Turnarounds in grocery, healthcare, retail and higher education should maintain a sharp focus on leveraging real estate value, writes A&G Realty Partners’ Jon Graub in Journal of Corporate Renewal
Strategic responses to disruption in retail offer some potentially valuable lessons for turnarounds in grocery, healthcare and higher education as well, writes Jon Graub, a Principal in A&G Realty Partners, in the June issue of the Turnaround Management Association’s Journal of Corporate Renewal.
“A Venn diagram charting the forces of change in all of these areas would show considerable overlap,” writes the retail real estate veteran. “The internet, for example, is a factor in the reduced need for space in the retail and education sectors and in grocers’ pivot toward services like click-and-collect and online delivery.”
In the piece, (“Turnarounds Amid Disruption: Maximizing Real Estate Portfolios Is an Essential Strategy”), Graub notes that the so-called “retail apocalypse” of bankruptcies and store closures has encouraged retailers to maintain an unrelenting focus on optimizing the value and productivity of their real estate portfolios. They are signing shorter leases, shrinking their prototype sizes and store counts, ramping up store-in-store deals, and empowering their real estate committees to scrutinize sites as never before, Graub explains.
Along the same lines, real estate dynamics are changing in nonretail sectors of the economy as well. He cites research pointing to the accelerating closures of hospitals in rural areas and inner cities—a trend that is roughly analogous, in retail terms, to bankruptcies by the likes of The Bon-Ton or Toys R Us. “Simply put, declining reimbursements and rising costs are shaking things up in healthcare, triggering more consolidation and the need for adaptive real estate strategies,” Graub writes.
He points to additional research focused on pragmatic strategies for adaptive reuse of former hospitals, including conversions focused on blends of community retail, restaurants, co-working areas, event spaces, apartments or offices, to name a few. Indeed, Graub writes, developers around the country are already making creative use of former hospitals. Other options include divvying up spaces for use as e-commerce fulfillment centers, or subleasing various parts of the building or property. “Subleasing would enable the hospital system to gradually relocate various services to the suburbs while keeping the bulk of the facility in operation,” he writes. “The key is to be cautious about lease length. The plan should include a clear vision for the wind-down of space.”
Just as e-commerce continues to pose big challenges for brick-and-mortar retailers, Graub continues, the phenomenon of online distance learning is among the factors reducing demand for physical space at nonprofit and for-profit schools. Meanwhile, a transformation is also underway in grocery, where e-commerce is encouraging smaller store sizes and competition from smaller-format players is growing increasingly intense. In the piece, Graub outlines a number of real estate strategies that both grocers and higher education institutions could use to contend with disruption.
“It may seem remarkable that assets once considered relatively stable—from hospitals to colleges to grocery-anchored shopping centers—are now under the gun to adapt to rapid change,” he concludes. “Clearly, though, this is the new reality of the U.S. economy. Regardless of the sector in question, turnaround professionals should hammer home a simple message to their clients: Real estate is their most important asset, and they need to maximize its productivity down to the last square foot.”
The full article is available at: https://bit.ly/2Mt5tvU
Best known for its work on behalf of healthy and distressed retail companies, A&G Realty Partners has increasingly applied its real estate methodologies outside the retail sector as well, including the higher education, healthcare, warehousing/distribution, housing and office markets. The Melville, N.Y.-based company, which also maintains offices in Los Angeles, Chicago and Philadelphia, was founded in 2012 by Co-Presidents Emilio Amendola and Andy Graiser.