Brick & Mortar: Finding The Right Use

Updated: May 4

You have read and heard the headlines, American retail is dying, malls are dead, and Amazon is positioning itself to take over the world. There may be very real value to this industry being over-generalized and written off as “retail is dead.” This is when opportunists and investors, who have intimate knowledge of the market, tune out the headlines and rely upon fundamentals and instincts.


Too often the entire retail asset class is pulled into this rhetoric. What is paramount to note is that retail is an extremely broad asset class. How often did you continue to go to Starbucks to purchase a latte in the depths of the COVID-19 Pandemic? Based on the drive-thru lines witnessed, a lot of you could answer, quite often. How frequently did you pick up a burrito from Chipotle or a pizza at your favorite local go-to? Same answer.

The real estate that these enterprises require is all considered retail, more specifically, service-based retail. Examples include restaurants, early childhood education, fitness clubs, movie theaters, veterinary clinics, pet boarding centers, and urgent care clinics. They are newer vintage, multi-unit strip centers in high traffic areas. The business’s (tenants) will typically lease space from the owner of the center and in a Triple Net (NNN) lease, pay the base rent with annual percentage increases and


1.) Real Estate Taxes

2.) Property Insurance

3.) their proportionate or “pro-rata” share of Common Area Maintenance (CAM) charges.


Each charge represents a “N” of NNN and there are variations e.g. single and double net.

During the pandemic, retail real estate values have plummeted. In many cases, the decrease in value was warranted as several locations were mandated to close indefinitely. Here are a few examples:

  • National Retail Properties (NNN) – Market cap cut in half or enterprise value loss of $5 billion. REIT specializing in high-quality, triple net leases.

  • Store Capital (STOR) – REIT that invests primarily in single-tenant, net lease assets. The market cap also cut by more than half from peak to trough in the last seven months.

Last quarter, Warren Buffett doubled down his bet on Store Capital, purchasing an additional 5.8mm shares bringing his total position to somewhere in the $500mm ballpark. This went under the radar for most who don’t follow the Oracle’s every move. However, it is this strategy, ignoring the groupthink, that creates opportunity.


There may be very real value in this sector due to it be over generalized and written off as “retail is dead.” This is when investors who have intimate knowledge of the market and can tune out the headlines make a killing.

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