REFI Forum: Investor innovation driving retail progress

Innovative investors are figuring out a new path forward for the retail sector, with creativity and adaptive reuse a key...

Innovative investors are figuring out a new path forward for the retail sector, with creativity and adaptive reuse a key component of all successful redevelopments, according to panelists at the keynote general session of REFI’s first annual Institutional Investor Forum. The panelists explored a broad swath of recent transactions that ranged from billion-dollar retail and office investments to multi-thousand-unit residential acquisitions.

The panel was moderated by Scott A. Singer, president of The Singer & Bassuk Organization, and included Rob Deckey, managing director at Invesco, Andrew Schaffler, director of listed real estate securities at Madison International Realty, and Jason Morgan, senior v.p. at Morgan Properties.

“We believe there’s an opportunity to redevelop retail assets,” Deckey said. He cited the case of 888 Broadway, a 100-year-old property that Invesco recently acquired with Normandy Real Estate Partners that was the longtime home of ABC Carpet & Home. The partners are planning a major renovation and conversion of the property, which includes transforming the upper floors to creative office space. “You can’t make money selling kitchen chairs anymore in New York City,” he added. “Restaurants and amazing retail on the first floor will make it an activated office building – you get much higher rents as an office with retail.”

WeWork is doing the same to the Lord & Taylor flagship store at 424 Fifth Avenue while San Francisco-based industrial real estate investment trust Prologis recently purchased the ABC Carpet & Home building in the Bronx, with plans to convert the property into a warehouse.

Andrew Schaffler, director of Listed Real Estate Securities at Madison International Realty, noted the demand drivers are shifting for retail goods. “Consider demographics: Baby Boomers are no longer a massive consumer of goods – they are consuming healthcare, travel, services like Spotify, cellphones, and other items,” he said. “Further, Millennials are only now on the cusp of entering their consumption years as they start families and enjoy incomes that allow more discretionary spend.”

The relationship between e-commerce and in-store sales is complex, Schaffler added. “The lines blur too much in terms of commerce and forecasting the death of brick and mortar retail – those numbers are funky because many stores are fulfilling online orders through their physical stores,” he said. “It’s been a 2%-ish GDP environment so we shouldn’t expect more robust sales growth.

Shifting gears, panelists agreed that with current challenges from Hudson Yards and Downtown, Midtown Manhattan’s office market is far from dead – but certain areas and properties require substantial improvements – presenting great opportunity. “Aetna and Cadillac are two recent examples of companies moving downtown,” Deckey said. “Companies no longer want to locate solely on Park Avenue – they are looking anywhere and everywhere. Midtown needs new restaurants and entertainment venues to drive activity.” He cited work that’s being done by his firm at 1221 Avenue of the Americas that will significantly improve the tenant and visitor experience. “We’re spending $75 million on upgrades and believe that lower-level retail will activate the retail street-level experience,” he added.

Meanwhile, Morgan Properties, a multifamily specialist that owns approximately 45,000 units in the Mid-Atlantic, has completed more than $3bn of acquisitions totaling 23,000 units over the past six years. “We are extremely bullish on Class B multifamily. The space has proven to be incredibly resilient through market cycles including the 2008 recession,” said Jason Morgan, senior v.p. The firm recently acquired the Mark Center Portfolio, a 2,600-unit portfolio with about 60,000 square feet of retail in Alexandria, Va., for $509 million from JBG Smith.  “Alexandria is a definitely a market Morgan Properties is looking to expand in,” he added.