Real estate managers are still investing in retail as the sector goes through massive changes, hoping they have correctly predicted where the sector will be in the future.
Among recent developments:
- Alternative investment firm Rhone Capital LLC, together with office-sharing firm WeWork Co. and global retailer Hudson's Bay Co., on Oct. 24 announced an $850 million deal to buy Lord & Taylor's flagship store in New York, reducing the retail space to about a quarter of its current size and turning the rest into WeWork's New York headquarters and office space;
- Brisbane-based money manager QIC on Oct. 2 acquired the approximately 50% interest it didn't already own in a $3.2 billion portfolio of 10 U.S. malls from its joint venture partner Forest City Realty Trust Inc., a real estate investment trust; and
- TH Real Estate, Nuveen's real estate investment management affiliate, in 2016 closed a $1.25 billion fund to invest in super-regional malls in the U.S.
Retail's woes were aggravated by the advent of e-commerce, which is forcing managers to redesign their malls and add sought-after tenants to make up for falling rents and returns for some retail properties.
"Part of being successful is that you are counterintuitive from the pack and invest when everyone else is singing from the rooftops to get out of retail," said Damien Frawley, CEO of QIC. Mr. Frawley said the deal with QIC's existing joint venture partner is a "great opportunity" to expand its investment in U.S. regional malls.
"E-commerce won't kill retail," Mr. Frawley said. "Retail today is an omni-channel that blends brick and mortar with an online presence."
But retail won't be the same as it was for the past 50 years. Regional malls now need a mix of tenants, such as restaurants and specialty stores. Instead, traffic-drawing stores from Apple Inc. and Tesla Inc. are more highly prized. Even traditional retailers, such as department stores, are drastically reducing the size of their stores.
Like other managers investing today in retail, QIC executives are selective.
QIC's strategy is to stick with regional malls; it does not invest in strip or inner-city retail, Mr. Frawley said.