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Fear of Whole Foods Disruption Seen as a Real Estate Opportunity

The narrative about the death of brick-and-mortar retailers is likely overdone, MetLife Investment Management said in a report released Thursday.

(Bloomberg)—Patient real estate investors stand to gain from the fears of disruption such as the one that rattled the grocery industry after Amazon.com Inc.’s takeover of Whole Foods, according to MetLife Inc.

The narrative about the death of brick-and-mortar retailers is likely overdone, MetLife Investment Management said in a report released Thursday. High employment in the industry as well as strong consumer spending show that demand may remain strong, the authors said. Amazon’s threat might drive off some “skittish” investors, leaving the rest with the prospect of better returns.

“There are actually several store closures in many markets across the U.S. But for us, that’s not reflective of a broad-based decline in retail demand but rather a redistribution of it,” Adam Ruggiero, head of real estate research at MetLife Investment Management, said in a phone interview. “We’re still facing a lot of competition in trying to acquire top-quality equity real estate as well as originating commercial mortgages.”

As some investors fall out of the buyer pool, “that’s a benefit for us because it might result in more-favorable pricing,” he said.

Amazon acquired Whole Foods last month for more than $13 billion, and its price cuts at the grocery chain sparked fears of intensified competition. MetLife said the e-commerce giant’s push into physical retail is proof of the industry’s strength.

Amazon’s online grocer “never really achieved the kind of market penetration that I suspect they intended,” Ruggiero said. “I think the ultimate conclusion that they reached was, in order to play the kind of role in the grocery industry that they want to, they have to have a brick-and-mortar presence.”

Amazon’s entry initially threatens higher-end, organic grocers, MetLife said, and middle-market companies such as Kroger Co. probably won’t see an impact for years. Some high-quality malls will continue to do well, according to the report.

The researchers acknowledged that population shifts have hurt retail in some areas. Younger people are moving to bigger cities, bolstering retail in those regions, and that can hurt consumer spending in the towns they’re leaving behind.

“The sector continues to offer many opportunities to those who recognize how shifting consumer spending patterns and the migration of the U.S. population are changing the retail landscape,” the New York-based insurer said in the report.

MetLife Investment Management offers strategies such as real estate and private placements for institutional investors. The company expanded its asset manager this year, agreeing to buy Logan Circle Partners from Fortress Investment Group LLC. That deal adds more than $33 billion in assets under management, the company said in July.

To contact the reporter on this story: Katherine Chiglinsky in New York at [email protected]. To contact the editors responsible for this story: Dan Kraut at [email protected] Dan Reichl, Daniel Taub

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