How the Dire Future of the Retail Market Could Solve the Housing Affordability Crisis

How the Dire Future of the Retail Market Could Solve the Housing Affordability Crisis

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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What does the future hold for retail real estate in America?

Things are changing. The way businesses operate is changing. Our shopping habits are changing. The need for different types of real estate is changing. While we will definitely need more of certain types of property in the near future, there just won’t be as much demand for many properties in the way they have been configured for use up until now.

The Great Retail Apocalypse

2017 set the record for retail store closures. At least 6,700 stores were slated for closure between January and October alone. That’s hundreds more than in the pit of the crisis in 2008. These numbers aren’t just for small mom and pop stores either. These are major national credit tenants and famous brands like Macy’s, Rite Aid, and Michael Kors—as well as tech savvy chains like Gamestop. A few may be consolidating branches in order to optimize business or as the result of acquisitions and mergers. Still, hundreds are the result of major retail companies going bankrupt.

Related: Why I’m Investing in Affordable Housing for the Long Haul

Some may have even noticed Starbucks locations closing in their neighborhoods. That is an unusual trend. In fact, the retail apocalypse has gotten so bad that one mall operator has sued Starbucks to keep some of its Teavana locations open. Starbucks planned to completely shut down all it its stores under this brand by the end of 2017. A judge sided with one property manager who feared the store closing would wreck its assets by triggering a domino affect among other stores in its malls.

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What About Amazon?

Amazon recently made a very high profile acquisition of Whole Foods. While this was partially a play into the grocery business, it was also a big real estate move. It gives Amazon already operating distribution centers across the country from which it can ship all of its wares.

From smart fridges and smart home devices to smartphones that order for you and even discounts offered for ordering online and picking up from the curb at Walmart, the whole shopping process is being transformed.

I exhibit a prime example of a change in consumer behavior to save time. Over the last year, I transitioned to shopping on mobile for my groceries. I use an app to do my shopping, and it is delivered to my door. Target has since made an announcement that they will be purchasing the app in an all-cash transaction.

While we still enjoy getting out for entertainment, people aren’t shopping in brick and mortar stores at levels that support yesterday’s floor spaces.

Related: How to Beat the Coming Housing Slowdown With a Value-Add Multifamily

The Future of the Real Estate Landscape

Retailers that get ahead of the curve early enough may be able to cut enough overhead and stores to survive. Many won’t. This will also impact the many commercial businesses and properties which have supported retail stores. Think cabinet makers, point of sale manufacturers and servicers, alarm and security companies, and many others. This is all in addition to the major shift in the office property market over the last 10 years. With the majority of workers now operating remotely from home or in various co-working spaces, there just isn’t the need for office buildings like there once was anymore.

On the bright side, as discussed in this article on BiggerPockets, all this will create more opportunities for investors to acquire these properties at a discount and transform them. Some may get away with being updated for online shoppers to come pick up and try on merchandise. Others may be completely transformed into shipping and distribution centers. We’ll need more of those locally as online stores compete on speed of delivery. Then there is is the critical need for more housing. Just as some developers are now redeveloping old factories as apartment buildings, retail could become the next frontier for conversions to multifamily housing.

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Summary

All is not rosy in the retail world. This may be the last holiday season for thousands of stores across America. Fortunately, this could inadvertently lead to solving the far larger housing shortage and housing affordability crisis we are facing. It’s not a matter of if this will happen but of who will be the fastest to step up, bail owners out of distressed retail property, and convert it into something more relevant and useful.

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How do you predict retail will shift in the coming years?

Let’s discuss below.