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Retail real estate insulated from retail industry woes, experts say

The retail industry has passed several phases of existential risks. First, mom-and-pop stores faced extinction against malls. Then smaller malls faced competition against bigger malls and the Internet.

This has resulted in an extended casualty list. So far this year, retailers like Payless ShoeSource and rue21 have filed for bankruptcy, in the process announcing plans to close hundreds of stores.

While retailers may be in flux, their landlords may not be sharing in their pain. Acadia Realty Trust CEO Kenneth Bernstein said that reports of retail real estate’s demise have been overstated, adding that owners are sufficiently walled off from their tenants’ misfortune.

“At some point, perception becomes reality. I think that’s what we’re all fighting through, differentiating how much of this is a short-term condition impacting certain retailers and how much are longer term issues,” Bernstein said during a presentation at last week’s REITWeek event.

“Along with that, how do we cut to the noise and get to the reality that retailer softness, while never good for us, doesn’t necessarily correlate to weakness in the real estate that we own. We don’t enjoy all of the upside when retailers are doing great, and we are certainly insulated from a lot of the downside.”

Conor Flynn, the CEO of Kimco Realty, was likewise dismissive of the negative perception of retail real estate.

“There is a pretty large disconnect between perception and reality right now. In the shopping center space, we clearly see a wide demand from retailers that are expanding,” he said.

“I think, with what’s going on in the media and some of the store closure announcements, the retail negativity has really exploded. They have lumped everybody together in one group.”

Flynn pointed to the off-price sector as a source of optimism, singling out brands such as TJ Maxx, Marshalls, Ross Dress for Less and Burlington Coat Factory.

While retail landlords remain optimistic about their prospects, their pool of tenants continues to shrink. According to data from BankruptcyData.com, more than 300 retailers have filed for Chapter 11 bankruptcy this year. Some of the biggest brands to announce hundreds of store closures include children’s clothing retailer Gymboree, which may close 375 locations, and furniture store hhgregg, which may close all of its 132 stores.

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