A new entrant is making a long-term bet on one of real estate’s most challenging sectors today.
Christopher Nolte and David Schreiber have launched AneVista Group, a private equity platform that will exclusively pursue investment and operating strategies in the retail sector. The firm, launched in August, will invest in development and redevelopment deals specifically targeting what the founders describe as small format, necessity-oriented shopping centers that have “e-commerce resistant retailers in last mile locations.” Small format retail is typically under 30,000 rentable square footage consisting of unanchored or anchored strip centers and convenience-anchored centers, whereas large format comprises malls, regional centers, power centers and lifestyle centers.
Both Nolte and Schreiber have decades of retail investment experience. Nolte was most recently the president of the family office Marcus Investments, where he also held several other senior roles. Schreiber was at Chicago-based investment manager LaSalle Investment Management, where he served as a managing director and retail sector lead. With their new venture, which was in the works for a couple of years, the two executives want to capitalize on the opportunities triggered by structural disruptions facing the sector due to online commerce, especially in a post-pandemic world.
The retail sector, together with hotels and offices, has been among the worst-hit sectors globally amid the ongoing economic slowdown. In the first half of 2020, Real Capital Analytics recorded $38 billion worth of global retail transactions, a 35 percent year-over-year drop. The second quarter fared even worse, with retail transaction volumes down 60 percent to just $12.6 billion.
Schreiber, however, argues there is still value to be found in certain types of retail sectors.
“Our pitch to our investors has been that not all retail is created equally,” the co-founder and managing partner said. “The distress that the retail environment is seeing in the larger format is not the same distress that neighborhood, community-oriented retailers in last-mile retail business models are facing. The pullback from the retail sector has impacted pricing across the sector as a whole and investors are not acknowledging the risk-adjusted relative value of certain retail sectors over others.”
Schreiber is fully cognizant of the reasons institutional investors have a limited investment appetite for the sector currently. A lot of retail investors, in his view, do not have the operational expertise to understand the value of the underlying collateral, and so are unable to properly underwrite a retail center amid the current market uncertainty.
However, both Schreiber and Nolte do not see this waning institutional investor appetite as an obstacle to AneVista’s own capital raising goals. The firm has opted to tap a different investor base for its fundraising goals and is understood to have raised an undisclosed amount of capital from family offices and high-net-worth investors.
“They have learned over many years it is great to be greedy when people are fearful and fearful when people are greedy.” – Christopher Nolte
Nolte told PERE there were several reasons why family offices and HNW capital remain interested. For one, the firm will pre-lease all its retail centers with credit tenants, which will help de-risk a deal early on for family offices. Family offices also have more flexibility to pursue niche opportunities and come in and out of the market, as opposed to institutional capital that, according to Nolte, has to “allocate more dollars to a strategy and persist in it.”
There is also an opportunistic element to their approach.
“They [family offices] are highly attuned to the fact that, sometimes, an institutional investor shift can create an opportunity for them and that is what we are seeing now in the retail sector,” said Nolte. “They have learned over many years it is great to be greedy when people are fearful and fearful when people are greedy.”
Schreiber also believes institutional investors pulling back from the sector will create more attractive pricing as more assets come to the market. The firm has not made any investments yet. In terms of average deal sizes, the firm will be targeting $10 million – $25 million deals, developing to a 9-10 percent return at cost. For development deals, the target returns are in the mid-teens whereas redevelopment opportunities will seek high-teens returns.
For now, all eyes are on the timing of imminent distress opportunities.
“There is a mountain of product coming and we expect there to be tremendous product [available] for the next several years,” said Schreiber. “The current environment has so much volatility and fluidity, and that is why we haven’t seen much distress yet. We view 2021 as being a far more favorable investment environment for us.”