The Real Deal Miami

Contrarian investors across US find bargains amid “retail apocalypse”

Sterling Organization's $500M fund invests in grocery-anchored shopping centers, street retail and other shopping centers
July 17, 2018 12:30PM

Money raining down on an abandoned shopping mall (Credit: Getty Images and iStock)

With predictions of a “retail apocalypse” growing by the day, and as more stores close and companies file for bankruptcy, some investors see now as the perfect time to buy ailing shopping centers at distressed prices.

Brian Kosoy, the CEO of the Sterling Organization, a private equity firm, started a new fund to invest in grocery-anchored shopping centers, street retail and other shopping centers across the U.S., according to the Wall Street Journal. He said that the Palm Beach-based company’s fund is near closing on $500 million from investors.

It comes at a time when vacancy rates at malls and shopping centers are rising. Nationwide, brick-and-mortar retail vacancy rates are expected to increase to 12 percent by the third quarter of 2019, up from 10 percent in the first quarter of 2018, according to Statista.

Sterling’s new fund targets average annual percentage returns in the mid-to-upper teens by buying properties that require more active management. The fund is targeting grocery-anchored shopping centers, street retail, open-air shopping centers and mixed-use properties in San Diego, Chicago, Los Angeles, Minneapolis, Dallas, Miami and Washington, D.C, according to the Wall Street Journal.

Kosoy told the Journal that pension funds, college endowments and charitable foundations have invested in the fund.

Retail sales continue to slow at many traditional retail outlets as buyers are turning to e-commerce, and large retailers such as Macy’s and JCPenney have announced store closures. In the notable case of Toys R’ Us, among many others, it has meant bankruptcy. [WSJ] — Keith Larsen