THE CON­TRAR­IAN PICK

Forbes - - INVESTING -

MILK­ING the MALLS

Matthew Werner, port­fo­lio man­ager of the West loop realty fund ($98 mil­lion in as­sets), is us­ing the re­tail sell­off to bet big on mall re­its. af­ter fees, West loop re­turns 12.8% an­nu­ally. His play:

CULLING the WEAK

s&p 500 re­tail re­its are down 21% in the past year, but Werner says a re­tailer washout may boost mall earn­ings. “it’s a great op­por­tu­nity for shop­ping­cen­ter re­its to up­grade to bet­ter ten­ants.”

HIGH-END DISCOUNTS

a spillover of re­tail tor­ment into real es­tate will be felt in lower-tier malls, mean­ing “Class-a” mall re­its such as si­mon Prop­er­ties and GGP are un­fairly pe­nal­ized. Their re­cent one-year lows, Werner says, are “crazy.”

MIR­A­CLE on 34th Street?

Clo­sures of an­chor stores (Macy’s, Jcpen­ney, sears) af­fect si­mon and GGP, but Werner spies profit: big-box re­de­vel­op­ment “is one of the best uses of cap­i­tal” in re­its. stores like Macy’s pay a frac­tion of in-mall ten­ants’ rent— as low as $4 a square foot ver­sus $80 inside.

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