Millennials brought on a cultural shift built around valuing experiences over material things. This trend resulted in another movement—away from suburban sprawl and toward live-work-play and mixed-use environments.
Commercial Property Executive asked Scott Sherman and Ben Mandell, co-founders of Miami-based real estate investment firm Tricera Capital, how they choose the right neighborhoods for bringing more experiences and character to a city. Approximately one year ago, the firm acquired the Palm Beach Post building, a former printing press and newspaper headquarters located in West Palm Beach, Fla., with the intention to transform it into a mixed-use building encompassing retail and office space. The project is scheduled for completion in the first quarter of 2021.
The duo also talked about the way adaptive reuse and redevelopment projects can enhance and preserve the essence of a community by creating relevant retail experiences while honoring the history of a building.
The retail segment has been constantly changing for the past few years. How would you describe the sector today?
Sherman: It depends on the type of retail. Retail is definitely evolving, but not all retail is dying as you read in the media. Our focus on emerging and mature growth markets with a dense urban core has been proving out. Service and entertainment-focused retail is doing well, and larger national brands that have been quick to adapt, downsize and change merchandising and product offerings have also been performing well.
What kind of retail assets and tenants are you targeting in this late-cycle environment?
Mandell: We are focused on neighborhoods and cities in the Southeast U.S. with a strong population and job growth. Over the past decade, the national trend has shifted from suburban sprawl to live-work-play and mixed-use environments. With e-commerce thriving, we are focusing on retail uses that can’t be replaced online. Food and beverage and entertainment-type uses are thriving right now, but you need to balance that with a mix of other uses such as fitness, service and some dry goods as well.
Retail today is mostly about experiences. How do you make sure that your properties remain relevant for tenants and customers alike?
Sherman: I like to say we are in the business of betting on operators and concepts. We come across a lot of new operators and concepts and need to determine which ones we believe will be successful within our project, and which operators have the experience and ability to execute. When we find great operators in a market, we like to try and work with them to create new concepts that we believe will be synergetic with our tenants.
This is extremely important today, as the idea of “credit tenants” is not what it used to be. Most of these new experiential tenants are not AAA-credit, nor do they have significant balance sheets to put behind the lease.
What strategy do you use when choosing a new location for a retail investment?
Sherman: We take a more of a rifle than a shotgun approach when exploring a new market. We will first look for cities with an influx of residential and office density/job growth. If the job market is strong and the residential market is growing, we look to find the street, neighborhood or pocket that has the bones and character to be a vibrant and pedestrian-friendly retail area that we can start to assemble and merchandise.
We also understand that every city/market is unique, so we like to understand the demographics and type of residents living and moving there to better cater the retail mix to the residents. We also try to embrace the local tenants and operators and sprinkle in regional and national tenants where needed. Central Avenue in St. Petersburg, Fla., is a great example of a street and city that checked all the right boxes, and we have been successful in executing our strategy there.