The COVID-19 pandemic has left many wondering about the future of many longstanding institutions—including retail. Some of biggest retailers including J.C. Penney, Neiman Marcus and J. Crew have recently filed for Chapter 11. Meanwhile, retailers like Microsoft aren’t closing their retail stores due to the pandemic per se, but the company saw its business increase during the stay at home mandate and has decided to move exclusively online. Add in the fact that many retailers who have remained open are having trouble paying rent, investing in retail seems like an extreme gamble.
Brookfield Asset Management is one company that appears willing to take that gamble, however. The company announced in May that would launch its $5 billion Retail Revitalization Program. The program’s goal is to deliver capital and recapitalize retail business. Brookfield and its institutional partners will fund the program, which will focus on non-control investments in retail business to help with their capital needs during the COVID-19 crisis.
The Retail Revitalization Program will focus on retail businesses that have $250 million or greater in normalized revenues and have been operating for at least two years.
“This initiative is being designed to assist medium sized enterprises in getting back on their feet,” Brookfield Private Equity Group Managing Partner and Vice Chairman Ron Bloom said in a statement. “We believe this is a critical component to getting the economy moving again, and we would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business.”
If there was ever a time the retail industry needed a significant investment, it’s now. Although Brookfield’s private equity branch, which will be running the Retail Revitalization Program, operates more than $64 billion in assets, an investment in retail is still a gamble given the uncertainty surrounding the pandemic. Brookfield leadership sees its investment more as an opportunity than a risk.
“There’s no question the pandemic is going to have an impact on the outlook for the sector,” Bloom told The Real Deal last month. “But one of the things that attracted us to the portfolio in the first place is we think these centers [in major markets] will hold their value much better than the lower-quality secondary locations. We’ve had challenges with rent collections through April and May, but we’ve reopened close to 100 of our shopping centers already. As those centers get back to operating, we expect those collections to recover.”
While Brookfield is confident in their investment strategy, it still has to answer to shareholders who are rightfully curious about why the company is putting money into an industry that’s struggled so much during the last few months. The difference with Brookfield’s properties, according to Bloom, is that they’re in ideal locations.
“Our shareholders read the same articles everyone else does, and they see things like ‘Everybody’s going to buy everything online, and they’ll never step foot in a mall again,’ so they ask those kinds of questions,” Bloom told The Real Deal. “But what’s different about our portfolio is that in many of the towns where we’re operating, this is the center of commerce. There is no question some malls and some retail real estate will disappear over the next couple of years, but it’s important to distinguish that those aren’t the types of assets we own. Ultimately, we and a handful of others who own similar centers will be the survivors in this.”