Last week, I asked an older gentleman how he built his $2B (B for BILLION) retail real estate empire. His answer: “Slowly”—no pause for effect—“and I bought the right locations.” As this guy sees it, the extraordinary success of his portfolio boils down to that. He kept his focus on buying top-tier locations, and still does. Right now, he is only looking at triple A locations at over $100MM.
Good for him, who cares?
Retail buyers currently face two interlinked challenges: (1) How to create value from a retail property; and (2) Getting banks to believe in said property. By choosing the elite of the elite locations, the above mentioned billionaire was able to do both, even during tight times when others could not or did not. After all, real estate is a performance game.
The biggest surprise I’ve seen in recent months is the number of buyers looking for vacant retail, even as vacancy rates are down across the City. Why? Retail rents are mostly going up; some post-pandemic leases area already under market, and the those annual escalations are indeed an attractive hedge against inflation. So it makes sense that buyers are seeing that the easiest way to create value is just letting the market do it for them.
Price discovery is also easier than six months ago. However, getting financing is harder, and as a result, some long-time NYC real estate families just aren’t buying. Banks have capital calls on existing loans and, they say, there just aren’t any “deals” out there.
Translation: There are no steals out there, why? Because there are so many buyers today.
Which brings us right back to the question of the right location. It’s far easier to get a bank to commit to an A+ location than anything less. As the gentleman points out, billion-dollar empires are built on the lasting value of prime properties.
Right now, I have the honor of marketing some once-in-a-lifetime retail properties in Manhattan. Please call me to discuss.