What was true six months ago is true today | Why are more 1031 Exchange buyers looking in NYC again.

I read annual reports of companies that I like for fun. All the time. Usually, I read the message from the CEO, then jump right to the Risks section. Simply an easy way to understand the retail world. The passage below is from the Acadia Realty Trust 2021 Annual report, which came out in March of this year. The quote comes from President & CEO Kenneth Bernstein, and although it’s nearly six months old, it describes where the retail property sales market is today remarkably accurately.

Note that this is not an endorsement of Acadia Realty Trust stock; I do not own any.

“And as life is beginning to return to a new normal, we are seeing validation that the future is omnichannel. For most retailers, the store is the most profitable channel. This is true for retailers ranging from established brands like Target to digitally native ones like Warby Parker. For example, Target can eliminate 90% of its online order cost when customers select store pick-up. Furthermore, online and physical channels are complementary. For example, when Warby Parker opens a first store in a new market, on average, they see a 250% lift in sales in the overall market.”

OK great, so who cares? Well for starters, retail investors who are trying to get into the market before everyone else does. Sooner or later, media outlets will call Retail Properties the next great thing, and every investor and their cousins will be trying to buy retail. That’ll be game over for many of those savvy enough to be in the game now.?On a call during the second week of August, a major retail investor told me the following, in my own words: (1) They are starting their investment selection process with location, and only B+ to A+ locations for the reasons laid out in the above quote. (2) They are looking for yield and ways to build yield, anything to fight inflation and position themselves against any needed refi or exit strategy five years from now; who knows where interest rates will be then.

I am now on summer vacation and am not sure how to end this post, so I’ll leave you with a few stats:

• 548,000,000 SF of retail space was absorbed nationwide in the month of June, a near record.
• ?According to Costar, nearly $6.8MM in retail assets were sold in New York City over the past twelve months. 75% of all sales were to private buyers, 50% were to NYC based buyers.
• ?I am seeing very strong demand for owner-user purchasers both in Brooklyn and lower Manhattan.
• ?I am also seeing more 1031 exchange buyers looking in New York City than I did a year ago. I have a feeling this is directly related to Mayor Eric Adams’ effort to fight crime and clean up the city. More than a few buyers have conveyed their confidence in his willingness and ability to lead. I wish him the best of luck and believe he’ll do a great job.

Happy Summer.?