Real estate is being considered in M&A transactions at unprecedented levels. A lack of new retail real estate development is causing some companies to buy leases and properties from bankrupt companies that are shedding assets. That shortage in development is also pushing up rents - something that's causing private equity owners and potential buyers to take a much closer look at a company's real-estate holdings, says A&G Realty Partners co-founder Andy Graiser. These days, companies need to analyze real estate in every retail M&A transaction, according to Graiser. Recent deals in which real estate played significant roles include: private equity firm Sycamore Partners LLC's acquisition of Jones Group Inc., the owner of the Nine West and Jones New York fashion brands; and DSW Inc.'s (NYSE: DSW) purchase of Town Shoes, a Toronto-based shoe purveyor.

How are private equity firms evaluating retail real-estate holdings?

What private equity firms are doing right now is looking much deeper into the real estate portfolio. No one knows where anything is going, or about going longer or shorter in terms of leases. They're also looking at the real estate to see if there is value in the leases, more so than in the operating company. Sometimes you end up with a lease that is $10 per square foot, but the value is $20 per square foot, so they might think to sublet or sell it back to the landlord instead of operate at a loss. We are in an environment right now where there is no new development - there are no new malls being built, and companies that are growing right now are finding it hard to get great space. The rents in the really good pieces of real estate are getting really high. You also have leases in outlet malls, which used to go for less than leases in malls, now going for much higher prices.

Without new development, how can retailers expand?

We are seeing retailers buy leases from distressed companies. When you see companies going into bankruptcy, other retailers are starting to get aggressive and buy groups of those stores. They can buy locations in one swoop and start operating in them within three to four months. You're definitely seeing more interest from retailers in looking for the second-generation space of bankrupt companies. You used to see Bed Bath & Beyond, and even Office Depot, buying surplus real estate. I think you're going to see more of that.

What should acquirers explore before they buy?

It's important to pay attention to a store's location within a shopping center: How much of the term is left on the lease? What is the market rent of the lease, compared with the actual rent? What do they expect the rent to be a few years from now? Will they be required to redo the store? They're also looking to see if they have enough lease term in the better stores. A private equity player could have a great store with only three years left on the lease, and then they don't have any options. They also have to see if there are some lease opportunities for the poorly performing stores, where there is great real estate. These are things they're paying attention to much more than they have in the past.

How can retailers leverage real-estate holdings to cut costs?

Sometimes, supermarkets have pad rights to develop a store in the middle of the parking lot and put a tenant in there. Those rights are valuable to the developer. If the supermarket tenant isn't in the real estate business, they can sell the site back to the landlord or another developer.

Sometimes, leases have restrictions on other retailers that can go into the shopping center, so you can loosen up those use restrictions, or give up those rights and tell the landlord what you want in return.

Many leases also give retailers the right to expand the store, but if they decide they don't want to, the landlord could expand the shopping center or, sometimes, write a check, lower the rent, or split the proceeds with the retailer.

How does e-commerce play into decisions?

Retailers are looking to do some downsizing. The retail landscape is shifting at such a fast past that it's hard to figure out. They are starting to think they don't need as much square footage, but they definitely need a brick and mortar presence.

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