BACK Filter by All Retail Real Estate and Wine…The Perfect Pairing SEPTEMBER 3, 2020 OUR PEOPLE, RETAIL REAL ESTATE I have many things that I am passionate about. Two of my favorites are retail real estate and wines. Both, naturally and only after my family! Retail real estate is in my blood. My father is a successful developer with a respectable 35-year track record. Growing up around it, going into the “business” was always in the back of my mind. Twenty-one years ago, I did just that. I started my career in commercial real estate at TSCG and ever since then, I’ve been expanding upon my passion for the industry with first-hand experience that has become expertise. Over the course of the last few months, I’ve been able to further explore my growing passion for wine. A self-declared and unabashed oenophile, during the quarantine, I’ve used my free time to explore how to complement and develop my existing wine collection, expand my storage capacity, and take advantage of online ordering to find bottles I wouldn’t typically have access to locally. In shifting back and forth from retail real estate during my work hours to my wine collection during my off hours, I soon realized that my two seemingly very different passions are in fact, very much alike. From location and age to experience and variety, in this article, we’ll explore how retail real estate and wine are an almost perfect pairing. Location One of the first things you learn in retail real estate is that it’s all about location, location, location. Is the property a freestanding building at the corner of two major intersections in a busy retail corridor or is it located five blocks from the main retail trade area? Is it an outparcel to a bustling power center or is it an outparcel to a dying mall? Are you in a trade area with a growing population or is the surrounding area’s population declining? Where a retail center or site is located is fundamental to its value at acquisition and its ability to create value for the investor/owner and tenant during its life cycle. Depending on the location, the same business, run by the same owners, could have very different results. The same is the case with wine. In viticulture or wine-growing, location is at the center of everything. If you ask a wine lover or a winegrower what makes a wine great, you’ll hear a wide range of answers all pointing back to location. Everything from the grape and climate, to the terroir and weather, it’s all about location. You could plant the same grape variety and experience a very different wine. For example, many people think that Syrah and Shiraz are different grapes because of the wines with their corresponding moniker. However, while they are in fact the same grape, they produce very different wines depending on the origin–or location–of the vineyard. The resulting wine’s body, flavors, and texture are greatly influenced and developed by the region and vineyard’s terroir comprising its specific climate, sun exposure, soil, history, rootstock, slope, terrain, and even row orientation. Yes, row orientation. This is very similar to retail real estate which calls for many unique and specific factors to be evaluated when considering site location. From city to city block, and even your spot inside a retail center, your location can change the quality of your real estate and retail business just like it can change the quality of your wine. A retailer pays for a good location one time but they pay for a bad location every day they’re in business. — Attribution unknown Age Many people think that the older the wine, the better, but that’s not always the case in wine or in retail. Both wine and retail real estate can go past their peak and sour. A once vibrant and robust trade area or site can go south with age if not continuously developed, improved, and marketed. This negligence could cause local retailers to leave the area. Retail models and concepts can become outdated as consumer behavior and preferences change. An area can experience outmigration that eats away at its tax basis prompting a loss of municipal services, maintenance, and development. Road networks can be re-routed or access blocked increasing friction to reach your property and thus resulting in decreased customer visits. Competing corridors can spring up drawing consumers and neighboring businesses away from the area. All of these scenarios and many more can cause retail real estate to go past its peak. Likewise, a once vibrant and robust wine or wine brand can sour with age if not continuously developed, improved, and marketed. Depending on the quality of the wine, the conditions under which it is stored, and its potential exposure to oxygen and sunlight, among other things, can cause a perfectly good bottle of wine to go bad with age. Some cabernets can peak around 15-20 years old while some vintage Bordeaux wines are just peaking at 40 years of age, while a great chardonnay might be ready in three years. When it comes to age, it’s critical to understand timing. As a retail property owner, it is essential to not hold onto a property too long where it could lose its value and luster because you didn’t sell at the right time. The same goes for wine. While aging wine is an art and many consider it to be subjective. Serious collectors have definite opinions about vintages and their peaks. A once valuable bottle of wine considered past its peak could decrease in value and taste leaving a bad taste in your mouth and a gap in your wallet. Evolution Even though wine has been around for thousands of years, the art and science of winemaking and the wine industry as a whole have had to evolve. Much of the evolution in the industry has been prompted by outside factors ranging in everything from encroachment by diseases and climate change, to competition and technology, and now, the COVID-19 pandemic. In addition to factors that impact the industry, the quality of the grape and itrs growing environment can be affected by fires, smoke damage, erosion, pollution, and droughts, among many other factors. Those winemakers and growers that evolve and adapt to these outside forces or the potential impact of unforeseen events will be the ones that survive and are able to continue to share their heritage and expand their legacy. The same can be said for retail real estate. E-commerce has encroached into the brick-and-mortar retail landscape, new concepts have entered the retail industry increasing competition, and now the coronavirus pandemic has blindsided the sector. Like wine, those retailers and concepts that evolve and adapt to these outside forces will be the ones that survive to continue to share their heritage and expand their legacy. The Owners There are millions of retail real estate owners and vineyard owners around the world. Each is unique with different histories, track records, and goals for their corresponding assets, and yet, they still have many similarities. It could be that a retail real estate owner is a developer who is looking to acquire a property and sell it within 12 months of completing the project. Or, they could be a legacy property owner and the property has been in the family for generations. With the asset considered part of its heritage, the family plans to hold onto it for many more generations to come. Alternatively, in a more likely scenario, ownership is somewhere in between. In this situation, market timing and successfully identifying the asset’s stage in its life cycle are critical. From the perspective of wine, a vineyard owner could be someone that just wants to get their grapes growing and sell the juice to a variety of different winemakers. Or, they could be someone from a legacy family that has been in the winemaking business for centuries. This is not uncommon, especially when you get into the older winemaking regions in France, Spain, Greece, Italy, and Egypt, among others. Some retail real estate owners like vineyard owners are better than others at marketing and distinguishing themselves, adding value, and balancing their product. For example, wine brand owners may grow the popularity of their wines by marketing with celebrities, advertising, having an active social media presence, creating recognizable labels, and developing distinguishable and highly effective branding. While others may be better at balancing their wines and wine portfolio to ensure they are not weighted by a particular grape. Or, they may excel at adding value through experiential opportunities such as on-site wine tastings, restaurant promotions, and/or reseller staff training. The same applies to a retail real estate owner whose marketing skills will benefit them when seeking new tenants or promoting a new opening. Some may be better at balancing their property portfolio to ensure they are not weighted by a particular retail category. While others may be better at adding value by creating a more pleasant shopping experience with easy parking configurations, drawing in foot traffic with curated special events, and offering visible signage and creative branding opportunities. A good example of how a wine brand distinguished itself comes from The Prisoner Wine Company started by Dave Phinney, a then-newbie to the industry who was once destined to be a lawyer. The company debuted its inaugural vintage in 2000 with just 385 cases. Back then, you could find their wines at the store for approximately $25 -$30 a bottle or at a restaurant for $40-$50. While Phinney mostly left winemaking for the spirits business when he sold Orin Swift and his other wine brands and assets for a whopping $300 million, The Prisoner has maintained its growth, branding prowess, and popularity. Today, the wine company continues to offer a high-quality selection of wines, showcase its easily recognizable and fun labels, and deliver unique tasting and brand experiences, while featuring memberships that support brand loyalty. Their wines now range from approximately $35-$60 a bottle retail and $80-$100 at restaurants. Variety Someone who’s not an expert on wines might say that there are only two types of grape varieties–white and red. In fact, there are approximately 10,000 wine grape varieties in the world. Of course, not all have been used to successfully produce a commercial wine product and some–like chardonnay, cabernet sauvignon, and pinot noir–are more popular than others. I liken that to retail where it might appear that there are only three general types of retail property types–a freestanding store, a mall, or a strip center. In reality, there is a broad variety of property types including freestanding outparcels, multi-tenant strip centers, power centers, high-street retail, mixed-use, and more. The key is in understanding what each grape variety contributes to the taste and unique characteristics of a wine. Similarly, it is important to have a clear grasp of the different characteristics of each retail property type and how they contribute to its potential for success as an individual asset and to a portfolio. Value As I mentioned earlier, like wine and it’s terroir, retail real estate is all about location. If you are looking at a fine Napa wine from a vineyard with a great location, rich history, and exceptional soil, it’s like trying to buy real estate on Fifth Avenue, Rodeo Drive, or even the best corner in your local market. You are going to pay a premium because that’s what quality and the market entails. Of course, if you’re looking for “value” as a wine connoisseur, you could search for an emerging vineyard within one of the lesser renowned AVAs (American Viticultural Areas) in Napa Valley, Europe, South America or anywhere around the world. Or, you could try a new wine being debuted by an experienced winemaker now producing under a new brand, or a moderately priced blend from a high-quality producer. While many of you may not follow wines too closely, you may be familiar with the 2008 movie Bottleshock. Based on the Judgment of Paris by author George M. Taber, the book tells the story of the Paris Wine Tasting of 1976. In what started as a publicity stunt that would change the wine world forever, the blind taste test pitted the best French vintages against relatively unknown yet quality wines from upstart Napa Valley. Judged by the most renowned French wine experts, no one thought the American wines stood a chance. Then, the unimaginable happened. The most refined palettes in the wine world couldn’t discern between the California wines and the French wines. In fact, California wines won in the Cabernet Sauvignon and the Chardonnay categories. The 1973 Stag’s Leap Wine Cellars S.L.V. Cabernet Sauvignon beat four top-ranked Bordeaux. In the Chardonnay category, the 1973 Chateau Montelena Chardonnay from California triumphed against its French counterparts. The same hidden gems can be found, or opportunities developed, in retail real estate. Depending on the type of owner or retailer you are, you could go slightly outside of the main street but stay within the trade area to find a great deal. You could also scope out emerging trade areas that are on the verge of breaking out. Consider the Wynwood area in Downtown Miami which in the 1900s was once home to abandoned warehouses, old factories, and a high crime rate. In the mid-2000s, art aficionado and famous real estate developer, Tony Goldman, had a vision for the area seeing it’s windowless warehouses as a blank canvas for artists to paint on. In 2009, the stunning Wynwood Walls were born and displayed as part of that year’s world-famous Art Basel exhibition. This was the beginning of the Wynwood area’s rebirth. Today, Wynwood is home to some of the city’s most exciting restaurants, high-end art galleries, and avant-garde retailers. Imagine having acquired a property in Wynwood in 2009 just before the area broke out into the world stage. There are trade areas like that all over the United States. For example, South End in Charlotte, The Gulch in Nashville, Deep Ellum in Dallas, and RiNo in Denver, just to name a few. The Experience As a wine enthusiast, I’m often asked what’s my favorite wine. I don’t really have a favorite wine or varietal when I want a glass–except for the one that’s in front of me. For me, it’s really about the opportunity to perfectly pair my wine selection with the moment, the setting, the company I’m with, and the climate. If I’m at a nice patio gathering on a summer afternoon, I may opt for a crisp rosé. Or, if I’m with a client at a steakhouse downtown, I will likely select a robust cabernet. It’s all about who and what’s in front of me at that particular moment in time. This translates into retail as well. People regularly ask me what’s my favorite type of deal and I always say, whatever deal I’m working on at the time. It doesn’t matter what deal I’m working on, the moment it’s in front of me, I’m going to make it the best experience for myself and my client. Just like I do when I’m selecting a wine, I look at the opportunity in front of me and use my years of experience to see how I can make this deal or experience better. As my expertise has grown in the retail real estate field, I’ve also been able to enhance my expertise at finding my clients the perfect retail property opportunity and making the experience more enjoyable and beneficial. The same goes for wine. As I’ve learned more about wine, my enjoyment of the process of pairing wines, comparing nuances, and sharing the experience with family, friends, and colleagues has been greatly enhanced. Whether you’re dealing with wines or real estate, there are definite notes to keep in mind. Look for value in quality, pay attention to the specifics of location, consider the timing, and most importantly stay present to the experience and opportunity that’s right in front of you. —————- Stay tuned for Part Two of this series next month where I will take a deeper dive on this theme to compare experienced brokers and consultants to master sommeliers. https://www.linkedin.com/pulse/retail-real-estate-winethe-perfect-pairing-andy-misiaveg/