Beth was a guest in a previous episode of JF1974 so be sure to check out her first episode to learn more about her. In today’s situation Saturday she will be sharing what it is like to be a shopping center investor during the Covid19 era.
Beth Azor Real Estate Background:
- Owner of Azor Advisory Services, Inc.
- Has 30 years of investing in retail shopping centers
- Portfolio consist of 6 centers currently $80 million
- Based in Fort Lauderdale, FL
- Say hi to her at: https://www.bethazor.com/
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Best Ever Tweet:
“As a landlord, the COVID19 recession is completely different than the ‘09 recession” – Beth Azor
Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Beth Azor. Beth, how are you doing today?
Beth Azor: I’m doing great, Theo. Thanks for having me.
Theo Hicks: Thanks for joining us again, actually. So Beth is a repeat guest. Her last episode was Episode 1974. So make sure you check that out. And today is Saturday, so we’ll be doing Situation Saturday, talking about a sticky situation that our guest is in and lessons learned, things she’s doing to get out of it. So before we get into that, let’s go over Beth’s background as a refresher. So she is the owner of Azor Advisory Services. She has 30 years of experience investing in retail shopping centers. Herr current portfolio consists of six centers valued at $80 million. She’s based in Fort Lauderdale, Florida, and her website is bethazor.com. So Beth, before we get into the situation Saturday, do you mind telling us a little bit more about your background and what you’re focused on today?
Beth Azor: Sure, Theo. So my background has been mostly retail, 35 years in the industry, started investing about five years in, so 30 years is correct. I’ve owned and operated shopping centers solely in South Florida. My six that I own today are within ten minutes of my house. So I definitely have some market knowledge there and some control. I like to have control. I also train leasing agents, how to lease vacancy around the country for large REITs, private investors, wealth funds, institutional clients, and I’ve canvassed knocking on doors over 10,000 hours.
Theo Hicks: Well, that’s a lot of door knocking.
Beth Azor: That’s a lot of door knocking.
Theo Hicks: So as I mentioned, it is Situation Saturday. So we’re going to talk about the future of shopping centers post COVID. So Beth, I’m gonna let you just take it any direction that you want to start off, and then I can ask some follow-up questions after that.
Beth Azor: Sure, Theo. So in March, when COVID hit, and some of the tenants started calling us, the landlords, crying, “We might not be able to pay our rent,” I held my first rent relief reduction webinar with over 700 people that attended, and I was very firm. “Let them go to their business interruption insurance, hold firm, tell them no”, and I had three since, so I’ve had four in all. And boy, what a change things have made. When the government shuts down your retail and the nail salons cannot open and the hair salons cannot open, the landlords have to pivot, because if those tenants aren’t taking in a dollar, you can’t really be the tough old landlord that we might have been in ’09. People ask me all the time, “How’s this recession compared to ’09?” It’s completely different. It’s a million percent worse, because the government shut down the retailers. They told them, “You cannot open.”
So I had acres and acres of parking lots with no cars in them, and it was very challenging. I went from talking local tenants, mom and pops off ledges crying to me on the phone, to talking to national tenants who had huge balance sheets, who were being rude and saying, “Sorry, we’re not going to pay rent for the next year.” As a landlord, after about three or four weeks of that, probably in the April to May range, I decided that I had to have the local mom and pop day of phone calls and the national phone calls, because I literally had to change my strength and armor and empathy depending on who I was speaking to, and that’s something that, in 35 years, I never thought I was going to have to do. Okay, so today’s my day where I’m going to talk to all my mom and pop, hair salons, barbershops, little coffee shops. Now tomorrow, I’m going to talk to these big-box retailers who have the balance sheet, who can pay me my rent, so that I can pay the mortgage, but are just choosing to be jerks and not doing so.
So that has been a huge, huge challenge, and just looking back and seeing how day one, “We need to be tough”, to now day, I don’t know, five months later, where we’re really propping up some of these mom and pop tenants, because if we don’t, we will end up with 20% to 30% to possibly 40% more vacancy than we had five months ago. And there will be a lot of landlords and lenders having big discussions, because I’m not sure if the lenders want to take back these properties full of vacancy. It’s really sad and scary.
Theo Hicks: So for the mom and pops, when you say helping them out, propping them up, can you get a little bit more specific on exactly — not just what the conversations are like, but what’s the results of the conversation?
Beth Azor: So again, back in the beginning, we were like, “No waivers. Tough landlords. We’re not going to give any waivers. We’re only going to do deferrals,” to now five months later, where we have to give waivers. I had hair salons and nail salons that literally were not open for over two and a half months, not pressing the cash register. So we can pretend to defer the rent for them to pay back later at some future date. But in reality, they’ve lost those sales forever, they’re never getting them back. And even if we were smart enough or the tenant agreed to a 12-month payback of a deferral, how likely is it that they are going to recover to where they pay that back? So we are doing waivers for tenants that weren’t open. Now, I have a sub shop guy that is doing 50% more business during COVID. Dining rooms closed. He has an app, he’s doing deliveries, he’s doing curbside, and he’s killing it. So he’s doing double the sales that he did pre-COVID. So he’s not getting any waiver or deferral and nor is he asking.
So the tenants that are asking, smart landlords are helping and we’re helping in ways of either deferrals and or waivers. With the national tenants, what we’re doing, and even with some of the locals, is if we make a deal, it’s as short term as possible. So hopefully we’ll all get back to some semblance of order soon; and if we can get something in return for the waiver, or the deferral, that would be great.
For example, I had a lease with a Panera Bread, and they wanted to defer, I think, April and May’s rent or half 50% of April and May’s rent to first quarter 2021. So I said, “Sure, but your lease is coming up in two years. I want you to renew now your second five-year option,” and they said, “No problem.” So now I have a seven-year lease left, which is great for me, and all I did was be their short term lender, where I just postponed getting my rent till first quarter 2021.
Theo Hicks: And then in order to get the information to know – so this is more for the mom and pops – to know what situation that they’re in. Is that what you’re talking about on your phone calls and getting an idea of where they’re at, what they can do so you can figure out what the best course of action is?
Beth Azor: That, and then requesting their sales reports. So actually knowing what they’ve done… And there are some tenants that, like the national, some don’t report, and there’s this new tool called geofencing, which is mobile data. I’ve had some national tenants reach out and say, “We’re doing horribly. We are the worst in the chain,” and then you can fill up the geofencing tool and actually see that their traffic is back to where it was pre-COVID. So it’s amazing how technology can help the landlords, much to the tenants’ unhappiness. I did have a few nationals that tried to play a little game with me and then I was able to say, “Hmmm. Look at this geofencing report. I can see how many people were at your store yesterday, and it matches to February’s traffic. So it’s not going to help.”
Theo Hicks: You said that was geofencing, like a fence?
Beth Azor: Yes, geofencing, and it’s mobile data. So in retail, for the last 35 years that I’ve been in business, demographics is hugely important. So when you’ve got a Starbucks or a Panera or a TJ Maxx, or even some local tenants, they come to your shopping centers and they’re interested in leasing space, they want to know what is the income, what’s the daytime traffic, the employee base in the area, what are the traffic counts, etc, etc. Now there are tools… Uber has one and a company called Placer.ai, and they have the ability to target your shopping center and tenants inside your shopping center, and they can provide you with a report that shows how many people were at your Panera Bread or your Starbucks up till yesterday.
Theo Hicks: Wow, that’s crazy.
Beth Azor: It’s crazy, and demographics for the last 35 years were always based on census data, which is only done every ten years. So for us, in the retail industry, to be using census data today that’s based on 2010 in South Florida is completely full of errors. So to have this tool where I know exactly how many people drove into my parking lot up till midnight last night is very, very, very valuable.
Theo Hicks: Perfect. So we talked about what you’re going through right now. What is– and I know this is probably an impossible question, but… So I positioned it to say what are your expectations for shopping centers moving forward, both from the perspective of your existing portfolio and then what your plan is to whether acquire or get rid of some of your existing portfolio?
Beth Azor: So I’m not going to get rid of anything because I love all my projects and they’re performing regardless. But looking forward, my big wish is that we get our kids back to school because the parents need to work and that gives them disposable income to be able to come back and shop at our shopping centers. And while they’re stuck at home, helping their kids homeschool is a problem for the retail world and the economy. So I’m praying that that happens. But to defend against that, I’ve been encouraging and even myself, putting tutoring places even at no rent almost like a PSA, a public service, in any vacancy in a shopping center where we could have a Zoom setting where we hire a college student, and parents can drop their kids off and get a couple hours reprieve at home because if they can work, they’ll get more disposable income and that will filter down to us. They’ll be able to eat out more, go shop more, etc. So it’s schools. If schools aren’t open, what can we as shopping center people with vacancies do to mitigate that and then bring employees back? Because a lot of my small tenants said, “I can’t get my employees back because they need to be at home with their kids.”
So that’s what I’ve been preaching – How can we in the real estate industry help schools and help parents so that we can get people shopping again? I’m predicting 30% of the malls in our world have closed are indoor malls, and I’m predicting that 50% of those never reopen. So us outdoor shopping center, strip center, power center, lifestyle center owners need to shift and start talking to those mall tenants. For example, Sephora and footlocker, those tenants in those markets where their malls have closed will start looking for alternative opportunities and that will be to us, the non-indoor mall people. So I do think that it will shift and you’ll see “Oh, I used to go to that store in the mall”, and you’re going to start seeing that be in a more outdoor, strip center, power center opportunity.
Theo Hicks: And then what about buying? So were you– or what’s your overall recommendation for people who are currently investing in shopping centers or want to get into shopping centers. Is now a good time? Should we wait? Should we not invest? What would you say back to that?
Beth Azor: I think that in the next year to two, there will be a lot of opportunities, especially with CMBS loans because as all of our community lenders have worked with us as our tenants didn’t pay, the CMBS lenders did not. So if you have a loan with the CMBS, a commercial backed security mortgage, there was no deals made, and I think that the tenants don’t make it. There will be a lot of CMBS loans going into default and those will be opportunities. So my recommendation to anyone that’s listening that would like to invest in retail, is retail’s very community neighborhood-based. Like I said my six centers are within ten minutes of my house. So I know those centers, I know the market, I know the other landlords and I know the tenants. I shopped in these markets.
So for anyone that’s interested, pick a little area that you know well. Maybe you own a mobile home park down the street, maybe you own multifamily nearby, maybe you own office buildings. So pick an area that you know and start researching who owns this property. The more vacancy in the asset, the more likely that that’s going to go back to the bank or the lender, and you might have an opportunity to pick that up, and just start talking to retail leasing agents around that property to get information and get knowledge. If your instinct is this was successful before, it’s probably going to be successful again. When I buy, I look for strip centers that are parallel to busy streets. So there’s no L-shaped corner spaces. They’re just flushed to a main street.
I like high-income neighborhoods, high-income demographics where people have a lot of money. So even if they’ve hit a little bit of a hard time, they still have disposable income, and I like smaller– I don’t like power centers, and I’m not really a grocery-anchored center investor. I’m not going to compete with all of the REITs out there that need to invest their money in grocery-anchored. So I look for the multi-tenant, smaller strip centers, 20,000, 30,000, 40,000, 50,000 square feet that are right on the road, lots of traffic, great visibility. That’s where the retailers want to be. They want to have great parking, they want to have great visibility to the main area where there’s a lot of daytime traffic, lots of employee traffic nearby to feed the businesses and the restaurants.
Theo Hicks: Going back to what you said about the properties that have CMBS loans on them, that there weren’t any deals made with those lenders, and so you expect there to be properties going back to the banks. If I want to keep a lookout for that, how do I find those properties? Is there a website I go to, I need to talk to a leasing agent as you said, or someone else?
Beth Azor: I think that you can reach out to the CMBS loan lenders themselves. You can find mortgage brokers and capital market’s investment brokers in your area. Ask the leasing agents who are the top investment sale brokers. They can probably get you in, but it’s really a who you know game there for sure. I don’t think they published lists. There are watch lists, but you need to know who to call to get that information, and it’s a very tight club.
Theo Hicks: Okay, Beth. Is there anything else you want to mention as it relates to shopping centers and COVID or any other call to action you have before we conclude the interview?
Beth Azor: Well, my call to action is go shop local, go out and pick up from your local restaurants, shop your local tenants. Those are small businesses who support our economy all across the country. So shop local, love local. And then if you have any other questions or want any more information for me, I have a website called www.azoracademy.com, and that has a ton of free information. I have over 150 free videos on YouTube under Beth Azor. So anything about retail, leasing, you can find all of the information on either YouTube, bethazor.com or azoracademy.com.
Theo Hicks: Perfect. I’m actually following your advice right now. I’ve got Uber Eats on the way from a local restaurant. So I’m doing what you told me to do already.
Beth Azor: Alright. Good job.
Theo Hicks: Alright, Beth. Thanks for joining us again and providing us with your insights into what you’ve been doing since the onset of the COVID outbreak. The biggest takeaway that I got was you had your days where you talked to the mom and pops where you were more open and listening and sympathetic, and then you put your arm around to talk to the national tenants. You mentioned that you weren’t necessarily just listening, but you were also confirming what you were hearing with the mom and pops. It was by requesting the sales reports to confirm that their revenue had actually gone down or was non-existent.
And then you mentioned that technology called geofencing to check the mobile data at some of your national tenants who claim to have reduction in traffic, whereas in reality, it didn’t. And then you mentioned some of the things that you want to see happen in order to help your residents, people going back to work, how you mentioned how you’re putting up free tutoring in some of your vacant units.
And then you also mentioned that you think that a lot of the malls that closed down aren’t going to reopen. So there’s going to be opportunities for shopping center landlords to bring on new tenants that are traditionally in the mall and you gave some examples of that. And then opportunity wise, in the next few years, you think there’ll be a lot of properties that currently have CMBS loans that will be foreclosed on because there weren’t any deals made with the lenders and in the end, the owners.
And then you also mentioned that if you are interested in buying, make sure that you are buying on centers that are parallel to busy streets, high-income neighborhoods. You don’t like the power centers, you don’t like grocery-anchored, and then it’s very community and neighborhood-based. All of yours are within ten minutes of each other. So pick an area that you already know well. Maybe you already own property there, maybe you live there, and then start figuring out who owns those properties, what their vacancy is right now, how did they perform pre-COVID. Ask your leasing agents to get this information to see if it makes sense to buy.
So Beth, thanks again for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.
Beth Azor: Thanks, Theo.
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