2021: What’s In Store for Retail
January 19, 2021 • A group of retail real estate professionals gathered late last year for an International Council of Shopping Centers Legal Forum webinar to discuss the likely ramifications of COVID on brick-and-mortar retail in 2021 and beyond.
Ellen Sinreich curated and moderated the discussion. The panelists included Courtney Smith, Senior Vice President of RPT Realty, which owns and operates 49 open-air centers throughout the country; Adam Pennington, Executive Vice President of Xponential Fitness (Xpo), global franchisor of eight boutique fitness brands; Rick Lechtman, First Vice President of Marcus & Millichap Capital Markets, which originates real estate debt and equity investments; and Nina Kampler, Founder of Kampler Advisory Group, a retail real estate opportunistic, value-add advisor. Key takeaways from each of the panelists included the following.
2021: Looking Forward to a Year of Growth and Opportunity
Adam shared that Xpo heads into 2021 with each of its 1,600 pre-Covid global locations intact. He attributes this success to their small footprint per location, innovative and flexible post-Covid digital and outdoor offerings, and location-specific vs one-size-fits-all Covid relief negotiations. Adam expects 2021 to be a year of growth and opportunity for Xpo, citing increasing membership subscriptions since mid-2020, more favorable rental rates and lease terms, and the rollout of their Xpo Village and XPass strategies: two or more of their different fitness brands will be clustered together wherever possible and members will be able to buy passes to multiple Xpo brands.
Lack of Visibility into Future Cash Flow Will Be a Challenge
Courtney sees tremendous potential in 2021 for investment both inside and outside of RPT’s walls. Within their walls they will continue to strengthen relationships with existing tenants and attract new tenants with a focus on essential businesses. Outside their walls he expects acquisition opportunities to materialize as post-Covid retail asset valuations reset. The key challenge to taking advantage of both opportunities is the difficulty of underwriting future shopping center cash flow as a result of the uncertain duration and ultimate impact of the Covid pandemic. That said, Courtney and RPT are taking a long-term view in evaluating real estate acquisition opportunities in markets with strong fundamentals, including the southeast and New York City suburbs.
Lenders are NOT Partners When It Comes to COVID Relief
Rick brought the lenders’ perspective to the discussion. In Rick's view, lenders can't be expected to partner with the landlords and tenants that support their retail real estate loans when it comes to Covid relief. Their primary fiduciary obligation is to ensure, for the benefit of their shareholders, that they are repaid in full. Thus if a shopping center owner needs long-term lender forbearance as a result of Covid, additional equity or other meaningful consideration will likely be necessary. With respect to new retail real estate loans that are being made notwithstanding Covid, Rick noted that in each case the lender must be able to underwrite the durability of future cash flow with enough certainty to justify making the loan.
Retail Rent Resets Will Enable New Retailers to Emerge
Nina sees chaos and opportunity for retail landlords and tenants in the year ahead and beyond. She expects consumer habits to evolve post-Covid into a new normal that is still hazy. Once this new normal emerges, Nina expects retail valuations to adjust downward, enabling new retailers and retail concepts to get a foothold in markets they would otherwise be priced out of. Nina also looks forward to the resetting of landlord/tenant relationships from one that is often antagonistic to one that is cooperative. She believes this will facilitate meaningful long-term post-Covid lease restructuring as the dust settles on this most unsettling chapter in all of our lives.