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Facing redevelopment or the wrecking ball are an array of properties, including offices, residential quarters, medical spaces, chapels and golf facilities.

The U.S. Department of Veterans Affairs(VA) is unloading hundreds of obsolete buildings, and some of the structures may eventually be up for grabs by investors.

However, one commercial real estate broker says investors shouldn’t get their hopes up too high, as opportunities may be limited.

On June 27, Dr. David Shulkin, secretary of the VA, unveiled a plan to dispose of all vacant VA buildings within two years, either by demolishing them or preparing them for reuse.

Nationwide, the VA has 430 vacant buildings that are, on average, roughly 60 years old. The oldest of the buildings dates back to 1869, while the newest dates back to 2004. In all, the 430 vacant buildings encompass more than 5.9 million gross sq. ft., according to a VA spokesman. The disposal of 71 properties is already underway.

“Maintaining vacant buildings, including close to 100 from the Revolutionary War and Civil War, makes no sense, and we’re working as quickly as possible to get them out of our inventory,” Shulkin says.

Facing redevelopment or the wrecking ball are an array of properties, including offices, residential quarters, medical spaces, chapels and golf facilities. The biggest building is a VA hospital in New Orleans that covers nearly 900,000 gross sq. ft.; many of the properties, however, are smaller than 5,000 gross sq. ft. VA is also reviewing the status of an additional 784 buildings that are underused, but aren’t vacant, according to Shulkin.

In addition, the Veterans Benefits Administration, which handles financial assistance for military veterans, has been instructed to “freeze” its current footprint by leasing or eliminating office space around the country. The office reduction will be achieved by promoting telework and digitizing files that contain benefit claims, Shulkin says.

VA is studying just how to dispose of the 430 vacant buildings that have been targeted, according to the spokesman. Disposal could take three forms:

• Repurposing a building for a third party—such as a private investor, or a federal, state or local government agency—or enabling VA to put it to another use.
• Selling or transferring a building to a third party.
• Demolishing a building.

VA isn’t ruling out any “exact method” of disposing of a building, as long as the building no longer would be a drag on the agency’s resources.

Reuse of the VA properties by the private sector will likely focus on land redevelopment and housing conversions, says Walter Page, director of U.S. research at CoStar Group, a provider of commercial real estate data and analytics. VA buildings often contain a lot of plumbing that can be retooled for housing, he notes.

From a reuse perspective, the biggest factor in determining what will happen to the properties is weighing the cost of conversion versus the value of a property’s new use, according to Page.

“For some of these properties, the best option is to start new by removing the existing building,” he says. With a lot of the properties, the upside for investors will come from the ability to add square footage to existing structures, Page notes.

“Whether a VA building is demolished or can be repurposed, the highest and best use for the real estate will probably be for multifamily, hospitality or special use,” says Brad Ruther, an Iraq War veteran who is president of Cincinnati-based Veterans Commercial Real Estate, which specializes in tenant representation, disposition services and healthcare solutions.

Under the VA’s plan, a property that’s deemed “excess” will first be offered to federal agencies, according to Ruther. If no federal agency wants that property, then it’s branded as “surplus” and made available for projects that serve the public good, such as homeless shelters. If the VA strikes out on that front, then state and local governments get the option to buy the property.

Only after all those avenues are exhausted will a VA property be offered for sale to investors, although Ruther doubts that investment opportunities will be abundant. Since many of the vacant buildings are “functionally obsolete” and plagued by environment hazards like asbestos, Ruther notes the VA might wind up demolishing a lot of them, but that could open up the land for development.

Ridding the VA of hundreds of old, vacant buildings is long overdue, he says.

“What the VA is doing is commonsense,” Ruther says. “The VA should have been doing this for decades.”

The government plans to sell the property, which is valued at more than $500 million, and distribute much of the proceeds to victims of Iran-sponsored terrorist attacks.

(Bloomberg)—Federal prosecutors won a courtroom victory in their nine-year effort to seize a midtown Manhattan office tower owned by an Iranian charity.

A jury on Wednesday found that the charity, the Alavi Foundation, was controlled by the Iranian government. It also agreed with prosecutors that the charity’s management of the Fifth Avenue office building, which has generated millions of dollars in rental income annually, constituted a violation of U.S. sanctions against Iran.

The verdict, which came after a day of deliberations, means that Manhattan prosecutors can move ahead with their attempt to seize the building at 650 Fifth Avenue, a prime location. The government plans to sell the property, which is valued at more than $500 million, and distribute much of the proceeds to victims of Iran-sponsored terrorist attacks.

The finding “represents the largest civil forfeiture jury verdict and the largest terrorism-related civil forfeiture in U.S. history,” Joon H. Kim, the acting U.S. Attorney in Manhattan, said in a statement. The Alavi Foundation is likely to appeal the verdict.

In 2014, U.S. District Judge Katherine Forrest granted summary judgment to prosecutors’ forfeiture request, agreeing that the government had established that the building’s primary owners — the Alavi Foundation and a shell company controlled by the government of Iran — had been violating Iran sanctions laws since 1995.

Minority Owner

An appeals court reversed that ruling last year. The appellate court agreed that a minority owner of the building was controlled by the Iranian government, and was therefore subject to forfeiture. But the court ordered Forrest to allow the Alavi Foundation to make its case at trial.

Alavi’s lawyers maintained that the foundation was independent of Iran’s government and spent its money on schools, health care and higher education, as well as promoting Persian culture and supporting interfaith studies.

Prosecutors first sought to seize 650 Fifth Ave in 2008. The case unfolded as the U.S. relationship with the Islamic Republic of Iran has gone from “axis of evil” territory during the administration of President George W. Bush, through a period of détente under President Barack Obama, and back to a state of hostility under the current administration.

–With assistance from Bob Van Voris.To contact the reporters on this story: Greg Farrell in New York at gregfarrell@bloomberg.net ;Christian Berthelsen in New York at cberthelsen1@bloomberg.net To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Joe Schneider, David S. Joachim

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This roundup takes a look at markets that have a ways to go before they become investor favorites, and ones that are already so desirable that they leave limited upside potential.

Walgreens has scrapped its deal with Rite Aid, while Staples has agreed to be bought by Sycamore Partners, Fortune reports. Director of the National Economic Council Gary Cohn promises tax reform will come in September, according to CNBC. These are among today’s must reads from around the commercial real estate industry.

1. Walgreens Scraps Rite Aid Deal and Will Instead Buy 2,200 Stores for $5 Billion “Walgreens Boots Alliance won’t be buying smaller rival Rite Aid after all. With the deadline looming to win a regulatory approval that seemed unlikely for the $9.4 billion deal, first announced almost two years ago, Walgreens said on Thursday it was scrapping the planned acquisition of Rite Aid as a whole and would instead simply buy 2,186 Rite Aid stores, or about 45% of its fleet, three distribution centers, and related Rite Aid inventory for $5.175 billion.” (Fortune)
2. GDP Beats Estimates as Consumers Spend More “The US economy grew faster than initially thought in the first quarter, according to the Commerce Department. Gross domestic product, the value of everything produced in America, increased by 1.4%, a third estimate released Thursday showed. Consumer spending, the largest part of the economy, and exports were revised higher, though the broader picture of economic growth remained the same.” (Business Insider)
3. Tax Reform is Coming in September, Trump Economic Advisor Gary Cohn Says “Tax reform is coming in September, regardless of what happens with health care, says Gary Cohn, director of the National Economic Council. President Donald Trump has promised tax reform since taking office in January, but some have questioned whether he can accomplish it this year, especially if Congress’ attempts to repeal and replace the Affordable Care Act fail. Cohn dismissed concerns, telling MSNBC on Thursday that the White House will ‘absolutely’ get tax reform done.” (CNBC)
4. Treasury Official: The Next Financial Crisis Could Look Nothing Like the Last One “The first of four reports from the U.S. Treasury meant to provide a comprehensive review of U.S. banking and financial services regulation, much of which was put in place in response to the financial crisis, hews closely to the Financial CHOICE Act passed by the Republican-controlled House on June 8. Craig Phillips, who joined Treasury in January from asset manager BlackRock, Inc. as a counselor to Treasury Secretary Steven Mnuchin and is leading these reviews, said most of the report’s more than 100 recommended changes to financial regulations can be implemented without Congressional approval.” (MarketWatch)
5. Staples Is Being Bought for $6.9 Billion “Sycamore Partners said on Wednesday it would acquire U.S. office supplies chain Staples for $6.9 billion, a rare bet by a private equity firm this year in the U.S. retail sector, which has been roiled by the popularity of internet shopping. Buyout firms largely have refrained from attempting leveraged buyouts of U.S. retailers in the past two years, amid a wave of bankruptcies in the sector that have included Sports Authority, Rue21, Gymboree and BCBG Max Azria.” (Fortune)
6. U.S. Retail Mall Vacancies Edge Up in Second Quarter: Reis “U.S. retail mall vacancies increased in the second quarter and rents were slightly higher, real estate research firm Reis said in a report. The national retail vacancy rate rose to 10 percent in the second quarter from 9.9 percent in the first quarter, partly due to new construction that was only partially absorbed by new leasing, Reis said. The mall vacancy rate inched up 0.2 percent to 8.1 percent in the quarter from the earlier quarter due to confirmed closings of Macy’s stores, the research firm added.” (Reuters)
7. China Emerges as a Player in Industrial Real Estate and That is Good News for the Sector“According to a new report on industrial capital markets by Avison Young, foreign investors bought $4.3B in U.S. industrial real estate assets between Q1 2016 and the first three months of 2017. Foreign entities bought 79 industrial properties across the country in Q1 2017, totaling $1.3B in trade volume. But the most surprising information from the report is the amount of capital being deployed by Chinese investors, which bought $284.9M in industrial real estate in Q1 2017, compared to $5.2M for the same time frame last year, a 540% increase year-to-year.” (Forbes)
8. Paul Massey Drops Out of NYC Mayoral Race “Paul Massey abruptly ended his campaign for mayor Wednesday. The Cushman & Wakefield executive, who ran on a platform of fiscal responsibility as a Republican, said the cost of sustaining a campaign against Mayor Bill de Blasio was prohibitive.
9. ‘Unfortunately, the cost of running for office is extraordinary, and I do not see a path to raising the necessary funds to beat an incumbent mayor,’ Massey said in a statement Wednesday. ‘I am forever indebted to my family, team and my friends for their support.’ Massey’s decision to drop out was seen by some industry insiders as a surprise.” (The Real Deal)
10. With Retail Writhing, What’s the Secret of a Successful Mall? “Acadia Realty Trust and Washington Square Partners would prefer not to call their new Brooklyn development City Point a ‘mall.’ But, respectfully, it has all the trappings: There’s the large department store anchor—Century 21—which opened last fall. There are the nationally recognized retailers like Target and Trader Joe’s, both opened this year. But two things set City Point aside from the shopping arcades of middle America that seem to be reeling right now.” (Commercial Observer)

The rate of shutterings had picked up substantially from just six weeks earlier, when store closings were at 3,396, up 97 percent from the year before.

Store closings are a fixed topic in the retail industry these days, and at this point the pattern of closings has almost followed the changing weather: Cool and rainy with patches of sun.

Fung Global Retail & Technology Weekly Trackerfound in its June 23 report that about 5,321 retail closings were announced up to that point for 2017. The figure represents a 218 percent increase from the previous year. The rate of shutterings had picked up substantially from just six weeks earlier, when store closings were at 3,396, up 97 percent from the year before.

Department and specialty stores accounted for most of the pullback, according to Fung Global. The retail research firm tracks store openings and closings for a select group of companies on a weekly basis.

Specifically, RadioShack, the Fort Worth, Texas-based electronics retailer, and Payless Inc., the value-priced shoe retailer based in Topeka, Ks., led the store closing tally with 1,000 and 512 respectively. RadioShack is in the final stages of liquidating and winding down its stores for good, after the company filed for bankruptcy for the second time in two years. The two companies have exemplified the troubles of retailers vying with Internet sales channels to win over consumers and remain profitable.

Indeed, women’s apparel retailer Bebe re-emerged as an online entity after closing down its entire chain of brick-and-mortar stores.

“The industry is in the middle of a major disruption, but there are bright spots, including Bonobos’ commitment to physical retail,” says Deborah Weinswig, managing director at Fung Global Retail & Technology. “As we’ve seen, some retailers are continuing to expand, even as store closures are up markedly from 2016.”

The news is not all gloomy for the retail sector, however. Fung Global also found that announced store openings were at 2,573, up 20 percent from the previous year.

The retail sector is used to seeing store openings from off-price sellers like Burlington and the Framingham, Mass.-based TJX Inc. chains, as well as value-oriented retailers including Dollar Tree, Aldi and Lidl.

With 111 scheduled openings, TJX accounts for the third largest number of planned new stores in the United States. The company operates the brands T.J.Maxx, Marshalls, HomeGoods and the forthcoming HomeSense. It was behind Aldi, with 130 planned new stores, and Dollar Tree, with 650 new stores.

“It’s worth highlighting that some of these value retailers are entering U.S. from abroad, such as… Primark (fast fashion) and Lidl, Aldi (discounters),” Weinswig wrote in an emailed comment. “These ultra-low price offerings do not work well with e-commerce.”

What grasped Fung Global’s attention in the latest report was the number of beauty and athleisure retailers set to expand.

Despite a challenging business environment, these retail categories are outperforming the market, which is evident in their footprint expansion over the past 15 months. Athleisure in particular does well because Americans are drifting toward a more casual lifestyle, according to Weinswig, who adds that Fung Global expects the beauty and athleisure segment to continue to outperform for the rest of 2017 and into 2018.

Meanwhile, retailers in the beauty segment have become adept at creating a unique shopping experience for consumers. Sephora has associates on hand to provide expert advice to customers, while Ulta has in-store salons that offer shoppers beauty treatments.

The 2 million-square-foot (186,000-square-meter) tower could fetch as much as $2 billion.

(Bloomberg)—Ivanhoe Cambridge, the real estate arm of Canadian pension fund Caisse de Depot et Placement du Quebec, is looking to sell 1211 Avenue of the Americas, which serves as News Corp.’s Manhattan headquarters, according to a person with knowledge of the matter.

The 2 million-square-foot (186,000-square-meter) tower could fetch as much as $2 billion, said the person, who asked not to be identified because the matter isn’t public. Ivanhoe has hired brokerage Eastdil Secured to market the property, the person said.

A representative for Ivanhoe declined to comment. Real Estate Alert, a trade newsletter, reported on the potential sale earlier Wednesday.

Ivanhoe and its partner, Callahan Capital Partners, purchased the building in two phases, acquiring it in full last year in a deal that valued it at $1.75 billion. The 45-story tower almost lost its marquee tenant when Rupert Murdoch’s 21st Century Fox Inc. and News Corp. entered a deal with developer Larry Silverstein to move to 2 World Trade Center in lower Manhattan. The companies last year decided to stay at their current offices.

Sales of commercial properties have declined amid concern that prices have peaked following six years of record-shattering growth. Transaction volume is down 15 percent this year compared with 2016, according to Real Capital Analytics Inc. Still, Manhattan has had some blockbuster deals in recent months, such as Chinese conglomerate HNA Group Co.’s $2.21 billion acquisition of 245 Park Ave.

News Corp., owner of the Wall Street Journal, competes against Bloomberg LP in providing financial news and information.

–With assistance from David M. Levitt.To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net Christine Maurus, Kara Wetzel

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Representative Jason Chaffetz has floated the idea of giving our representatives a $2,500 a month housing allowance, so that they can actually procure a room with walls and a bed.

(Bloomberg View)—Does anyone pity the poor congressman? He spends much of his life on the road, eating rubber chicken or repugnant local specialties, in between making a few speeches and shaking a whole lot of hands. And when he comes off the road, he generally does not go home to whatever fair district where he once chose to live, but to Washington, which may not actually be a badly paved swamp, but sure feels like one come June.

To add insult to injury, it’s become a very expensive pseudoswamp. When I moved here 10 years ago, it was possible to rent a room in a house for a few hundred dollars a month. Now, to hear tell from the young’uns, a mere bedroom in a group house starts around $1,000 a month — and then heads north at a brisk clip. Apartments in convenient locations are considerably more dear. Which is why some members of Congress spend their time in Washington sleeping on cots in their offices.

Now that he’s retiring, and can’t be accused of self-interest, Representative Jason Chaffetzof Utah is suggesting that perhaps voters might want to offer their representatives some help affording their own little slice of the quagmire. He’s floated the idea of giving our representatives a $2,500 a month housing allowance (that term sounds so much better than “raise”), so that they can actually procure a room with walls and a bed.

It is, in truth, hard to pity the poor congressman. They make $174,000 a year, which may not be private island money, but is a whole heck of a lot more than most Americans make. And while they do have some unusual expenses, even once you net out the suits, the travel incidentals, and the pop psych books on managing a long-distance marriage, they’re still doing better than, say, your average trucker.

However, when a job entails unusual travel expenses, it is usual and customary for the employer, not the employee, to pay them. We the people employ these folks; we should probably make sure they’re decently housed — if for no other reason than it sort of offends the dignity of the office to force lawmakers to sleep in it.

Yet it seems worth pointing out that our congresscritters could do something to help themselves, without even dipping into the federal treasury. Thanks to Washington’s unique constitutional status, Congress has more power over its operations than over any other city. The city has “home rule,” to be sure, but that home rule was a gift from Congress, and Congress can take back that gift any time they want. Or amend it, to slash through the array of zoning regulations that help to make Washington housing so expensive. At the very least, they could repeal the height limits, dating from 1899, which make it impossible to build true high-rises in downtown Washington, and thereby forces up the price of conveniently located housing.

This is an effort that would be beloved of many conservatives, who are rather fond of the free market. It would be beloved of many progressives, who have come to realize that NIMBYism and strict zoning regulations are forcing the poor out of many desirable cities. And it would do a very good thing for the poor and the middle class who live in and around Washington — for now, anyway.

But here’s the best news of all for politicians who contemplate this plan: The only folks who would get angry about it can’t vote any of them out of office. Elsewhere in the country, plans to strip away onerous housing regulations generally die a quick and painful death, because homeowners get very, very angry if you suggest a new law that will help developers change the character of their neighborhood, or lower their property values. We have plenty of those folks in DC, mind you — theoretically in favor of affordable housing, and practically opposed to any plan that would actually make housing affordable. On the local level, they’ve done a pretty good job at stymieing various efforts to increase Washington’s housing supply. But because DC is not a state, its residents have no vote in the government body that ultimately controls their city.

Unfortunately, that doesn’t mean they have no pull. You know who has homes in Washington? A whole lot of lobbyists, congressional staffers, and former members of Congress, who collectively provide a lot of input to what ultimately emerges from Capitol Hill. A lot of those folks are going to think about freeing the housing market, think about the repercussions to their largest assets, and quietly decide to work on something else. And if a congressman proposes something as outlandish as letting developers build more houses for people to live in, many of those same folks will go into overdrive, coming up with reasons why that’s a bad idea.

But the protectionists are wrong to keep developers from building housing people clearly want, and our legislators should have the courage to ignore them. Courageous congressmen could right that wrong, if they are willing to bear the outraged squeals from affluent Washingtonians. And if the volume of the squealing should ever cause their courage to waver, they have a ready tonic close to hand: just walk over to the corner of their offices, and take a long, hard look at that cot.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Megan McArdle at mmcardle3@bloomberg.net To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

For more columns from Bloomberg View, visit Bloomberg view

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The Boston-based company has acquired tower companies in India, Africa, Europe and South America, increasing its global presence to 15 countries.

(Bloomberg)—American Tower Corp. Chief Executive Officer Jim Taiclet expects international revenue to top U.S. sales in three to seven years as the company, the largest U.S. operator of wireless towers, expands further into Asia and Europe through acquisitions.

“We would like to deepen our position in the anchor markets and then enter the adjacent markets,” Taiclet said in an interview. “We want to create significant strategic operations in democratically governed regions around the world.” South and southeast Asian countries like Bangladesh are especially attractive, as is Australia, he said. The company has more than 58,000 towers in India.

American Tower, a real estate investment trust, or REIT, operates more than 40,000 cell sites as part of its 150,000 or so antenna properties worldwide. The Boston-based company has acquired tower companies in India, Africa, Europe and South America, increasing its global presence to 15 countries.

The company got 41 percent of its $5.79 billion in revenue last year from international operations, an increase from 32 percent in 2015, according to data compiled by Bloomberg. Latin America contributed 17 percent while Asia amounted to 14 percent.

In the U.S., investors have been debating the potential for future tower spending. The potential combination of T-Mobile US Inc. and Sprint Corp. could put a chill on outlays, while the possible entry of cable companies into the wireless business could fuel the need for additional capacity.

American Tower was down 0.9 percent $134.49 at 12:37 p.m. in New York. The shares are up 27 percent this year, compared with an 8.9 percent gain for the S&P 500 Index.

Bullish on India

With fewer U.S. tower properties available for purchase, Taiclet has turned his attention overseas.

“India is the largest free market democracy in the world and the government there is doing all the right things,” he said. “The government is asking industry for inputs and they are listening.”

The country is going “through a disruptive looking phase” as consolidation in the industry picks up, Taiclet said. India is about 10 years behind the U.S. on wireless technology and represents a once-in-a-lifetime opportunity for investment.

Carriers in India are seeking to consolidate after Reliance Jio Infocomm Ltd., backed by billionaire Mukesh Ambani, introduced free services in September, undermining industry revenue. Vodafone Group Plc agreed in March to merge its Indian unit with Idea Cellular Ltd., joining forces with a local partner to confront a price war in the world’s second-largest mobile-phone market.

The number of operators in India has declined to 11 this year from 15 in April 2011 and could be cut to seven if all the announced deals go ahead. Consolidation of carriers will spur the sale of tower assets as the companies seek cash to invest in upgrades. This will open the door for an independent tower sector, in much the same way the U.S. market fostered the growth of American Tower and rivals Crown Castle International and SBA Communications, Taiclet said.

American Tower acquired 51 percent of India’s Viom Networks Ltd. for $1.2 billion last year. It will have about 61 percent of the combined company once its assets are merged with Viom in India, Taiclet said. The company has options to buy out the remaining Viom stakeholders over the next two years, he said.

Canadian alternative asset manager Brookfield Asset Management Inc. is vying with American Tower for the wireless towers of Idea Cellular Ltd. and Vodafone Group Plc in India, which could fetch a combined 100 billion rupees ($1.36 billion), people with knowledge of the matter said March.

Other Markets

In April, American Tower acquired around 1,400 towers in Paraguay from a unit of Millicom International Cellular SA for $125 million. In February, the company completed the acquisition of about 2,400 towers in France from FPS Towers for about $700 million along with Dutch pension fund manager PGGM.

The company is exploring a bid for Cellnex Telecom SA to expand in Europe as the Spanish tower operator’s main shareholder considers selling assets as part of a merger, people familiar with the matter said May.

PGGM, American Tower’s partner in Europe, is patient, like-minded and has an option to join the company in other European markets, Taiclet said.

“We are open for business in Europe,” Taiclet said.

To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net ;Scott Moritz in New York at smoritz6@bloomberg.net To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net Rob Golum, Jessica Brice

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The investment signals Buffett’s confidence not only in Store, but also in net lease properties.

When billionaire investor Warren Buffett makes a deal, people take notice.

Such is the case with the recent purchase by Buffett’s conglomerate, Berkshire Hathaway, of a 9.8 percent stake in Scottsdale, Ariz.-based Store Capital Corp., a net lease REIT. The investment—in the form of 18.6 million privately-placed shares of common stock valued at $20.25 apiece—totals $377 million. Berkshire Hathaway is now Store’s third largest shareholder.

The investment signals Buffett’s confidence not only in Store, but also in net lease properties, says Ralph Cram, president and manager of Envoy Net Lease Partners LLC, a real estate finance company specializing in single-tenant, net leased assets. The cash infusion underscores the fact that the triple-net sector has hit bottom and is climbing back, Cram adds.

“We have seen buying activity of individual properties pick up significantly over the past 45 days,” he notes. “I believe that long-term rates falling recently has helped the triple-net market as well. So the worst has passed for now.”

The Buffett deal brings “favorable attention” to the net lease market, according to Michael Knott, managing director with Newport Beach, Calif.-based research firm Green Street Advisors. At Green Street, he tracks Store and competing net lease REITs Realty Income Corp. and National Retail Properties.

Looking solely at Store, Knott says it’s “a value investor haven” for Berkshire Hathaway. Why? He cites three reasons:

• Buffett’s company bought its stake in Store at just 11x earnings.
• Store represents “a safe earnings stream” backed by a diversified portfolio of properties operated by a diverse group of tenants.
• Store’s management team enjoys a lengthy track record of success. This is the team’s third REIT, with the previous two REITs having been sold.

“The deal suggests there is value in Store’s unique platform in a fragmented net lease industry, and in management’s demonstrated history of generating favorable results for shareholders,” Knott says.

According to Knott, Store carefully evaluates and monitors its investments, and produces solid returns by taking “intelligent risks” with its underlying real estate.

On the day Buffett’s investment was announced, a number of publicly-held shopping center and mall REITs benefited from a bounce in their stock prices. So will the Buffett deal have a more sustained ripple effect on those REITs?

Knott doesn’t think it will. Less than 20 percent of Store’s portfolio is in retail real estate, with the REIT being most heavily invested in properties catering to the services sector, he says.

“I think Berkshire had the most interest in management’s past track record, its process and platform, and the unduly cheap valuation on the stock at the time of its investment, rather than making some kind of direct bet on retail real estate,” Knott says.

Besides, any stock gains that retail REITs enjoyed thanks to Buffett’s investment in Store could easily be diminished by near-term instability in the retail sector.

“We still have another 12 months of store closings to go through, but fewer closings will be in the single-tenant sector, except for several legacy casual dining restaurant chains,” Cram says. “Retail real estate ownership has become a very capital-intensive business due to re-tenanting costs, and investors may be underestimate this cost.”

Store’s portfolio comprises more than 1,750 properties in 48 states, with a gross investment value pegged at $5.5 billion. During the company’s first-quarter earnings call, Christopher Volk, president and CEO, assured Wall Street analysts that the REIT’s portfolio has little exposure to struggling retailers like J.C. Penney, Kmart, Macy’s and Sears.

Among the property types in Store’s portfolio are health clubs, pet care centers, movie theaters, auto auction centers, furniture stores and manufacturing plants. Store’s biggest tenants include the AMC Entertainment movie theater chain, an Applebee’s restaurant franchisee and an Ashley Furniture HomeStore franchisee.

“From the inception of Store [in 2011], a substantial majority of our real estate investments have been centered on tenants who are involved in providing services,” Volk said. “This is fully intentional. Service providers that require human interaction are less likely to be disrupted by alternate modes of delivery.”

In the earnings call, Mary Fedewa, Store’s executive vice president of acquisitions, said the REIT’s first-quarter acquisition volume totaled $421 million.

Volk told Wall Street analysts that the occupancy rate of Store’s portfolio stood at 99.5 percent in the first quarter.

Like Store, net lease REIT Net Retail Properties—whose stock price saw a slight hike after Buffett’s Store stake was announced—faces little disruption amid the continuing retail shakeup.

In a first-quarter earnings call, Jay Whitehurst, CEO of the Orlando, Fla.-based company, acknowledged that some parts of the country are “over-retailed.” But he noted that his REIT’s portfolio—featuring Sunoco, Mister Car Wash and LA Fitness as the biggest tenants—boasts a 99.0 percent occupancy rate. And, according to Whitehurst, the portfolio has hardly any exposure to tenants that are stumbling in the e-commerce era.

“We have very little apparel in our portfolio, and other retailers that in the mall settings are struggling mightily,” he said.

Over at net lease REIT Realty Income Corp.—whose stock price also went up a notch post-Buffett—there’s not much concern about the implosion happening in traditional retail. The REIT’s top tenants include Walgreens, FedEx and Dollar General.

In a first-quarter presentation to institutional investors, executives with the San Diego-based REIT reported it has minimal exposure to tenant categories that have been hardest hit by bankruptcies since 2007: casual dining, sporting goods and grocery.

The REIT’s occupancy rate during the first quarter was 98.3 percent—and has not dipped below 96.0 percent since 1996.

The REIT’s 2016 annual report delivered a bullish outlook for this year.

“Given the opportunities we are seeing that meet our investment parameters, we anticipate completing approximately $1 billion in high quality acquisitions in 2017 at attractive investment spreads and favorable risk-adjusted returns,” the report says.

Fed Chair Janet Yellen says another financial crisis is not likely in our lifetime, according to CNBC. Nicholas Schorsch was involved in the discussion of the quarterly earnings report that landed American Realty Capital Partners in trouble, reports the Wall Street Journal. These are among today’s must reads from around the commercial real estate industry.

1. Yellen: Banks ‘Very Much Stronger,’ Another Financial Crisis Not Likely ‘In Our Lifetime’ “Fed Chair Janet Yellen said Tuesday that banks are “very much stronger” judging by how major institutions did in the recent stress tests. Speaking during an exchange in London with British Academy President Lord Nicholas Stern, the central bank chief said the Fed has learned lessons from the financial crisis and has brought stability to the banking system. Banks last week passed the first round of the Fed’s stress tests to see how they would perform under adverse conditions.” (CNBC)
2. Witness Says Real Estate Owner Schorsch Playes Role in Fraud Scheme “The chairman of a real-estate empire involved in one of the biggest accounting scandals in years participated in a key conversation the night executives finalized a quarterly earnings report at the center of the case, according to the government’s star witness. Testifying earlier this month in a federal courtroom in Manhattan, Lisa McAlister, the former chief accounting officer of American Realty Capital Partners, described a frantic, all-night session on July 28, 2014.” (Wall Street Journal, subscription required)
3. Plano’s Collin Creek and Lewisville’s Vista Ridge Malls May Soon Have New Owners“North Texas’ two big foreclosed regional shopping malls may soon have new owners. Dallas real estate investor Sam Ware’s Dreien Opportunity Partners has bid on Plano’s Collin Creek Mall. The same partnership purchased J.C. Penney’s Plano headquarters in January. Other offers may be pending. The mall, built in 1981 and located on the southwest corner of 15th Street and North Central Expressway, is being marketed by a real estate brokerage firm Avison Young.” (Dallas News)
4. Footwear Retailer Supersizes it with New Format “Skechers has debuted a new store format in its largest mall location to date. The company has opened a 24,000-sq.-ft. outlet store at Ontario Mills, Ontario, California, that houses one of the widest assortments of Skechers products under one roof, with dedicated departments for the brand’s various lifestyle and performance collections for men and women. The new Skechers Superstore also features a fun kids’ area, complete with a candy shop and a theater space screening Skechers cartoons.” (Chain Store Age)
5. NYC Construction Worker Wages Hit 10-Year High “Average wages for New York City construction workers rose more last year than they did in any year since 2007, a new report from the New York Building Congress found. Construction workers’ average annual wages shot up 5.4 percent last year, to $80,200 in 2016 from $76,100 in 2015. The uptick was the biggest annual increase since wages rose 6.4 percent in 2007. It also marks the first time in nine years that construction worker earnings increased by more than 3 percent in a year.” (Commercial Observer)
6. Need to Learn How to be a Property Landlord? Lake Worth May Show You “Lake Worth’s code compliance division has had its share of problems in recent years. But the city says it’s trying to address some of those problems. One of the things the city is considering doing is offering a class that teaches property owners how to be a landlord. At last week’s city commission meeting, Vice Mayor Scott Maxwell said West Palm Beach has one.” (Palm Beach Post)
7. Whole Foods New 365 Format Store Coming to Weehawken “It’s been called the next-generation Whole Foods — a new-format store designed to appeal to millennials — and the first New Jersey location will be on the Weehawken waterfront. Developer Hartz Mountain and Whole Foods broke ground Tuesday for a 365 by Whole Foods Market store in the Lincoln Harbor waterfront project. The 365 stores are smaller than a typical Whole Foods, and sell more pre-packaged foods, with an emphasis on the lower-priced 365 house brand.” (NorthJersey.com)
8. Inside Edison Properties’ Plan for a Newark ‘Renaissance’ “The firm, founded by the Gottesman family in 1956, is currently developing Ironside Newark, a seven-story, $80 million speculative office project located at the corner of Edison Place and McCarter Highway (Route 21) in Newark, astride a burgeoning park that will be known as Mulberry Commons. (The City of Newark is developing the park on the site of the former Triangle Park, along with a pedestrian bridge that will connect much of the area. Edison is making another $20 million investment in the construction of the bridge and various park-related infrastructure elements.)” (Commercial Observer)
9. A Quarter of U.S. Companies Fail to Adopt New Lease Accounting Standards “According to a new survey from CBRE and PwC US, twenty-three percent of U.S. companies have not yet started to implement the new lease accounting standards, nearly 18 months after they were promulgated by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). Of those who say adoption is “in progress,” 52 percent say they are only 0 to 25 percent complete. The new lease accounting standards go into effect in 2019 for public companies.” (World Property Journal)
10. The Top 10 Properties for Online Reputation in the Top 26-to-50 MSAs “If there were ever any doubt as to how important property ratings and reviews are to residents of multifamily housing, this month’s ORA report should dispel them. In our latest research, more than 28,000 residents rated the impact of online ratings and reviews on their decision to visit a property at 7.33 (on a scale of 0 to 10, with 10 being the highest), proving that apartment communities need to closely watch their digital curb appeal.” (Multifamily Executive)