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Retail Closings and Impacts on Nontraded REITs

March 23, 2017

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Retail Closings and Impacts on Nontraded REITs

March 23, 2017 | by James Sprow | Blue Vault

Stock market abstract background

With the announcement by J.C. Penney Co. Inc. that 138 stores will be closed, all eyes are focused on retail and the sea-change that is occurring in the sector. How do retail store closings affect nontraded REITs? 

Interestingly, none of the J. C. Penney stores are within properties owned by nontraded REITs, which is not to say that the closings will not indirectly have effects on those portfolios. The J.C. Penney stores are often anchor tenants within shopping malls, especially mid-market shopping malls that are being hurt the worst by trends away from bricks-and-mortar to online shopping.

SNL reports that only 10 of the 138 J. C. Penney store closings are at properties owned by SNL-covered real estate companies, none of which are nontraded REITs. To quote a recent SNL report:

Simon Property Group Inc., Westfield Corp. and Brixmor Property Group Inc. each own equity interests in two properties impacted by a closure, while Pennsylvania Real Estate Investment Trust, CBL & Associates Properties Inc., Washington Prime Group Inc. and Morguard Corp. each own one affected property.”

Digging deeper, there are many more retailers that have announced store closures, a virtual tidal wave of household names in the sector.  Among the biggest names and the number of stores estimated to be closing in early 2017: Payless (1,000), RadioShack (552), The Limited (250), Family Christian (240), Kmart (108), HHGregg (88), Staples (70), CVS (70), Macy’s (68), Abercrombie & Fitch (60), Sears (42) and Gander Mountain (30). 

How many of these stores appear as tenants in the portfolios of nontraded REITs in the retail space? Very few, as it appears. Staples (0), J.C. Penney (0), Gander Mountain (0), Payless (0), Macy’s (0), RadioShack (0), Sears (0). Family Christian (0). This is not to imply that retail store closures won’t impact nontraded REITs, but the impacts are more likely to be indirect if the closures are in the same neighborhoods as retail properties owned by the NTRs. 

On the flip side of the bricks-and-mortar closings is the growth in the number of distribution facilities owned by nontraded REITs and leased to the firms most responsible for the revolution in retailing. For example, Amazon and FedEx Corp. are both tenants within the portfolios of nontraded REITs. Cole Office & Industrial acquired an Amazon distribution center in June, 2016 in Ruskin, Florida with over one million square feet for $105.7 million. Jones Lang LaSalle Income Property Trust has 4% of its GLA and 7% of its rental revenues from Amazon. Griffin Capital Essential Asset REIT II has Amazon and FedEx as tenants.

As the retail sector evolves, there will be winners and losers. For now, nontraded REITs appear to be picking sides correctly.

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John E. Moriarty, ChFC
December 2015
February 3, 2016

I have been in the financial services industry for 20 years and our firm provides an education platform that gets clients to “think differently” about their financial picture.  For many years we have communicated to clients the need to diversify their portfolios using alternative asset classes and more specifically, private non-traded investments.  Due diligence on these types of financial vehicles is essential and when I learned about Blue Vault in 2010, our firm immediately began using their material as a tool to build confidence in the minds of our advisors on which alternatives to recommend to clients.  I am impressed with the way Blue Vault continues to add value to their subscribers and I view their publication as a tremendous resource in today’s complex world.