REITs and the Changing Business Environment

In class we discussed the challenges businesses face when keeping up with current trends, such as Kodak moving to a digital format and Blockbuster losing out to Netflix.  In both cases it was apparent each company was reluctant to change a strategy that they felt was working.  These companies were overconfident in their current approach and thought they were so large they could never be unseated from the throne.  I started to wonder how these changes in the business environment may affect my place of business.

I work for a company that has been successfully running real estate investment trusts (REITs) since the 70s.  My company started with small investments in multi-family housing and later moved to REITS comprised of various retail centers and malls.  The biggest concern that my company faces has been the growing number of online sales and internet only retailers such as  Many online retailers offer free shipping and no sales tax.  Furthermore they can offer better prices, because their overhead is much lower as they don’t have to pay rent for a customer facing brick and mortar building.  So why would anybody shop at retail centers anymore?  It is far more convenient and cost effective to shop online.

This is where strategy plays its part in my business.  We have recently moved away from centers that feature retailers such as Best Buy or other stores that have been severely impacted by the online sales revolution.  We have been focusing more on assets that require a physical presence with customers, or the items that they sell are not as easy to sell over the internet.  These are retailers such as grocery stores, discount stores and convenience stores.  However, there are already services that may start to reduce sales at grocery stores, such as Peapod from Stop and Shop.  Other assets we have been investing in lately are office spaces.  Office space can be lucrative, but it has its risks.  Recently we were looking to purchase the office buildings of a top tier national printing company.  We discovered that they were struggling to keep up with current technology and walked away from the deal because of concerns that they might not be able to pay their rent in subsequent years. 

I believe to position ourselves for the future we need to make investments in real estate that is directly associated with technology and the advancements that are made every day.  I believe we should invest in assets such as the warehouses that act as Amazon’s distribution centers, or the data centers that house the servers for the massive online companies.  These types of assets pop up occasionally for sale, but are very hard to buy because of competition from other real estate investors.  I hope that management is not overconfident in our current approach and are willing to change their strategy to keep up with the business environment specific to REITs.

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