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E-commerce gets physical: Meet Amazon's new landlords

  • This narrative paints a much brighter picture of the future of retail real estate than some REITs' latest underwhelming stock performances might suggest.
  • "In our view, 'A' [rated] mall space is the most attractive investment opportunity in REIT-land today," Boenning & Scattergood Managing Director Floris van Dijkum tells CNBC in an interview.

Physical retail — think malls and shopping centers — isn't entirely dead, as some headlines might suggest.

Just look at Amazon.com, which is now making forays into the brick-and-mortar space and inking deals with real estate investment trusts, or REITs, to open stores.

This narrative paints a much brighter picture of the future of retail real estate than some of these REITs' latest underwhelming stock performances might suggest.

While Amazon hasn't disclosed exactly which real-estate landlords it's working with, the company will inherently navigate toward properties that boast high sales productivity with 'A' ratings, Boenning & Scattergood Managing Director Floris van Dijkum told CNBC in an interview.

Amazon is believed to be entering a few of GGP and Macerich's 'A' rated malls, Dijkum said. It would also make sense for the retailer to set up a physical presence in some of Federal Realty or Acadia's "best-in-class" strip centers, he added.

"In our view, 'A' [rated] mall space is the most attractive investment opportunity in REIT-land today."

GGP declined to comment on this story, and representatives from Macerich, Federal Realty, Acadia and Amazon didn't immediately respond to requests for information.

Why are traditional e-commerce players like Warby Parker and Bonobos opening stores amid other retailers announcing store closures and bankruptcies by the week?

Margins, said Dijkum.

The average customer acquisition cost for a new shopper from a digital platform is $85 per person, but that translates to $0 at a mall, he said. This boils down to it being more difficult to make a profit solely based on online sales. "Retailers want to move to where the highest sales productivity is. This is 50 to 60 percent higher in 'A' rated malls."

"Amazon is becoming an omni-channel retailer, and if you look at the best physical operators, they are growing an online presence. ... Eventually, people will realize you need to do both," Dijkum added.

Amazon announced it would open its first-ever physical bookstore back in late 2015, and it's set no boundaries on what could pop up in the future.

At REITWeek 2017, where CEOs from Tanger Factory Outlets, Taubman Centers, Kite Realty and more gathered earlier in the week to discuss the future of retail real estate, the sentiment was surprisingly upbeat.

"Blaming everything on Amazon will get old eventually," Acadia CEO Joey Jacobs told an audience of analysts and investors. "Real-estate fundamentals are not ... correlated to this bad news."

While the world might be "over-retailed," many REITs are prepared for that, he went on. And these companies are able to fill vacated spaces quickly with even better tenants like an Ulta, Shake Shack, Lululemon or a gym or entertainment center, many of the CEOs agreed.

Kimco CEO Conor Flynn discussed the idea of perception versus reality surrounding the industry today. "Retail negativity has lumped everyone together in one group."

But Kimco's top tenants like TJX Companies and Home Depot continue to outperform, Flynn added. "Retail is still the ultimate amenity."

With Amazon's stock surpassing $1,000 a share recently and boasting more than 30 percent growth over the past 12 months, many of its future landlords' stocks are being dragged down, due partly, retail real estate executives say, to negative headlines that are terribly misleading.

GGP, for example, known for its top-tier and 'A' rated malls, has seen its stock fall about 16 percent from a year ago. Shares of Macerich have dropped 26 percent. CBL & Associates Properties, another mall operator, has seen its stock fall 24 percent over the past 12 months.

"REITs are being valued right now like they have 0 percent growth," Dijkum said. "Generalist investors are trying to poke holes ... asking questions about bankrupt space. For [REITs] it's an opportunity to get back an anchor box and re-lease it at much higher rent levels."