Finding Alpha in Commercial Real Estate Against The Trend Through Repositioning

For much of the last two decades, retail growth has been dominated by technology platforms cutting significant sales away from traditional brick and mortar into online via direct-to-consumer or online wholesale channels. The most successful names in retail, like Costco Wholesale Corporation (NASDAQ: COST), Walmart Inc. (NASDAQ: WMT), and Amazon.com, Inc. (NASDAQ: AMZN), all demonstrated consistent success balancing a hybrid model with long-standing double-digit annual online sales growth in harmony with brick-and-mortar optimization to capture consumer loyalty. While Amazon led the online charge, breaking history to be the fastest-growing retailer to surpass $100 billion USD in annual sales, their balancing act with brick-and-mortar came through acquiring high-quality established brands, highlighted by Whole Foods Market. Costco and Walmart successfully played online catch-up as their dominant brick-and-mortar history, in unison with strong customer loyalty, eased their successful pivot to online, driving strong growth and financial strength. With the tailwinds building during the expansion of these big three and dominance only exacerbated by online growth experienced during covid, surely some brick-and-mortar household names would fall by the wayside, creating a sea change and several serious commercial real estate market disruptions. The most prevalent examples are traditional shopping malls, often littered with store closures and bankrupt remnants accompanied by stymied consumer foot traffic.

Major bankruptcies included Sears Holdings (2018), Toys "R" Us (2017), J.C. Penney (2020), Neiman Marcus (2020), and Bed Bath & Beyond (2023). Despite the fact that most of these long-built brands accumulated real estate portfolios, giving them access to fairly priced debt in a historically low interest rate environment, their inability to maneuver the sea change or convert into a hybrid model opened opportunities for those better capitalized, forging ahead with a focused vision for repositioning. Simon Property Group, Inc. (NYSE: SPG) shareholders fared particularly well following the March 2020 COVID lows in the $45 per share range with a relatively steady climb to approximately $200 per share over these past 6 years. Simon Property Group's ability to save the performing J.C. Penney's stores but reposition the non-performers to revitalize shopping malls with conversions to popular Life Time Fitness Clubs, from Life Time Group Holdings, Inc. (NYSE: LTH), has enhanced foot traffic among other mixed-use real estate initiatives at times, including conversions to office space, luxury housing, hotels, restaurants, and luxury retail. This mixed-use, lifestyle-based revitalization approach by SPG has proven itself in several major markets. Looking to follow suit in the athleisure lifestyle real estate repurposing trend Arvana Inc. (OTCID: AVNI) seeks entrance into this revitalization of underperforming retail real estate by converting several of these large spaces into gun ranges and supporting businesses that cater to a growing U.S. athleisure market in lockstep with hiking and other outdoor lifestyle-focused retail themes. Commercial property as a whole has had its challenges, requiring a well-developed game plan to sustain or reposition properties to create a fresh look with the potential to command and manage a more recession-proof real estate portfolio through novel concepts.

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