JC Penney, Sears, Payless, Radio Shack… the list of distress and destruction is vast. As a former owner of and operator of retail real estate I saw this coming over 2 years ago.

I owned a grocery anchored shopping center in Hyattsville MD for 10 years. When we purchased the center in 2006, ECommerce was in it’s infancy. Most folks looking for food, beverage, groceries and merchandise traveled to the center to browse, purchase, exchange and dine. A bank branch was co-located on the site as well. Daily traffic for many years was robust and store sales increased annually.

The center was constructed in 1950’s and was located at a prime intersection in the heart of the city. It last had been renovated in the 1980’s and ownership at that time was more or less complacent with precedent – do the minimum to keep the center occupied. We were fortunate to have acquired the center at a basis that allowed us to embark on a 2nd modernization which in turn provided an opportunity to both increase occupancy with a concurrent increase in rental income paid by new and incumbent tenants. By 2009, we had achieved most of our retail real estate investment objectives.

In late 2009, the national and regional economy vaulted into a near death spiral recession. For the next 18-24 months we were on the defensive fielding calls from tenants looking to abate or restructure their lease terms and rents. Over time, that virus settled and a new more potent, chronic one arose – Ecommerce.

We all know the power of Amazon and the likes of Instacart and others. Sales on the street plunged as people accessed the power of click and ship. The calls referenced above became more secular rather than cyclical in nature. For instance, merchants Payless and Radio Shack (both currently restructuring/liquidating in Bankruptcy) would sign renewal leases for no more the 24 months (their typical term up to that point was 60-84 months, sometimes longer.) Their time horizon went from years to quarters, not knowing who was lurking to capture market share and fearing any unfavorable assessment from Wall Street. Short term leases create more uncertainty and impacted the value and liquidity of commercial real estate – the mother’s milk of investment property.

We’re now in the meat of the curve of this secular shift resulting in more dark store fronts and loss of income. Owners are re-assessing their centers and some have transitioned some of the small stores to food uses – think burgers, burritos and pizza. Many are competing for fewer spaces in that regard but the downside of that is that the merchants for burgers, burritos and pizza has grown – more fighting for the same piece of the proverbial pie. These tenants may be a short term solution but could also end up cannibalizing each other over the mid to long term thus cycling back to dark fronts or worse – distress and blight.

I read a hopeful post today in a real estate periodical about how home builders are finding value in former shopping center lots by going vertical (think apartments) or horizontal (think townhouses.) Creative adaptive re-use is one way to challenge the drama and destruction unfolding in street retail.

Lead by being curious, thinking innovative and creating fresh possibilities in retail space.