At one publicly-traded retail REIT, there’s a new team, a new town, a new name and a new game plan.
Effective Nov. 13, Ramco-Gershenson Properties Trust will be known as RPT Realty. The name change follows an overhaul of the executive team and relocation of the corporate headquarters from Farmington Hills, Mich. to New York City. Both of those moves happened earlier this year.
Most notably, the REIT has adopted a new game plan. At the core of the plan is the sale of $150 million to $200 million worth of assets in secondary and tertiary markets, and an initial revamp of six of its 57 open-air retail centers. About 60 percent of the centers are grocery-anchored.
Managing the game plan is Brian Harper, who joined the REIT in June as president and CEO after two years as CEO of mall REIT Rouse Properties Inc., which is now part of retail REIT Brookfield Properties Retail Group. In a Nov. 1 call with Wall Street analysts, Harper said the rebranding “marks the start of a new era for the entire organization.”
For now, that new era means a focus on improving, but not expanding, the REIT’s current portfolio. The portfolio comprises about 14 million sq. ft. in 13 states, with a heavy presence in Florida, Michigan and Ohio.
“We’re mining the portfolio for densification opportunities, so we’re not focused on acquiring today, given the cost of capital and where we’re trading,” Harper tells NREI.
Down the road, however, Harper envisions adding properties in Charlotte and Raleigh, N.C., as well as in the Northeast. Ultimately, he’d like RPT Realty to be viewed as a “blue chip” REIT.
Harper spoke to NREI about the company’s new direction, including redevelopment plans and targeted tenants, and about the death of “bad” retail.
This Q&A has been edited for length, style and clarity.
NREI: What do you see happening with the six properties that will be your first redevelopment projects?
Brian Harper: We’re looking at maximizing the value of the real estate, and that could mean going vertical. For example, we have Webster Place in Chicago’s Lincoln Park (which the REIT bought in 2017 for nearly $53 million). It has a very well-performing Regal Cinemas theater that wants to expand. We’re going to reallocate some of the retail beneath Regal and expand Regal on the top, but look vertical past that, into residential units. We’ll go through the entitlement process ourselves, but we will not do the residential ourselves. We will find a partner to mitigate the risk. We are not a residential developer, and we’re not going to be one. Partnering with some of the top-tier REITs and private companies on this center and any of our other centers is the route we’re going to go.
NREI: Overall, are you adopting more of a mixed-use approach?
Brian Harper: Yes, with those six centers slated for redevelopment. But there are centers that are perfectly fine with just retail. We’re always going to do what’s best to maximize for each parcel. That could be mixed-use. That could be just letting retail exist, and then re-merchandising or replacing underperforming tenants or, upon a tenant’s lease expiration, driving rents or splitting up a box into multiple users.
It really is a case-by-case situation. In Miami, 100 percent of our centers are grocery-anchored. With the exception of Rivertowne Square in Deerfield Beach, we’re perfectly happy with the strong cash flows of those centers and the growth that those centers are producing. It’s definitely not one-size-fits-all. People need to be careful of the buzzword ‘mixed-use.’ You can’t execute on mixed-use at all centers. You’ve got to have the residential demand or the office demand or the hotel demand to make the math work, and you have to have municipalities that will approve that densification.
NREI: Which retailers are you going after?
Brian Harper: There are three categories that we’ve identified that really drive traffic in today’s world. We call it the “Three F’s.”
The first is “food”—grocery and fast-casual or sit-down restaurants. Those drive repeat customer visits; we want a food customer to come to the center three times a week.
The next category is “fit.” That’s LA Fitness, 24 Hour Fitness, SoulCycle, Flywheel Sports, CycleBar. The fitness industry is going through a disruption similar to retail. You have a lot of the old-model clubs that are still doing well, but you have a lot of the smaller operators that are wanting real estate. There’s great demand in that sector; those businesses should bring a customer to one of our centers multiple times a week.
The third is “fabulous.” That’s your necessity-based beauty products or cosmetics, whether it’s Sephora or Kiehl’s or Bluemercury or MAC Cosmetics. This is stuff where a customer wants to go in and not buy online. There are also nail salons and other retailers that are not a commodity; it’s something you have to go see, feel and touch.
Those three F’s are what we define as the new anchors for our centers. We look at every center and try to do the appropriate mix of those three categories.
NREI: What will differentiate your redeveloped properties from competing retail centers?
Brian Harper: We have yet to execute on this, but we are spending a lot of time surveying the landscape to look at implementing a bunch of digital experiences in tandem with the brick-and-mortar experiences. We’re in the early innings on that. Also, our focus on sustainability will be a differentiator for our centers and our company.
NREI: What’s your outlook for the retail sector?
Brian Harper: Retail’s not dying—bad retail is dying. A lot of these dying retailers were laden with private equity debt. The private equity firms got their multiple back and basically said, “We’re not giving you more money.” And a lot of these retailers have not invested in their stores, both from a physical and digital standpoint. Those are the retailers that are dying out.
But TJX, Ross, Burlington, Athleta, Ulta, Casper, Blue Nile, Untuckit, Everlane—the list goes on and on and on of existing brick-and-mortar retailers and new retailers that are growing. Digital and brick-and-mortar are needing each other; one can’t coexist without the other. You can’t be a very good retailer without both. This change is happening before our eyes. That, coupled with a number of those bad retailers going bankrupt, has escalated some of the noise, if you will, in the market.