Who benefits from the demise of department stores?

Do you know who is in the cat bird seat right now?

Entrepreneurs with retail concepts that require very large spaces and have the ability to drive customers themselves, without need for “walk-in” traffic.


Well, retailers are generally getting slaughtered right now; who wants to go to the mall when Amazon will deliver whatever you want tomorrow (sometimes, today)? You can see the trend in the slow-motion liquidation of Sears, the closure by Macy’s of hundreds of stores, etc.

As the so-called anchor stores (the big department stores) go away, overall traffic at many malls is declining, which has negative knock-on effects on smaller mall-based retailers.

The result is that shopping malls are emptying out and their owners are desperate for new anchor tenants.

So, if you have a retail concept that requires a lot of space and has the potential to drive traffic to a mall, you’re in position to negotiate VERY cheap leases.

And, because there’s so much space opening up, if you are properly capitalized, you can probably expand very rapidly across the country.

This is far from my area of expertise, but I’d bet we’ll see IPOs of chains like this over the coming years.

What I do all day

Someone asked me this weekend what, exactly, I do all day.

The truth is, many days, I don’t do much more than read.

Sure, people come into my office for guidance on how to handle tricky issues. But, in those cases, I try to get the person asking the question to make a recommendation, which I generally try to accept (unless I strongly disagree). No reason to train people to rely on me, if I can avoid it.

But, generally, I read or look at deals.

Then, every once in a long while, either someone sends me an interesting deal or one pops up on the publicly available databases.

It’s my job to notice that the deal is interesting, quickly determine what we can pay for it, and then convince the broker to take my offer over the others ones she’s sure to receive.

From that moment until the deal closes, I go like crazy, trying to anticipate all of the things that could go wrong and mitigate them.

Then, from closing on, the deal mostly becomes Jon’s problem, and I go back to sitting around.

Until the next one pops up.

Why I dislike unpriced deals

Recently, I’ve noticed a lot of unpriced listings coming on the market. By “unpriced”, I mean properties where the Seller is basically saying “I want to sell, but I’m not going to guide you to the price I expect”.

I get why sellers do this… they aren’t sure what their property is worth and they don’t want to accidentally underprice it and leave money on the table.

I think this is a mistake, and here’s why:

  1. As a buyer, particularly of a larger asset, I spend a lot of time building and massaging a pro forma to get to a point where I’m comfortable that a deal works. I’m really not excited to spend a bunch of time doing so, only to find out that the seller wants 2x what the numbers tell me I can pay. So, unless I’ve got nothing better to do, I tend to avoid spending time on these deals. Am sure other buyers do the same.
  2. In a liquid market like Los Angeles, if you underprice, the market will let you know VERY quickly. Your broker will be deluged with phone calls / emails / etc. and offers will come pouring in. Then, you can hold a little auction among the interested parties and get to a “true” price for the building.

So, to me, there’s not much downside in putting a price on your deal.

If you’re unsure what the building is worth, just call a bunch of different brokers who specialize in your property type in your area, provide them with the details, and ask them to give you an opinion of value. You’ll get a decent range from which you can choose a price… and then hire one of those brokers to actually sell your property. Voila.

What is the difference between “price” and “value”?

Answered this question on Quora yesterday and thought it would be interesting to re-post here:

The key to understanding “value” is to separate it from “price”.

“Price” is the amount of a given currency at which a buyer is willing to buy or a seller is willing to sell (sometimes, those numbers overlap, in which case a deal is made).

A lot of people assume that the value of an asset is equal to its price, but that is not true.

Consider the example of a crazy person who walks up to you and offers to sell you his brand new, mint condition Porsche 911 for $500.

You would jump on that deal, right? Why?

Because you know that the Porsche is worth way, way more than $500. Another way to say this would be: “The value of the Porsche is higher than its price”.

How does this relate to stocks or real estate?

Well, a knowledgable investor is constantly reviewing information about asset classes (stocks, real estate, whatever) in which he is interested. He forms opinions about the assets involved – how much cash they are likely to generate, whether they are likely to appreciate or depreciate in value over the coming years, what other investors are paying for similar assets, etc.

Over time, this knowledgable investor gets a feel for the “value” he puts on these assets – eg what he thinks they are worth to him.

Over time, the prices offered by the market for those assets will fluctuate (based on investor sentiment, interest rates, economic growth rates, etc.), as will his estimates of the values of the assets.

Occasionally, the market will offer to sell the investor assets at prices which are materially below his estimates of their value, at which point he will buy.

And, on other occasions, the market will offer to buy assets from the investor at prices which materially exceed his estimates of their value, at which point he will sell.

Whether the investor is successful over the long term will depend to a large extent on whether the judgements he makes about value prove to be correct.

(For more on this, google “Allegory of Mr. Market” – it’s amazing.)

Getting sick of crime again

In theory, I am a fan of reducing the number of people in prison.

In practice, I am getting pretty sick and tired of having tenants’ cars and mailboxes broken into.

These are not crimes of impulse, like seeing a nice bike unlocked and riding away on it.

If you break a car window or take a screw-driver to a mailbox, you know you’re doing something wrong.

I have little / no sympathy for people who commit these kinds of crimes.

First time offense? OK, maybe a ticket and a stern warning will do.

The second time? Jail is in order.