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by Victor Salama ’21 and Jonathan Braun ’22
To close out the first-ever virtual Real Estate Symposium, attendees were treated to a “fireside chat” between Cia Buckley Marakovits ’93, President and CIO at Dune Real Estate Partners, and Jodie McLean, CEO of EDENS, a privately held company with a $6.5B national retail portfolio of 125 properties. The topic at hand was COVID-19’s impact on retail, and how owners and operators of retail properties should think about positioning their assets for success in a post-COVID world.
Enriching the communities in which EDENS owns and operates properties is McLean’s first priority, and the reason she believes her portfolio has, in large part, been able to withstand the challenges brought on by COVID-19. McLean refers to EDENS’ properties as “places,” and emphasized the need for each place to be composed of retailers, food and beverage outlets, fitness venues, pharmacies, etc., that complement each other and create multiple reasons for customers to spend time on property. EDENS’ places must also complement and reflect the communities in which they are located, which has taken on new meaning and importance in light of the broader push for diversity, equity, and inclusion in the real estate industry. McLean shared that the goal is for users to make an average of three and a half trips each week, and for them to spend at least five hours of dwell time once there. COVID-19 has pushed both of these metrics down, but has highlighted their importance at the same time. McLean stated that COVID-19 had “shredded” humanity, but also emphasized people’s desire to feel physically and emotionally safe, and to feel part of a community. Anecdotally, McLean recounted how SoulCycle moved its bikes into the parking lot of the Washington D.C.–area shopping center where McLean’s office is located. She watched in awe as customers lined up to spin in the rain one recent weekday morning.
While foot traffic was down across the portfolio at the height of COVID-19, rent collection was still 90% at the same time. McLean noted that there has been a tremendous rally around the shopkeepers, and that customers are doing what they can to keep their communities intact. Landlords are being forced to do the same. No longer simply rent collectors, landlords must make decisions about which tenants they believe will succeed in the future, which tenants they wish to keep, and must then be open to making investments in these tenants to ensure they survive. McLean credits EDENS’ historical emphasis on tenant fit with the performance of its properties to date.
COVID-19 has brought out consumers’ appetite for flexibility in the way they shop, eat, and spend their leisure time. Flexibility in customer experience is another factor to which McLean attributes the portfolio’s survival. Users have shown they value choice when it comes to transacting in person or from home. They want to choose whether to buy their groceries in-store or order them ahead for pickup or delivery. They want to be able to eat at their favorite restaurant or decide to have their favorite restaurant come to them. The proliferation of apps and the population’s growing comfort with technology has made such choices possible, and McLean thinks this trend is here to stay. McLean also stressed the importance of transparency and empathy, both in her role as CEO managing through this crisis and as landlord for EDENS’ tenants and customers. Employees and consumers want to know their health and safety are being taken seriously, and McLean believes open and frequent communication will remain a cornerstone of managerial and commercial success going forward.
Next, the conversation shifted to the future of retail. Right off the bat, McLean declared that e-commerce is not retail real estate’s foe, but rather its partner. Online-only retailers who have opened brick-and-mortar stores have cemented the fact there is still strong demand for retail real estate and that the most successful retailers are those who are omnichannel. However, to set a level playing field, McLean made it clear that a rationalization of retail is required within the market. Simply put, retail requires a widespread repositioning and approximately 20% of existing retail space, particularly Class B/C malls, are obsolete. McLean noted that rebuilding retail will be capital intensive and the best retail projects of the future will be those that infuse technology and a sense of community. People will want to gather in large, open spaces where they can come together to take classes, interact, and be part of a community that is diverse, equitable, and inclusive. In fact, McLean detailed that EDENS recently rolled out a new set of mantras that encourages retailers, property staff, and customers to make eye contact, smile, and say hello to one another to foster an inclusive community.
When posed with the question: what kind of tenants will occupy future retail spaces, McLean doubled-down on community-oriented tenants and drew upon positive trends in health and wellness. McLean stated that health and wellness is a $4.5T industry that is expected to grow 6.5% annually over the next five years. People are now focused more than ever on improving their physical and mental health and spend approximately 22% of their disposable income on health and wellness. Thus, McLean envisions a lot of retailers playing in the health and wellness space in the future. Other major trends McLean called out included organic and sustainable everything (not just food!) and home improvement transitioning to home design. On the flipside, theaters and apparel (save athleisure) will likely continue to fall out of favor. While COVID certainly accelerated the impending transition required of retail, the future of retail real estate remains bright.
The fireside chat closed with a virtual, yet warm, round of applause.
Victor Salama ’21 is a second-year MBA student focused on Real Estate and Finance. Victor serves as VP of Careers within the Real Estate Association and Teaching Assistant to the Real Estate Debt Markets (Fall 2020) and Real Estate Distressed Investing (Spring 2021) courses in the MBA program. Before business school, Victor had over five years of working experience within real estate debt at Morgan Stanley and TD Bank. Over this past summer and throughout the fall, Victor has interned at Invesco Real Estate on their real estate acquisitions team covering New York, Boston, and Washington DC.
Jonathan Braun ’22 is a first-year EMBA student. Jonathan is Executive Vice President of Development and Asset Management at G. Holdings, where he is responsible for acquisitions and development of hospitality assets in Europe and the US, as well as oversight of the company’s US real estate portfolio. Jonathan serves as AVP of Education in the Hospitality and Travel Association and is an active member of the Real Estate Association.