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In the past several months, continuing a practice begun with the 2016 acquisition of teen apparel retailer Aeropostale, Simon Property Group acquired a slew of retailers. In a way, bankruptcy courts last year served as shopping centers of a sort themselves. Simon, in partnership with licensing and brand management firm Authentic Brands Group (via their 50/50 joint venture, Sparc), bought Lucky Brand and Brooks Brothers; earlier in the year, with rival Brookfield, they bought Forever 21. At the end of the year, Brookfield and Simon snapped up J.C. Penney for a cash payment of $692 million and new term debt.
It s unusual, but there are reasons why a landlord might want to own its tenant, or even many tenants. Speaking to analysts last year, Simon Property CEO David Simon cited the most fundamental of all to make money while minimizing the risk by calling it a sideline business.
In the early to mid-2010s, China-based investors flooded the coffers of U.S. commercial real estate. Multiple forces aligned to make the country the No. 1 foreign investor in the U.S. American real estate was hot, and the countries were fairly friendly as globalization ruled daily political discourse with minimal pushback.
A lot has changed since then. Investment from China has plummeted, and the political relationship between the U.S. and China is different. Don t expect a new administration to change all of that. The coronavirus pandemic and its economic aftermath have placed more public scrutiny on China, which could continue to affect CRE investment flow between the two countries.
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The retailer-landlord relationship may be entering not just a new year, but a new era. After a contentious 2020, many store tenants and landlords are reshaping their leases based on lessons learned from the COVID-19 pandemic.
It s been a trial by fire. As stores were forced shut for several weeks early in the year, retailers were left with little to no sales to fund the costs of running their operations. Furloughs and layoffs mitigated labor costs, inventory adjustments mitigated supply chain costs and e-commerce helped.
But the rent was still due.
That led to disputes with landlords as many retailers delayed or reduced rent payments or refused to pay at all for the time that stores were closed. For their part, landlords struggled to respond. Some, with their own outstanding obligations, took their retail tenants to court, while others offered abatements of one kind or another.