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As institutional investors kept looking for more credit tenant retail to buy, we in the retail development world, being good capitalists, gladly kept building. Along the way we figured out something interesting. Turns out that the only thing more valuable to an institutional buyer than a national tenant occupying 10,000 sf is one in 20,000 sf (size). And the only thing more valuable than a national tenant leasing 20,000 sf for ten years is one who will lease it for fifteen (time). And when you’re a national retailer who’s promised your shareholders you’d double your store count, well. . . you gotta do what you gotta do. In this way lies madness. When you invest hundreds of billions of dollars of widows’ and retirees’ money into retail real estate — with cash flow backed by leases backed by the credit of the lessors— you tend to care a great deal about credit. Or at least, the appearance of credit. It will become a monomania. An idée fixe. A mantra you chant at night to keep the auditors away. But here’s the thing: there is no such thing as retail tenant credit. Maybe there was twenty years ago, but not anymore. Like many things, Covid laid bare all of the many fault lines that ran through the concept. “Credit” retailer after “credit” retailer is going bankrupt, many never to return, and Covid isn’t the reason. There is no alternate universe without Covid where JC Penney and Stein Mart and CBL and all of their competitors don’t go bankrupt. They’ve been gradually going bankrupt for years: Covid just made them do it suddenly and all at once.
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