Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five stories that caught our eyes in recent days.
• “Trouble in the Heartland? Rapid Rise in Farmland Values Poses Risk for Investors and Ag Lenders Alike” by Mark Heschmeyer of CoStar.
Farmland has seen a major increase in investor interest over the past two years as buyers look for higher returns, according to Heschmeyer.
Stocks are not getting the double-digit returns they did in the 1990s and 2000s, making a 7 to 9 percent returns on farmland investments more attractive to today’s investors, Jamie Shen of Callan’s Real Assets and Alternative Investments told Heschmeyer.
One factor in farmland’s attractiveness is supply and demand, according to Callan’s research. As the global population continues to rise, it’s likely that demand for land and agricultural goods will also increase.
• “REITs Relying on Technology, Sustainability to Enhance Returns” by Carisa Chappel of REIT.com.
The economic slowdown has hindered traditional growth for REITs, so now they are looking toward technology and sustainability to grow their businesses and save money, according to a new report by Deloitte.
REITs are increasingly embracing technology like cloud computing, mobile applications and social media to reach new customers. They are also turning to more sustainable practices, which can improve the bottom line and stock performances, according to Bob O’Brien of Deloitte. REITs with well-executed green strategies are outperforming other REITs, he noted.
Economic uncertainty, lack of job growth, the U.S. deficit and the European debt situation all have stymied the U.S. real estate industry, O’Brien told Chappel.
• “Online Stores Are Moving into the Real World” by Jessi Hempel of CNN Money.
For a while now, traditional brick-and-mortar retailers have fought for strong online presences to compete with online retailers like Amazon. Now, the trend is reversing, as digital brands attempt to open physical locations as well, Hempel reports.
Examples include BaubleBar, a popular online jewelry seller, which is opening a showroom at its corporate headquarters in Manhattan. The firm plans to open boutiques nationwide that cater to an area’s specific tastes.
There’s also glasses-maker Warby Parker, which has followed suit with showrooms in nine cities and has a retrofitted school bus that acts as an on-the-go store by traveling the country.
It’s even rumored that Amazon may be considering a physical store as well, Hempel notes.
• “Store-Within-a-Store Becomes Expansion Model Dujour” by Elaine Misonzhnik of Retail Traffic.
Retailers are increasingly looking at opening locations within larger stores as a means to cut construction costs and increase flexibility, according to Misonzhnik.
Finish Line plans to open 450 stores inside Macy’s locations, and a number of boutiques are scheduled to open soon within JC Penney stores, Misonzhnik reports.
There is currently no standard for calculating rent for stores within stores, Misonzhnik writes, and in some cases the rental rate could be higher than for equivalent standalone stores. However, a retailer who opens a store-within-a-store has instant access to foot traffic and often has a lease that’s shorter than the standard 10-year term, making it worth the premium in rent, Lew Kornberg of Jones Lang LaSalle told Misonzhnik.
The department stores that are willing to let a store open within theirs are also benefiting because doing so allows them to expand without all of the traditional added costs and risks, according to Matt Winn of Cushman & Wakefield.
• “Here’s a Way to Cut Business Taxes: Tech Firms Become Real Estate Trusts” by Anton Troianovski of The Wall Street Journal.
Some technology companies like American Tower Corp. and Equinix Inc. are looking to convert them to real estate investment trusts (REITs) in an effort to avoid paying taxes, Troianovski reports.
As more companies have pushed to be considered REITs, the total market value of REITs has grown from $9 billion in 1990 to $451 billion in 2011, according to the National Association of Real Estate Investment Trusts.
Some in the real estate industry are worried about the potential political backlash of companies taking advantage of the REIT structure. The IRS has said “inherently permanent structures” like cellphone towers, billboards and data centers qualify for REIT treatment, according to Troianovski.