While many U.S. bricks-and-mortar retail sub-sectors continue to get pummeled by the impact of the coronavirus pandemic—including shutdowns and social-distancing restrictions—there’s still optimism in select corners of retail real estate.
That’s why commercial real estate industry veterans David Schreiber and Christopher Nolte have launched the private equity platform AneVista Group to focus on innovative investment and operating strategies within the retail real estate sector.
Based in Chicago, AneVista will develop and redevelop small-format, necessity-oriented shopping centers. The firm will target e-commerce-resistant retailers in last-mile locations that address the trends reshaping consumer preferences and retailer operations.
Co-founders and managing partners Schreiber and Nolte have a combined 40 years of industry experience, including private equity and related disciplines. Throughout their careers, they have served the investment objectives of institutional, family office and high-net-worth investors.
Schreiber shared with NREI why they launched the platform now, what opportunities they see in the marketplace and which investors they’re targeting.
This Q&A has been edited for style, length and clarity.
NREI: Why did you launch this private equity platform now, when commercial real investors are anticipating significant distress and valuation declines within the retail sector?
David Schreiber: We actually started working on this quite some time ago. Chris and I have known each other for the better part of 20 years. We were business school classmates together at Kellogg (School of Management at Northwestern University) and long-time friends. We started comparing notes a couple years ago on some interesting trends we were seeing in the retail sector and started formulating some plans for strategies that we thought would make sense in the environment, just given all of the transformation and distress and change.
Our focus really pre-dated COVID-19, but when [the pandemic] occurred it just accelerated all of the conversations we were having with our investors and retail partners. Simply put, we’re doing this now because we believe there’s tremendous opportunity in the space as a function of all of the continued transformation and disruption. On the one hand, investors are exiting the space. There’s uncertainty in the space, and that uncertainty creates a much wider range of outcomes and expands risks. And on top of that heightened uncertainty and risk, retail is an operating business. Unlike many other property sectors, most investors don’t understand the health or business needs of their underlying collateral. They just don’t understand the corporate risk associated with the income from the asset, because of all the change that these retailers are experiencing.
It’s a very difficult time for investors to know what to buy or what to pay, and we see that continuing for quite some time. It’s creating a significantly reduced appetite for retail, generally, among non-discretionary capital like pension funds and even among discretionary capital. Any investor that can choose other property sectors [is] largely doing that. That’s why you’re seeing this concentration of capital float to spaces like industrial and multifamily at the expense of office and retail, because retail and office are just undergoing more structural change.
We look at this and believe that over the next few years there’s going to be very limited investor depth, because of this void of capital that has already exited or will continue to dissipate over time.
Meanwhile, our perspective is that all retail is not created equal. We’re not trying to solve problems in the mall space or large-format [properties] like power centers and lifestyle centers. We’re focused on a very specific segment of retail, which is in the small-format space.
We think there are segments of retail that mitigate a lot of the risks that these investors are concerned about, and we’re really using this time as a catalyst to buy the right properties with the right tenants in the right locations that we believe mitigate these risks. And where we can, we will then address this transformation and change by making the properties more relevant to our tenants, the retailers and consumers by addressing uses that impact omni-channel, fulfillment and logistics.
NREI: Can you explain in more depth why you’re targeting small-format, last-mile retail properties?
David Schreiber: In our opinion, the most durable and compelling segment of retail is small-format, e-commerce-resistant, last-mile retail. Small because we think that a lot of the risk in retail is directly associated with large format, because of the change in that space.
We like last-mile because we’re betting on the community-oriented retail that’s in people’s neighborhoods. And we’re betting on e-commerce-resistant tenants, because we believe there are certain segments of retail—call it grocery, restaurant and select service—where they’re more resilient to online commerce and just not experiencing the same headwinds from online retailers like Amazon, Walmart and Target.
Then we’re bringing solutions to those centers that address our retail partners’ needs related to this changing environment with omni-channel, fulfillment and logistics.
NREI: What opportunities do you see in developing and redeveloping these assets?
David Schreiber: In this environment, we’re seeing and expecting quite a bit more distress. We’re expecting there to be significant downward pressure on land pricing and asset values. There’s sort of a dual focus within our platform: one being development, so we will buy land to build. The other being our site acquisition strategy and we do believe that there will be very interesting opportunities to buy existing assets at distressed pricing. We will be buying both small-format unanchored and anchored strip centers and select, smaller grocery-anchored or non-grocery-anchored neighborhood centers where they have meaningful vacancy, and we can bring our partners and our platform focus to those properties.
NREI: Geographically, where are you focusing?
David Schreiber: We’re national by intent. All of the retailers we’re working with, which are national brands, will want us to take them to a variety of markets. But, practically speaking, we’re focusing first on Chicago and the Greater Midwest, as well as Denver, Atlanta, Dallas and Houston.
NREI: Explain more about how you will aim to capitalize on significant product availability and distressed pricing.
David Schreiber: For the reasons I mentioned, institutional investors, in general, are not expected to be particularly active in retail. That’s a large driver for why Chris and I are pursuing this strategy now. Chris comes from the family office space, and we have deep relationships with investors across all those capital segments, from institutional to high net worth. We raised money for this in the family office and high-net-worth spaces, and we expect to stay most active there. After the initial first phase or two of our company evolution—as we validate our strategy and scale—eventually, we do expect to bring in institutional partners. It’s just not the right time right now.
A lot of these family offices are looking at the real estate space and they have more patient, longer-term capital. So, when you’re focusing on sectors that are undergoing structural change like retail and office, it’s hard to approach that within a defined window. If I went to an institutional investor and said, ‘We’re going to execute this strategy within two or three years,’ it’s hard to really understand what the capital markets and liquidity look like in that short timeframe. With strategies where there’s more disruption and change over time, the family offices right now are a great fit. We were very well-received by the family offices we talked to.
NREI: How are you raising capital for this venture?
David Schreiber: It’s not a fund, so we raised capital for our operating company, and then we raised capital for our property activities, which will be a combination of that development and redevelopment.
NREI: What kinds of returns are you hoping to deliver?
David Schreiber: They’ll vary a little bit in terms of whether we’re looking at development or redevelopment. For our development properties, the way we’re approaching those is we’re building to a 9 to 10 return on cost. Our properties will be 10,000 to 30,000 sq. ft., substantially pre-leased, like 85 to 90+ percent. We expect to use a combination of debt and equity, so we’ll use construction financing somewhere between 65 and 80 percent on the pre-leasing, and the balance will be equity of ours and our partners’. We’re targeting low- to mid-teen returns for that specific strategy.
For redevelopment, it’s a little bit more complicated, because we’ll be buying properties that have some extent of existing tenancy. On those properties, we’re still bringing our strategic partners, similar to development. But on those properties, because they’ll be more complex with existing tenants, we’re targeting mid- to upper-teen returns for our investors.