What do you all think about a hybrid PE fund that combines real estate PE with a growth equity component for small businesses. For example, a fund could acquire a shopping center and fill one of the vacancies with a small business you take a stake in. The fund would provide the space at no rent and built out the spaces for the business while taking a % equity stake. The real estate component would eliminate location risk for the businesses. The net effect to investors would hopefully be a stable cash flow asset (real estate) with a ton of upside potential if you have a stake in the next Chipotle. Thoughts?
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Won't the value of the real estate you have plummet since you are not generating cash flow from the tenants that you are bringing in? Or is the intention to make $$ off the business itself, not the real estate?
This sounds a bit more like an incubator/accelerator.
Goal would be to have a 80-90% leased center with stable tenants but use one of the vacancies for incubator purposes. The rest of the center would generate stable cash flow and the incubator space could potentially generate substantial upside if the business grows. Yes, you could lose out on X amount of NOI and therefore value but it would be a small %. What I have seen is that it is tough to lease some of the small spaces with tenants that stay long so why not take a small risk on a business and get equity.
I don't deal with retail but I would think that having an additional 10-20% vacancy rate would absolutely kill your project returns. How are you going to acquire the shopping center when you can only bud 80% of what your competitors can, because they're leasing the whole thing up? If you hit it big with an incubated business, you'll make a killing, but you're going to bleed out on the RE side.... so why not just go into venture capital?
In my opnion this can only work if you know that you will not be able to find other tenants and it allows you to reduce your vacancy rate artificially!
Apparently SD Malkin operates malls/outlets in Europe (possibly Asia too?) where they don’t collect any base rent but take a % of all tenant sales. Apparently they crush it.
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