail advisory firm StoneCreek Partners.

That means that if all else fails, in some cases, mall owners can make a tidy sum either selling off their land or repurposing it.

The latter is happening now in Los Angeles, where Unibail-Rodamco-Westfield’s Westside Pavilion is being rented out to Google, and in New York, where the shuttered Neiman Marcus in Hudson Yards is being marketed as future office space.

Bredbreg noted that repositioning part of a mall can help bring in more foot traffic to the remaining retail.

As with other facets of the U.S. economy, mall post mortems are already being penned.

But in revising the make-up of their tenants, understanding which companies are friend and foe, and making a few modernizations, Bredberg said: “Not all is lost.”

North Palm Beach mixed-use property hits the market for $45M

From left: Chris Maling, Donald K. DeWoody Jr., David Maling, and Alfredo Sanchez

From left: Chris Maling, Donald K. DeWoody Jr., David Maling, and Alfredo Sanchez

A North Palm Beach mixed-use property hit the market for $44.75 million, amid uncertainty in the office and retail markets.

The 118,000-square-foot complex at 1201 U.S. Highway 1 is on 7.9 acres, according to a press release. Called Crystal Cove Commons and Crystal Tree, the property features 75,000 square feet of ground-floor retail next to a four-story office building.

An affiliate of Black Lion Investment owns the complex, which was built in 1982. The Beverly Hills-based commercial real estate firm is led by Robert Rivani.

Avison Young’s Chris Maling, David Maling, Donald K. DeWoody Jr. and Alfredo Sanchez have the listing, according to the release.

Black Lion bought the complex in 2016 for $14 million, or $120 per square foot, and renovated it two years later. The property, now asking about $379 per square foot, is 90 percent occupied. Tenants include a Tervis store, Cod & Capers Seafood Marketplace and Cafe and the BioMetrix clinic and gym.

Office lease rates are $17 a square foot a year, an online listing shows.

Recent office sales in Palm Beach County include $49.8 million for a Palm Beach Gardens office complex built by Jack Nicklaus’ development company and $80 million for the DiVosta Tower, also in Palm Beach Gardens.

The sales come despite the strain on the South Florida office market due to employers’ reliance on remote working amid the pandemic.

In February, Black Lion sold the 6,900-square-foot space on the ground-floor and mezzanine level of the Four Ambassadors building in Miami’s Brickell area to a Turkish entertainment company for $1,232 per square foot.

Black-owned firms to launch first affordable-housing REIT

MacFarlane Partners CEO Victor MacFarlane and Avanath Capital Management CEO Daryl Carter (Photos via MacFarlane Partners and Avanath Capital)

MacFarlane Partners CEO Victor MacFarlane and Avanath Capital Management CEO Daryl Carter (Photos via MacFarlane Partners and Avanath Capital)

Two of the largest minority-owned real estate investment firms in the country are teaming up to launch what they say is the first public real estate company dedicated to affordable housing.

California-based investor Avanath Capital Management and Maryland’s MacFarlane Partners filed paperwork with the U.S. Securities and Exchange Commission to launch a new real estate investment trust targeting $1.6 billion in investments.

“We will be the first publicly traded REIT to pursue a strategy focused on affordable and workforce multifamily housing,” the two Black-owned companies wrote Friday in a registration form for the new entity, dubbed Aspire Real Estate Investors.

“These sectors historically have been fragmented in ownership and underserved by institutional capital, yet they comprise a majority of the U.S. multifamily market (by units) and offer strong long-term fundamentals to generate attractive returns for investors.”

Avanath Capital, which as of 2018 reportedly had $1.2 billion in assets under management, was founded in 2007 by Daryl J. Carter. MacFarlane Partners was founded in 1987 by Victor MacFarlane.

A spokesperson for MacFarlane declined to comment, citing the quiet period after a registration statement is filed with the SEC. A representative for Avanath did not immediately respond to a request for comment.

The new REIT will target federal Opportunity Zones and other areas for investments in workforce housing and affordable housing, the latter of which it defines as developments where renters earn a maximum of 60 percent of the area’s median income.

The prospectus says Aspire Real Estate Investors has already lined up an initial portfolio of 9 investments in Illinois, Florida, Texas, North Carolina, California and Michigan that will cost $582.4 million once the acquisition and redevelopment costs are factored in. Aspire will buy the properties from Avanath.

In addition, the REIT said it has identified an acquisition pipeline totaling $1.1 billion in projects.