🔥 Retail is on fire. Here's why.

👋 Hello, Best Ever Community!

In this week’s newsletter, retail flips the script, John Casmon raises red flags, and one investor turns a billionaire’s personal storage unit into a flex industrial home run.

This week’s newsletter is brought to you by Viking Capital, a multifamily boutique with nimble investment sourcing, structuring, execution, and asset management capabilities. Learn more about Viking Capital here.

Let’s go!

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CRE HEADLINES

😶‍🌫️ Looser Restrictions, Greener Pastures: The DOJ has recommended cannabis be reclassified as a lower-risk substance, which could loosen restrictions and bring big changes for cannabis-related real estate.

😥 Rates Squeeze CRE: ​​Investors now think the SOFR will be 4.825% at the start of 2025 — suggesting only up to two small rate cuts this year, likely forcing property owners to rethink their options.

⚖️ Vacancy Stabilizes: For the first time since February 2022, the national average for apartment occupancy ticked up month-over-month, hitting 94.2% in April, 10 basis points above March’s reading.

🏨 Hotels on the Rebound: In the U.S., 25% of hotel investors surveyed plan a large spike in their buying intentions, and another quarter plan a small increase, which could lead to a major rebound from 2023.

🌱 Stunted Growth: U.S. effective asking multifamily rents fell 0.1% in the first quarter of 2024 compared to the last quarter of 2023, deviating from the pre-pandemic norm of a 0.6% increase.

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RETAIL IS ON FIRE. HERE’S WHY.

Remember when e-commerce was going to kill retail? Well, brick-and-mortar retailers have flipped the script, and online shopping has played a crucial role. According to GlobalData, nearly 42% of e-commerce orders in 2022 involved stores, up from 27% in 2015. Shoppers browse in-store before ordering online, pick up and return online purchases at stores, and retailers increasingly use shops as fulfillment hubs to ship online orders, confirming that the store is still the heart of retail.

🛍️ Retail Revival: Despite online sales rising from 6% in 2014 to 15.4% in 2022, retailers are set to open more stores than they close in 2024 for the third year in a row. Retail vacancy is around 4%, among the lowest in history, and investors are reaping the benefits. “We’ve never had a higher caliber of tenants knocking down our doors,” retail investor and Best Ever Show host Ash Patel said in a recent episode. “We’re getting flooded like we’ve never gotten flooded before with big national tenants wanting to sign 10- to 15-year leases. Retail is the healthiest it’s ever been in history. So we’re rockin’.”

💻 Click to Brick: Retailers have found that using stores for pickups and returns helps reduce costs associated with online orders. Even before the pandemic, big-box retailers started improving in-store fulfillment, recognizing higher return rates and lower profitability of online purchases. Now, Kohl's fulfills over a third of online orders in stores, Walmart more than half, and Target nearly all from its roughly 2,000 locations.

🚧 Omnichannel Obstacles: Despite the significant growth of e-commerce, the integration of online and physical shopping has its challenges. Returns of online purchases in-store can artificially lower sales, making it difficult for landlords to set rent rates or collect percentage-of-rent proceeds. Some retailers, particularly grocery stores with thin margins, struggle to make in-store pickup profitable due to labor and space requirements. Still, stores embracing change and creativity are thriving.

📝 Case Study: More national retailers are integrating digital and in-store experiences. Abercrombie & Fitch Co., which has invested heavily in this integration, designs stores for easy online order retrieval and has seen its business become 45% digital across its four brands. This has led to the closure of large stores in major cities and the opening of smaller-format stores in the same markets.

📣 “The use of stores as fulfillment centers is a long overdue positive development for the retail sector,” one commenter said. “Large retailers like Walmart have robust supply chains and massive amounts of inventory just sitting on shelves. By making that inventory available online, and then adding delivery, they can reach an enormous customer base that currently has few options beyond Amazon.”

_{💻 VIKING CAPITAL}
VILLAS AT SUNDANCE

Viking Capital presents Villas at Sundance, a 252-unit, first-generation multifamily asset built in 2012. This asset is located in New Braunfels, TX, in the Texas Innovation Corridor along Interstate 35 between Austin and San Antonio. New Braunfels is the “Third-Fastest Growing City in the Country,” with a population growth of nearly 40% in five years. The city’s growth is driven by new major employers, entertainment centers, and tourism. 

This deal benefits from robust tenant demand due to population growth and a low-cost basis. With minimal new supply expected, Viking Capital secured this asset at a substantial discount, positioning this property as an exceptional investment opportunity. 

Discover more about Villas at Sundance here.

_{✍️ BEST EVER BLOG}
FROM JOHN CASMON

Hiring a real estate coach can be a catalyst for growth, allowing you to curtail the mistakes and pitfalls that derail so many real estate dreams. However, hiring the wrong coach can set you back or even leave you in a worse spot than where you started.

Hiring the right real estate coach was pivotal in my growth, but there was a certain amount of luck involved in my process. If I were taking a more calculated approach, I would share these four signs to watch out for.

🗣 No Testimonials/References: The best way to anticipate what a coach can do for you is to learn what they have done for others. In any business references, referrals, and testimonials carry a lot of credibility. While each investor’s results may vary, we want to ensure that we are selecting a coach with a demonstrated ability to help us get to where we want to go.

😴 Not Currently Active: There’s an adage that skeptical real estate investors reference: “Those who can, do. Those who can’t, teach.” While there may be some truth to the statement, there are many reasons that “those who can” decide to teach. Yes, it’s for the additional money, but it could also be greater access to deals, capital, or even potential partnerships.

🧑‍🏫 Doesn’t Have a Coach: This may be a personal preference, but I believe it’s important for coaches to have coaches. There is an antiquated perception that your coach should be the know-it-all expert and therefore shouldn’t need a coach. However, the most successful people I know in any field have coaches and advisors that keep them sharp.

🤷 Not Your Vibe: This is definitely a personal preference. While your coach doesn’t need to be your new best friend, you should have some level of connection. Despite being “good people,” some folks are simply not your vibe. No matter how knowledgeable or effective they are, you just may not connect with them. It’s okay and completely normal.

👉 Discover more here.

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BILLIONAIRE’S STORAGE ➡️ TO FLEX INDUSTRIAL WIN

Neil J. Timmins and team are turning a billionaire's personal storage unit into a flex industrial home run. Here's how they're doing it .👇

🏢 Property Details: Four free-standing industrial flex buildings at 3,000 square feet each purchased in July 2023 in Little Rock, AR. The property was purchased from a billionaire who bought the space to use as a personal storage unit while constructing her new home. 

💸 Finances: The purchase price was $1.15 million with $430,000 in equity raised. 

💵 Debt Structure: Five-year fixed at 6.875%, six months I/O, 75% LTV. 

💼 Business Plan: Make heating and cooling unit repairs, conduct roof maintenance, make minor interior repairs, clean up, improve the landscaping, and install professional property management. Fill all four buildings over 12 months, placing tenants in three- to five-year leases at the market lease rate, and sell after three years. 

🍾 Results: Three out of four buildings have been leased, six months ahead of projections. The lease rates are 13% over projections, and the three-year hold is now projected to be a two-year hold. The projected IRR is 31%. Projected LP returns include an 8% pref, 14.03% IRR, 6.86% cash-on-cash, and 1.45x equity multiple.  

If you have a deal you'd like us to feature, share it with us!

_{🎓 EXPERT RESOURCES}
FREE DOCUMENT DOWNLOAD

Everything You Need to Know About the LLCs in an Apartment Syndication

Limited liability companies are an important part of apartment syndication. The information presented here will be invaluable to you from an educational standpoint, but you should always seek the professional advice of legal counsel before setting up LLCs for your syndications.

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Wishing you a Best Ever day!

—Joe Fairless