🛍 Has the demise of retail been exaggerated?

Hello, Best Ever Community!

In this week’s newsletter, the retail sector reimagines itself, LPs learn how to not panic over paused distributions, and we break down the pros and cons of offering non-refundable earnest money.

Also, our very own Ash Patel is hosting a webinar TODAY to discuss how you can invest in the hottest asset class in real estate: flex industrial. Sign up here to save your seat!

Here we go!

⭐️ Top Story ⭐️

The Demise of Retail Has Been Greatly Exaggerated

TLDR: Despite challenges facing the broader commercial real estate sector, retail real estate is surviving and thriving. Factors like international interest in U.S. malls, strip mall resilience, and increased retail store openings contribute to this sector’s ongoing success.

The Story: So you’re looking to open up a store, maybe a laundromat or bakery? Aside from picking killer names like ‘Lord of the Rinse’ and ‘Bread Pitt,’ now you need to find a location. The problem is that there’s record-low retail availability due to strong demand for this commercial real estate sector, according to the WSJ.

Key Points:

• High Demand: Overall retail space availability hit record lows in Q2 2023, dropping 10 basis points to 4.8%. This is the lowest availability rate since CBRE began counting the data 18 years ago. Retail also witnessed negative net absorption in Q2, likely due to these high occupancy rates.

• International Interest: Originally skeptical, major French retail owners are now actively investing in U.S. malls, seeing the potential for growth and profitability. The change in perception is mainly due to the resilience of the American consumer market, as detailed by CoStar.

• Resilient Strip Malls: Strip malls are experiencing lower vacancy rates than other commercial real estate types, as documented by Retail Dive. Their smaller footprints and adaptability make them attractive to a range of tenants.

• In This Economy? Despite calls for the death of retail due to e-commerce and rising inflation, people are still hitting the shops and malls in record numbers, according to reports.

• New Markets: CBRE highlights that suburban, secondary, and tertiary markets are seeing strong demand for all aspects of retail real estate. This trend will only continue as hybrid work becomes more entrenched. Asking rents in suburban markets are outpacing those of urban ones.

• Shopping Mall Resurgence: Despite a predicted downfall of shopping malls, CNN reports an unexpected growth trend in this retail subsector. Many malls now adapt to consumer needs, incorporate mixed-use components, and host events to draw shoppers.

• Saving Grace: As office struggles and multifamily faces a tidal wave of increased debt costs, the retail sector will add 4,500 more stores this year.

So What? The resilience of the retail real estate sector amidst broader economic challenges is attracting continued investor interest. Key indicators suggest that retail real estate is actively adapting and evolving instead of being a fading segment.

Whether it's the newfound interest of foreign investors, the robustness of strip malls, or the innovative strategies of mall owners, the sector is reimagining itself. It's a testimony to the fact that even in the face of adversity, innovation and adaptability can pave the way for success.

—Brad from Briefcase

👉 For more content like this and to learn how trends and events impact real estate, sign up for the Briefcase newsletter here.

🗞 No-Fluff News

Multifamily Nosedive: Apartment sales volume fell 76% YoY to $6 billion in July, 53% below the pre-pandemic five-year average of $12.7 billion.

Back to School: Investors are turning their attention to student housing, attracted by its resilience during the economic downturn, superior rent growth compared to traditional multifamily, and above-average returns.

Developmental State: Multifamily permits are down 32.2% YoY, while single-family permits and starts are both inching back up.

The Missing Multifamily: As states implement zoning reform to address the affordable housing crisis, the construction of low-density homes such as duplexes and triplexes remains near historic lows.

Blackstone’s Gamble: As borrowing costs rise and property values sink, Blackstone’s flagship real estate fund (BREIT) is turning to data centers to capitalize on the AI boom.

Kimco’s $2B Deal: Kimco Realty announced this week its intention to acquire RPT Realty — whose tenants include TJ Maxx, Dollar Tree, and Ross Stores — in an all-stock deal worth approximately $2 billion.

SEC Backs Down: Hedge funds and private equity firms are breathing a sigh of relief after the SEC relaxed several contentious parts of proposed regulations aimed ​​at increasing transparency.

Wall Street’s WeWork Response: Fund managers like BlackRock, King Street Capital, and Brigade Capital have begun initial discussions on restructuring possibilities, showing an inclination towards supporting a potential Chapter 11 bankruptcy filing for WeWork.

💻 Free Webinar TODAY!

Learn About Investing in Flex Industrial Real Estate
From Industry Pro, Ash Patel

Are you curious about investing in flex industrial to diversify your portfolio, but hesitant about the risks and unknown factors?

Join us in this free, live, 30-minute webinar at 2 p.m. EST on Thursday, August 31 to answer all of your questions about investing in the most sought-after asset class in commercial real estate!

👉 Reserve your seat now!

✍️ From the Best Ever Blog

📈 Rising interest rates have sparked concerns among limited partners regarding their investments. The surge in rates has squeezed cash flow, leading operators to pause distributions. Investor anxieties are valid as mortgages balloon, with some deals even slipping into negative cash flow.

🚨 This prompts the question: Is panic warranted or should patience prevail? With rates on the upswing and capitalization expanding, operators are emphasizing capital preservation through the suspension of distributions.

This Best Ever blog post from John Casmon delves into crucial factors like cash flow, project phase, and the path to resuming distributions or deciding to sell, offering guidance for decision-making during these uncertain times.

• 💸 Cash Flow Is Pivotal: While a deal might have positive cash flow without making distributions, factors like increased expenses or rising debt can flip it to negative, impacting the property's financial health.
  

• 🔨 The Project Phase Matters: Properties in early stages have the flexibility to adjust, while those further along may face challenges if initial assumptions no longer hold true.
  

• 🧠 Understand the Path to Resuming Distributions or Opting to Sell: Factors like property value, refinancing options, and debt constraints play a role, with a refinance serving as a bridge to a more profitable equity event in the future.

🧭 “As you understand the property’s operational performance and financial position, you should also understand the plan moving forward. How will the operators get from where things are today to the point where distributions can resume? What concerns do they have and what obstacles will they need to overcome to see success?” —John Casmon

👉 Read the full article here. 

🏆 Community Win

GoldHawk Capital Helps Fund Rise48 Equity’s Latest Multifamily Acquisition

🤝 Rise48 recently closed on the 228-unit Creekside at Northlake Apartments in Dallas, TX, which it plans to rebrand as “Rise Creekside.”

• GoldHawk Capital was thrilled to contribute a $1 million check to secure a slice of this opportunity.

• “Our fund-of-funds model is working well and we're happy to help investors get in on these deals with superior terms,” Elijah Brown of GoldHawk Capital said.

• Creekside at Northlake Apartments is Rise48 Equity’s 45th acquisition, and their fifth in Dallas, bringing their total door count in Dallas to 1,362.

• This deal marks another milestone in Rise48 Equity’s journey as it crosses the $2.03 billion mark in total transactions. It currently has $1.59 billion of assets under management in the Phoenix, AZ, and Dallas, TX, MSAs.

🥂 Huge shoutout to both GoldHawk Capital and Rise48 Equity for this win!

🎙 From the Best Ever Podcast

💰 Nic McGrue — Master Capital Raising and Joint Ventures With Expert Insights From a Securities Attorney: Nic sheds light on critical nuances, dispels common myths, and reveals strategies to ensure your investments are both lucrative and legally sound. Listen here.

🛍 Josh Weiner — Unveiling Profitable Retail Outparcel Investment Strategies: Josh dives deep into the world of outparcel investment strategies, revealing how both tenants and landlords can maximize their returns in the competitive retail sector. Listen here.

🎖 Michael Barnhart — Transferring Military Experience to Success in Real Estate: Michael shares how he and his partner managed properties while globe-trotting, tackled unexpected challenges, and achieved remarkable success in the world of commercial real estate. Listen here.

📁 Free Document Download

Should You Offer Non-Refundable Earnest Money? (PDF)

In the realm of real estate negotiations, the decision to offer non-refundable earnest money can significantly impact your position. This document delves into the considerations surrounding this choice, explaining when and why it might be a strategic move in competitive markets.

👉 Download now!

📚 Best Ever Book Club Meets Today!

Join Joe Fairless, founder of Best Ever CRE and co-founder of Ashcroft Capital, TODAY at 12 p.m. EST for the Best Ever Book Club, a non-fiction book club (led by Joe) in which we read and discuss books that can have a positive impact on our lives as real estate investors.

Today, we’ll be discussing 10x Is Easier Than 2x by Dan Sullivan and Dr. Benjamin Hardy.

✍️ Sign up and join the discussion today!

🙏 Thanks for reading!

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 Have a Best Ever day!

—Joe Fairless