THE CONTRARIAN PICK
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.”
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.