In our lifetime Sears, the major US retailer, was the “Amazon” of it’s day. Like JC Penny and others, these large anchor tenants dominated the retail landscape across America anchoring almost every retail mall. Today Sear’s stock is down 90% in only a decade and most likely will not survive. And like Sears, all the other big name anchor retailers are struggling to stay open and the landscape of closed Malls across America tells the story. In the last three years The Gap is down 42%, Urban Outfitters down 33% and big name JC Penny almost gone down, 25%. Why?
Like housing, like 1999s internet bubble, the retail bubble (if there ever was one) has popped. The internet has killed retail as we knew it. We can buy everything we want at our desk with a swift click of the mouse.
What does this mean to us real estate guys? This is retail right? But will it have an effect on other sectors of the real estate market. You bet it will. And this tail will swing big at some point. The contagion will spread across the landscape, driven mainly by the lack of liquidity and banks licking their wounds from failed borrowers. Big borrowers.
Anchor tenants disappearing from shopping malls and High Streets will naturally cause fat and happy landlords to wake up and smell the coffee. But it will be too late. No rents & lower rents, will have an impact on LTVs and financing repay ability. Bricks and mortar companies will suffer and need to change as well to survive. And their share prices will fall as well.
Cracks will start to appear in every sector because at the end of the day, successful Realestate investing is about using leverage to magnify returns. And if credit is not available, then those returns become as marginal as commodity prices and money flows elsewhere.
I’m a seasoned Start-up CEO and property entrepreneur who built a property business worth over $200 million. Since 1992, I helped start a number of large scale businesses including a bank credit department, a mortgage company, and I built the largest single-branded real estate company across five countries in Central Europe. I also developed a portfolio of shopping centers and hypermarkets in Eastern Europe, constructing over two million square feet of retail space.
Today I am involved in the entrepreneur community, trying to share what I’ve learned and I serve as a mentor for startups.
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