Top of Mind: Are Retail Strip Centers the Next Hot Real Estate Trend?

The Wall Street Journal Article ⁠https://www.wsj.com/articles/the-hottest-real-estate-play-is-in-your-neighborhood-7e8ff991

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Transcription

Ben Fraser: Hello, and welcome back to another episode of the Invest Like a Billionaire podcast. I am your co-host, Ben Fraser, joined by fellow co-host Bob Fraser, and we’ve got another top of mind episode for you today. And so these are shorter episodes where we focus on one particular topic that’s newsworthy or something that jumps out to us or even.

Things that are submitted by our investors or people that are listening, asking questions about what’s going on. And one that kind of stuck out to us felt like a little bit of a pat in the back ’cause this is something we’ve been looking at for a while. And one of our favorite publications, the Wall Street Journal just published an article and this is called The Hottest Real Estate Plays in Your Neighborhood, and is actually talking about neighborhood retail strip centers.

As being the hottest play in real estate right now.

Bob Fraser: Which you, our investors have gotten in a big way. Yeah. So congratulations. 

Ben Fraser: So this is an asset class that we really started looking at early the beginning of last year and started looking at, in a very focused way, is seeing a potential from all these different dynamics playing out.

And I’ve mixed emotions about this article because one, it feels good that hey, they’re substantiating something that we’ve been seeing for a little while, but, Two, I don’t really wanna get the secret out too much just yet. Our li listenership isn’t so massive that it’s gonna throw the industry off.

But I wanna buy a lot more of these deals. I know. And so it’s I’ve conflicted. But the interesting points that they make, one, and this is something we’ve talked about before. 

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They’re not building anymore of these strip centers. 

Bob Fraser: So these strip centers are the ones we’re talking about are the ones that are in the suburbs.

They’re in your neighborhood. And it’s just these little strip centers that generally have services. So it’s the restaurants, the bars, the dog room or the nail salon, the little workout place, and these are not being intermediated by online and they’re freaking booming.

And Yeah, in spite of, quote the recession in spite of Covid, 

Ben Fraser: et cetera. Yeah so what’s interesting about these is they’re not the big box. Retailers that you see that are, have the big names in there, the triple, credit tenant rated tenants. It’s not your shopping mall, right?

These aren’t the ones that are ghost towns, in the middle of suburbs there. These are right by neighborhoods and they’re generally smaller, more service-based businesses. And what’s really interesting about it, and some of the points they make in this article is, The way Covid has changed just the work balance that people are working a lot more from home.

Bob Fraser: They’re closer to their home. Yeah. They’re spending more time at their home and so they want to, they get the services near their home. 

Ben Fraser: And so this is a trend that, we believe, is going to stabilize in a pretty, strong direction towards a nice balance between work and office, but definitely a lot more home than there was, pre covid, right?

And so this is now something that’s gonna be a quick hit and revert back to the prior meaning. I think this is gonna be something that we’re gonna see a trend continue where people are wanting to shop closer to home. And the biggest pushback we always get on these types of deals is.

Oh, retail is dead, right? Because we know it’s been dead for a long time. ’cause Amazon’s coming and just completely obliterated retail. But what’s interesting, and we’ve shown this in past episodes, you can go back and listen to e-commerce really, it’s. Skyrocketed from percent of total retail sales.

But it’s actually plateauing. So the amount of sales, retail sales that are happening in a given year are stabilizing at the rates they are now, where there’s still a lot of online activity.

Bob Fraser: And the article has even said the online has indented these bricks and mortar locations.

Yeah. In fact, they’re being used, they’re making the Flynn article. They’re being used to deliver local delivery of, online pickup of online purchases. Yes. And they make the point. You can’t replace your liquor store. You can’t replace your nail salon. I. Online and you’re not buying your haircuts online either.

Yep. So it’s these kinds of things and some of the things they didn’t mention in the article, but they, but it’s true of these neighborhood retail is one they’re very cheap. You can buy them at a 9% cap rate, which is about half the price of an equivalent multi same dollar earned.

Yep. You pay half for a dollar of retail earnings and then you do a dollar of multi-family earnings. Yeah. And that’s insane. Yeah. And they’re on sale and they’ve, they have not been built. There’s things you think about the last time you saw a strip mall being built. Yeah. There’s nothing 

Ben Fraser: I can’t think of the last 15 or 20 years.

Bob Fraser: Yeah. And so these, and they’re selling right now at about half of replacement cost. So meaning, if it’s a $3 million strip mall, you’re buying it for 3 million. If you were to tear it down and rebuild it, it would cost $6 million. What does that tell you? The prices are going up for these things.

So yeah, it’s just, it’s really a, it’s really just a fantastic opportunity, one that we’ve been following for quite a while and we’ve. Happily placed our investors in one. We wanna place a whole lot more. I’d love to buy a few half million dollars worth of this stuff and then sell it off to REITs at some point.

Ben Fraser: Yeah, absolutely. Just to recap here, we’ve got the same or decreasing supply and it’s not economical to build new supply. We have strong retail sales, strong demand for these types of properties from a tenant standpoint. And we still have a very strong consumer base. We’ve shared about this a lot in past episodes. The consumer is actually in a very healthy position, and so these all bode very well for that. So this is really more of a p s A for all those that are still skeptical of retail real estate and something that you definitely need to be paying attention to and think about from an allocation standpoint.

As we’re looking for the goldmine opportunities, in this current environment. Alright, I hope you enjoy this episode and tune in next time for more great insight. 

Bob Fraser: And if you run across an article you want us to comment on, send it over to us. 

Ben Fraser: Absolutely. We love that. We love that.

We’ve got a lot of us. Submittals from listeners asking different things, and we love to respond to those when we can.