Welcome to our latest episode! Today, we’re joined by Robert Levy, Managing Partner at LBX Investments, a multi-strategy contrarian real estate firm with $250 million in assets under management. Rob has a deep background in real estate investing, having led acquisitions, asset management, and capital raising at multiple firms before co-founding LBX. With extensive experience in retail and mixed-use assets, he shares invaluable insights into the current state of the commercial real estate market.
In this episode, Rob discusses the resilience of open-air shopping centers, the shift in capital from multifamily and industrial sectors into retail, and how compressed cap rates are impacting acquisitions. He also dives into the challenges of finding value-add opportunities in today’s market, the role of AI in real estate, and the risks of stagflation affecting long-term economic trends. With experience navigating market cycles, Rob shares his disciplined approach to investing, including recent successful dispositions and what he’s watching for in future deals.
If you’re interested in commercial real estate, retail investments, or contrarian market strategies, this episode is packed with valuable insights. Tune in now!
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the BigMikeFund Podcast
00:24 – Guest intro: Rob Levy
01:07 – State of the retail and multi-family markets
03:45 – Why retail remains strong despite shifting capital trends
07:30 – Cap rate compression and retail investment demand
12:10 – Multi-family market shifts and distressed opportunities
16:05 – How rising interest rates impact acquisitions
21:20 – AI, inflation, and economic uncertainty in real estate
28:45 – Finding mispriced deals in retail and multi-family
34:10 – How to connect with Rob and LBX Investments
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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CONNECT WITH THE GUEST
Website: https://www.lbxinvestments.com/
Linkedin: https://www.linkedin.com/in/robert-levy-1a838721/
Full Transcript:
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and I’d like to welcome back Andy Gurczak. If I’m pronouncing it correct. If I’m butchering you up, forgive me. I’ve tried a few times. He originally is from Poland, right? He’s Polish. His family is from Poland. And remind, just a couple of words about you, when you came to the country, a little bit of your story, and then we’ll jump into insurance adjusting. This is your great expertise, and we’d love to hear what’s going on. It’s a very hot topic, given what’s been going on with the natural disasters and all the crazy stuff going on.
Mike Zlotnik: Welcome to the Big Mike Fun Podcast. I’m the Big Mike. Mike Zlotnik, and today it is my pleasure and a privilege to welcome back my really good friend, Rob Levy. Hey, Rob. Hey, Mike, thanks for having me. Appreciate it. Thank you so much for coming back on the podcast. So before we start, what’s new and exciting in your world? I know you do a lot of skiing in the winter. So You’re still skiing? You’re still in the, we’re doing this in February. So still ski season.
Robert Levy: It is ski season. My family and I, we are, we are, uh, adam, you know, adamant, uh, skiers. We are, we’re skiing pretty much every weekend hoping to get 40, 45 days a year this year skiing. We want, we primarily go up to Vermont and, uh, and love it up there. Long drive. I mean, you’ve got to get from Northern Jersey to Vermont, North Jersey to Southern Vermont. So it’s only about three, a little over three hours. It’s not that bad. Yeah, not bad. So we can do it pretty much every weekend, Saturday and Sunday. It’s great. It’s a lot of fun. My kids love it. My wife loves it. It’s all good.
Mike Zlotnik: And it’s been a real, real winter this year. So the few years before it was kind of mild, I don’t know how skiing was, but this year it’s cold.
Robert Levy: This has been, uh, from a snow perspective, this has been the best winter we’ve had in Southern Vermont in about 10 years. Um, we actually have not had any rain since December and, um, everything we’ve had, every precipitation we’ve had has been snow and we have, I think, about 130 inches so far this year up in, uh, we go to Stratton, Vermont, which is a good, a good amount. Um, so it’s, it’s a good, good season so far. Knock on wood. Hopefully I’m not jinxing it.
Mike Zlotnik: Well, well, the season’s almost over. So the groundhog did see his shadow, so we’ve got a little bit longer of the winter. So probably a few more good weeks of, uh, weeks of skiing. All right, back to, back to business. So, how’s business?
What’s, what’s going on? What’s new? How, how a lot of these open air shopping centers are doing?
Robert Levy: So business is very good. I’ll break it into two pieces. Um, the existing portfolio and the new opportunities. As you said, Mike, and hopefully as a lot of people know that are listening, we are primarily in the open air shopping center business.
We do own some multifamily as well. Just recently, we required some multifamily taking advantage of some of the movements in the market and some of the opportunities there. But, uh, for the past eight years, we’ve been investing in open air shopping centers, uh, really nationally, although our portfolio is primarily in the southeast, midwest and a little bit middle Atlantic northeast.
Um, and so, knock on wood, the portfolio, the existing portfolio is performing great. We’re still seeing some really strong demand for space. We’re seeing, uh, tenants aggressively wanting to expand and, uh, and, and lease new space. Um, and so we’re seeing real opportunities. The, the, the portfolio is, um, well occupied.
We’re pushing rents. We’re pushing occupancy. Um, and so that has been great. You know, we, we own about 20 shopping centers today. And, um, you know, and and the portfolio is performing great. Um, so that’s kind of 1 side. When you ask how our businesses go, that’s the most important, right? Because, you know, how, how are we performing in relation to in relation to underwriting what we have?
Uh, promised or spoken with to our LPs and what’s driving, you know, current returns on our portfolio. And that that’s really feels great on the, on the new acquisition side, it’s a little bit different. Um, part of the challenge today is that retail has been so strong from an operational perspective that there is not that much quote unquote value add left.
They’re the most of the, uh, you know, good retail throughout the country. is either close to fully occupied or it’s fully occupied. Rents have already been pushed. And, um, you know, because there has been some hiccups, as you well know, in the multifamily world, and there’s been some challenges, um, certainly in office.
Um, and It, a lot of industrial, not all, but a lot of industrial is still priced at very aggressive cap rates. Um, there’s really only one place, or, or one place in kind of the, um, in, in kind of the, the, the key real estate, uh, sectors that investors can put their money and still get yield, and that is retail.
So, um, so we’re seeing a lot of an influx of capital from investors into retail. Um, investors who were heavily into multifamily and industrial and office. And, um, so there’s a lot of capital flowing in. And at the same time, the properties are operating at very strong occupancy and rent levels. And so we’re seeing values go up and yields and cap rates come down. And that’s making it, you know, more difficult to find really interesting value add transactions in retail today.
Mike Zlotnik: But if you were to access some of the past deals, you’d probably get even a better IRR because the demand is up, the cap rates are compressed. It’s kind of an interesting time to be a seller, probably.
But, but finding a bargain deal has gotten tough. In the market, the capital shifted. Multifamily is disliked. Probably bigger bargains. This is where the Fort Totten that’s that’s when you found them. It was four or five months ago It’s been a while now six months time flies Are you still seeing are you still looking for?
kind of multi mixed use Because ultimately we talked about this high interest rate environment supposed to be a good time to buy and the last lunch you learn you were really One of the key folks speaking on this topic, you love high interest rates because you can actually find deals. Are you finding these, these deals and where?
Robert Levy: Yeah. So it’s interesting. Um, so we are, we have been looking for, for mixed use. Um, we have not found anything over the past few months that kind of meets the, um, the yields and the risk return. Um, you know, kind of requirements or opportunity that we saw in at Fort Totten. Um, Fort Totten, as you said, you know, really exciting deal.
We closed on last summer. It’s actually been, you know, probably actually we closed in September. You’re right. So it has been about six or seven months and that has been great. We’re not going to be very excited about the, you know, the kind of the ability right there, you know, at Fort Totten for us to, um, push occupancy, push rents and really improve operations.
Um, and so that has been a, you know, so far a great transaction for us. We’re trying to find more. We haven’t yet, but we will. There’s definitely those out there. As you said, multifamily is, has been struggling a bit. There’s less capital chasing deals and the combination of, of like big retail and multi, you know, is, is a really interesting mix today.
Um, Just back a second to your commentary about dispositions, we agree with you and we have actually taken advantage in three instances of, uh, of compressed cap rates and very aggressive bidding. We took three deals to market over the past, call it year or so, and all three executions have been excellent.
So we sold the deal in Orlando at a very tight cap rate. We sold the deal in, um, uh, in Charleston or just north of Charleston in Somerville, South Carolina. Um, also at a, you know, extremely aggressive, uh, cap rate. And then we sold a deal in Nashville, Tennessee. Um, and all three of those deals traded at very, very aggressive cap rates.
It’s interesting, the Nashville deal, we were told, we mar, it was marketed for us by CBRE. They told us that they had the most. NDAs signed on any deal that they’ve marketed on that deal. They have like 130 or so NDAs, NDAs signed by prospective buyers. So there’s, you know, if you can present a deal in a good market with a good lineup of tenants and a little bit of opportunity for upside, there’s a lot of buyers out there.
Mike Zlotnik: That’s fascinating. That’s great to hear. It’s, um, how much cap rate compression did you see as an example versus what you underwrote?
Robert Levy: Uh, like, for example, the Orlando deal. Well, I mean, oh, well, yeah, Orlando deal. Um, we bought at close to a nine cap rate and we sold it at a, at a, you know, low to mid six cap rate.
Um, and same thing with Nashville. We, we bought that also at about a nine cap and sold it kind of, uh, at like a, uh, a mid six cap rate. So, you know, fantastic cap rate compression. We obviously did not underwrite that. Um, you know, we underwrote our ability to improve occupancy and push rents, which we did at both assets. And, um, and then the cap rate compression was just, uh. You know, added benefit.
Mike Zlotnik: So what’s the forward outlook? What are the forward opportunities? Uh, what do you think you can realistically find? You, you gave, you brought us a deal without, you know, going to this deal. Let us keep us, sort of, the discussion off the table for the moment.
It’s still being discussed. Uh, but it, you know, it’s, it’s, it’s a retail, right? You found that. So I’m just curious if you are finding more interesting retail special circumstances, maybe not as plain vanilla, you got to find some dislocation in the market. Is that, I guess, that’s the search, right? Find some kind of dislocation somewhere where you see value where another person doesn’t.
Robert Levy: I think that’s exactly right. I think, you know, listen, we, we, we see every retail deal in the country. Um, and, um, A lot of them, most of them will not fit what we’re trying to accomplish. What we’re trying to accomplish is by good real estate, good markets. But as you said, something that’s a little bit kind of off the beaten path that whatever reason we can buy at a cap rate, a yield that we think is, um, is, you know, uh, creating more yield than we anticipate.
So kind of miss a mispriced opportunity. And to get that in today’s market, you have to be willing to really dig and find assets or opportunities that are, that are a little bit different. They have some complexity, a little bit of, um, you know, kind of roll up your sleeves because a lot of the institutions won’t chase those deals.
They’re too complicated. Um, they’ll do other things. And so. As you said, we have presented you with a deal. We’re still talking about it. And it’s very, you know, it has some complexities to it. We like that. When we, the first time we looked at that deal and some others, we, we liked it because it has some complexity that, you know, we think the market mispriced.
And so, you know, they’ll be those deals out there. We will find them. There’s another deal in South Florida that we’re investing final on. I don’t know if it’s going to happen. Um, but you know, that’s another deal where there’s just some complexity, a big institutional seller, um, and we think some opportunities. So we’ll find those deals. They’re out there.
Mike Zlotnik: Well, uh, in finding anything in the multi space at all, again, Fort Tottenham was a mixed use, about three quarters multi and then super Walmart. But what, are you seeing anything else? Because it feels naturally multi has really corrected, uh, certain sub markets, especially Sunbelt, you’ve seen meaningful correction in valuations.
While Open air shopping. I mean, it’s not it’s it’s in fact, it’s it’s compressed. It’s the prices are up It’s the the sector is doing really well It’s at the peak of the cycle per se well multi most likely at the bottom of the cycle Hopefully on some initial recovery So it’s if anything, uh, if you want to play contrarian or be a value investor that you gotta look for that type of opportunity Are you seeing anything interesting?
Robert Levy: Uh some you know, it’s interesting. Um, yes multi is definitely reset Um, there are, there’s still, you know, overhangs of, of too much supply coming online in some markets. You have to be really careful that you’re underwriting appropriately. Some of the, you know, southeast, southwest markets saw some real massive, um, you know, supply growth over the past few years.
And you have to be very careful that, you know, that you’re taking that into consideration in your underwriting. Um, but you can buy a pretty attractive. basis today. Um, and and, uh, decent yields. And the question is, how much do you think you can kind of push rents and push occupancy over the next 234 years with supply?
Maybe still coming online. Maybe it’s just about ending today. And so kind of, you know, what kind of absorption do you think you can see? Um, there still is a decent amount of capital in the multifamily space. We’re still seeing a bunch of bidders Um, certainly at different, you know, yields and at different values than a few years ago.
But there’s definitely, um, it’s still a pretty liquid market. You still, you know, we still, because of the existence of Fannie Mae and Freddie Mac and FHA and the financing capabilities in the multifamily market and a lot of investors comfort in the multifamily market, you’re still seeing a lot of bidders on deals, which is making it more difficult to find value.
Mike Zlotnik: Yeah, I, I, I heard that from multiple, uh, folks where the volume has picked up at least bidding volume, not necessarily closing volume, but bidding volume is really picked up because there’s a perception not to try to time the market, but it is enough of that. Uh, that transpired, uh, especially in value add deals, the Fed still cut, right?
They still cut 100 basis points. Um, it’s a little different if you’re trying to get fixed rate debt because the 10 year bond move in the opposite direction.
Robert Levy: Yep.
Mike Zlotnik: But the value add space appears to be a little bit more activity to pick up those assets.
Robert Levy: Yeah. Well, I mean, like, we, we just bid on a deal in Orlando as an example. Um, we liked it a lot. It’s, uh, it’s in a good location in Orlando. Uh, it’s a nice asset. Um, it was acquired in 2021 by an investor who, in our view, overpaid a lot and they put on, you know, as we all know, the kind of standard story, you know, kind of highly levered bridge debt to to make it all work and it didn’t all work because, you know, because the world changed over the next year or two.
And so it’s being offered at a significant discount to where it traded in 21, which we liked, but How much is significant discount? What is this? 20 percent 25 percent But you know, you have a decent amount of you have a lot of deferred maintenance because the previous investor or the current owner You know ran out of money.
Um as interest rates climb, so you have a lot of deferred maintenance You have a lot of work that you have to do within the units Um, and there’s a real question as to how much you can push rents and occupancy from current levels. And so we liked the deal and we liked, like the real estate and we liked the play.
We couldn’t because couldn’t get to our returns. We just felt that, um, you just couldn’t push rents and occupancy enough. And maybe there are other investors out there. They’re just, you know, okay with lower returns, right? That’s, you know, they’re just. Um, you know, they’re okay with kind of more like low double digit returns where we’re looking for something a little bit more juicy than that.
Mike Zlotnik: Yeah, they do like your disciplined approach. I mean, over the years, you’ve, you’ve, at least my observation has been You have to stay disciplined, uh, and that’s why most of your assets have done well. So if you need to pass on something that not exactly meets your requirements, that’s okay. That’s not the end of the world.
You’re patient and trying to, um, be a lot more selective. And it feels like in multi space, there’s enough product. I mean, you, you obviously know, uh, you’ve heard of the deal with clothes just now, uh, in, uh, Southeast Michigan, Waverly on the lake, and that’s a nine cap. And of course it’s a different market.
Nine cap in Orlando would be insane, but in Southeast Michigan, it’s still a really high number, but it just points if you, if you take it. Distressed enough owner situation. Uh, you may be able to, uh, pick up a really good asset. So let’s roll forward. Uh, we, you know, we are only part of 25. We go into the second half of 26, 20, 25, and then, uh, into 26.
Economy. Let’s just talk a little bit about, um, are you concerned about we, you know, soft landing, or can we wind up in recession today? Literally Walmart earnings came out all that guidance. With a little, let’s just call it soft and the market freaked out that, you know, we’re far long overdue for some kind of recession.
Walmart is a non affluent consumer. I mean, we’re talking about people who live paycheck to paycheck. They are price sensitive. And, um, I guess the market a little spooked. Uh, we finally going to see some, some kind of, uh, slow down the economy.
Robert Levy: Um, I don’t know. I, I tend to be, uh, you know, and I, I know no more than, you know, or, or all of your listeners.
No, it’s just what we kind of read in the, in the rags. I, I tend to be a little bit more, I wouldn’t say bullish, but I feel that the Fed has done a good job of managing through the inflation. Um, and, I, Um, and getting towards soft landing. There’s certainly some risk around it, but it does feel to me like that is the most likely scenario.
Um, I do feel that interest rates will remain elevated for a while. I don’t think that’s a bad thing. I think actually that’s a good thing. Um, not just for us as investors, but just for the economy that that I think, you know, interest rates have been obviously too low for too long, and I think it’s healthy for the economy that that interest rates are now in this kind of, you know, mid 4 percent range, and I think that they will stay there for a while, and it gives the Fed an opportunity to, um, kind of reset And also give it some room when it does have to cut that it has, um, or, or, or kind of push down, uh, the tenure that there’s some room to do so.
Um, so I think that, um, I think the economy seems like it’s in a, in a good spot. I know that there’s some, a little bit of weakness in labor in certain spots, which is giving people pause, which is probably what you’re seeing in the Walmart numbers. Um, but I do feel like there, that the U. S. economy in general is in a good spot.
Um, and, um, you know, we’ll see what happens. There’s this, you know, uh, not to get into politics, right, but there’s a lot of things. There’s a lot of moving pieces right now in the economic slash financial world. Um, you know, with tariffs and cutbacks in government spending, which is, you know, there’s some real positives there.
Um, there’s a lot of moving pieces, and the question is, how does that all fit together? And I think it’s really hard to assess. Um, so in our view, what we do is we’re just going to kind of continue to focus on buying good real estate in good markets, where we’re buying it at attractive yields, and where we feel confident in our ability to underwrite and manage risk.
And, um You know, and make sure that we’re buying the best real estate, and then I think we’ll be fine. But there’s certainly a lot of moving pieces out there, which is a little disconcerting.
Mike Zlotnik: Yeah, the, um, the Uncertainty Solution, there’s a book, uh, we, we have a lot of uncertainty now, that’s, that’s the, it’s an uncomfortable feeling, a lot of business doesn’t like it, uh, the CapEx spendings doesn’t necessarily, uh, take place the same level, uh, during the, the, the, the times of certainty, and I don’t think we’re going to have any certainty anytime soon, it’s almost like this new administration Um, Trump is on a mission to do a lot of things and the, the good old expression is preach a lot of change, but change one thing at a time.
He’s preaching a lot of change and changing a lot of things at the same time and that, that carries certain risks and, and, and, and uncertainties and I don’t even. Now, how we get to anything beyond, uh, you know, what is it called first hundred days, maybe at least things will, will, will, will clear up at least on a bigger picture.
Um, but I too heard multiple. Let’s call it predictions, projections of soft lending, unemployment not really spiking much more, where we are sort of steady, uh, with interest rates holding up. Um, so all that is kind of, is the current base case scenario, uh, but does it really create, um, buying opportunity?
Unclear, right? It’s, it may or may not be. And if the certainty kicked in, would it be better or worse? It’s it’s kind of a you got to operate in this world of Uncertainty for the foreseeable future. I don’t know any comments on this
Robert Levy: Yeah, listen, one of the things I have been thinking a lot about and reading not not specifically about but just when you read Uh, the industry rags and kind of, um, you know, stuff that seems like it’s kind of floating to the top.
I, I do get a little bit nervous about, you know, using an old term, stagflation. That, that is a something that has kind of crept into my mind recently as I’m reading a lot because I do feel that there, that inflation could be, um, persistent. And especially with tariffs and the potential impact of tariffs.
Um, and at the same time, I do feel, feel like there is some risk that the labor markets weaken a bit, not a lot, not a ton, but enough that has an impact. And so there is, in my view, a risk of that occurring, which is dangerous, right? That’s not a great place for the economy. Um, because it’s, it’s hard to beat that.
You have to beat the inflation first, I think. And that, you know, means that you have to raise interest rates or keep interest rates high at the same time that you’re having a weak labor market where you’d like to lower interest rates to, to help, you know, kind of deal with that. Um, so that’s something that I’ve been thinking about, and I, and that’s kind of, in my view, maybe a little bit of worst case scenario, but it’s, I think there is a risk out there about that.
Mike Zlotnik: Yeah, that’s a very valid point. Can we see that scenario where the labor market starts weakening and the inflation is still staying hot? Although this, I’ve talked about this many times, is the concept of a Phillips curve. So FelixCurve symbolizes the relationship between the inflation and, um, unemployment.
And you almost can’t get inflation down until unemployment softens. So, if you get unemployment pick up, inflation almost naturally will start coming down, sort of from that perspective. It’s, we can, we can demand enough where, um, you know, consumer Spends less of their disposable income. So, it’s an interesting, it’s an interesting theory, of course.
Uh, we’d all like to avoid a real recession. But, you know, even if it happens, it’s not necessarily the worst thing in the world. Because the Fed will respond. I mean, we’ve seen this. The tolerance of pain is super low. Yep. Probably, they’ll, they’ll start moving rates down the moment the labor market starts.
The other issue, a side effect, by the way. Uh, it was an interesting conversation as to why the U. S. economy hasn’t really responded very well on the inflation side to the, um, higher for longer rates. There’s all kinds of interesting theories. And I’ll just flow a couple that, by the way, hit, hit me. I didn’t, you know, you kind of know about this.
You, you think about it every day, but then you don’t. And that is the amount of GDP growth or investment. So I saw a webinar where the number was 16 to 17 trillion. So we had 7 trillion of COVID stimulus and we had AI stimulus to that degree of 16 to 17 trillion. It’s an insane number and right now it’s actually creating jobs, but in the future it’s supposed to eliminate jobs for the reasons that it’s automation.
efficiency, etc. So that’s been a boost actually to the economy. And then the other factor, uh, completely separate, and we’ll just discover on this, the higher interest rates have been slowing Um, housing, even open air shopping, people are just building less when the cost of money is up.
Robert Levy: Yeah.
Mike Zlotnik: So it’s a, it’s a supply destruction, even though you’re hurting the demand.
Uh, but the supply is being hurt too. So I’m just curious, any thoughts on this, on these two items, the AI impact and then the fact that the higher rates. I’ve heard the supply.
Robert Levy: Yeah. Well, I mean, so we’re seeing it from a supply perspective big time, right? And it’s not just higher rates, right? I mean, construction costs, inflation, construction costs are way up.
Um, we, we used to underwrite, it was kind of interesting. We always joke around about, you know, when we started buying shopping centers 8 or so years ago. We used to underwrite around four to 5 a foot to replace a roof. Today it’s 10 to 12 bucks a foot. So it’s up like two and a half times over the past eight years, uh, which is extraordinary.
And we see that in, um, you know, in, uh, in, um, uh, our costs to bring in a tenant. Uh, we’re negotiating a new lease on a great with a great tenant in one of our properties in Alabama. And we used to probably have, you know, you used to underwrite maybe, you know, 60, 70 a foot in cost. Uh, we are underwriting 130 a foot cost for this, this tenant.
And they’re paying rent, they’re paying more rent to get there. So it makes economic sense for us. But, um, but costs are way up. So, yeah, that’s that has been a huge impediment, um, to supply. And that’s one of the reasons why we love retail so much, because there’s really been, there’s really been no supply in retail for the past 15 years.
It’s not all because of higher construction costs. That’s only in the past, like, since COVID, past, you know, four or so years, four or five years. Um, the first, you know, from 20, 2009, 2010. To 2020, it was just because there was too much, uh, retail and retail was, you know, deemed to be kind of a dying breed.
And so there was no new construction, um, and now post COVID or, you know, COVID plus post COVID. It’s just because construction costs are just way too high. Um, as far as a I goes, but I’m not smart enough to really, um, you know, thinking exactly how I is going to impact us over the next 10 20 years. It just everything I read and it just seems, uh, logical.
That it is going to have a massive impact on the employment, um, on and how we employ people in the labor market. Um, I don’t know how it can’t. I mean, uh, you know, and I don’t want, I don’t want to kind of throw darts at anybody specifically, but like, you know, an accountant, like, are you going to need? I think many fewer accountants, as an example, many fewer lawyers, potentially, as an example, just because your ability to consolidate information and data and documents and information is going to be extraordinary.
Um, and so it has to have an impact on those and and many others. Um, so, yeah, we have to really kind of think through how that works, and it’s going to be just so significant over the next 10, 20 years.
Mike Zlotnik: Yeah, understood. At least the retail sector doesn’t seem to be as directly impacted by AI. People still need to, uh People still go shopping.
They still want to go to a restaurant. Uh, so yeah, that’s maybe the reason why there’s been so much, uh, extra demand flowing into the space. Simply that it’s, it’s a very well protected space from the supply perspective.
Robert Levy: Yeah, well, it’s supposed to have been strong. Um, you know, I don’t think, you know, the, the, uh, the internet has has had certainly some impact on brick and mortar retail, but it certainly has not had the massive impact that was that some people were, um, we’re estimating just a few years ago, and I think people now realize and understand that we are Um, you know, we’re social beings.
We want to go out. We want to eat. We want to go to gym, go to the gym. We want to get a haircut and, uh, and, and use certain services. We want to be entertained. Um, and then, you know, we, um, we want to, you know, buy our own groceries or at least get our groceries delivered from the local supermarket, whatever it is.
And so all of those concepts have continued to perform extremely well. But you have to be careful in retail, as we’ve always talked about, because, um, you know, you don’t want to be in the third or fourth best retail center in a node. You want to be in the best or the second best, and that’s where the demand is.
Where all the tenants want to be, uh, where you can push occupancy and you can push rents.
Mike Zlotnik: Yeah, you’re right. It’s it’s a very bifurcated market. You either got it or you don’t and if you don’t People don’t go there and if you got it you get the the extra demand And, uh, back to one comment that kind of sticks in my head, my wife is a optometrist and I remember Warby Parker launching, you know, pure internet platform selling, uh, frames online.
And ultimately you go and they have, what, 600 stores now. And it’s just a, uh, interesting evolution of pure e commerce into a mix of, uh, retail. And again, the evolution is, you have the e commerce, you have the retail, you have the mobile, right? It’s those three things, and now you add on top of that AI. So it’s just still not clear how AI will, uh, uh, really enhance it, but you could do a lot of, hey, go find me.
So, the best deal on, uh, I don’t know, new iPhone, where should, you know, where can I get it in the, you can get all the information delivered to your fingertips through the AI, uh, platform. Or maybe it was as simple as, um, uh, even some type of, Uh, closing or services or something else that that you can get, uh, delivered to you and whether it’ll influence your even shopping decisions could be right. It’s it’s or who’s running a special on, um, um, Air Jordan shoes.
Robert Levy: Right? Yeah. No, 100%. It’s going to change how we all operate and live and shop, but at the same time, like, you know, um, we, we have not seen. And a pure e commerce company, uh, as of yet, that is profit. And the reason is because it’s too expensive. Amazon is profitable because of its web services. And if you just carved out. The e commerce portion of Amazon. It’s not profitable and it makes sense, right? I mean, you’ve done it, right? You order something on Amazon for 2 and you get it delivered tomorrow and there’s no way that that can be profitable.
And then imagine, you know, the cost of returns. Um, I don’t know. I’m sure some of your listeners have had this experience. We have had this experience where we have tried to return things. And they’ve told us just to keep it because it’s too expensive for them, for the, for the e tailer, the e commerce company, for us to send back, um, a product and then have them, they have to then, you know, kind of reintegrate it into their, into their system and try to sell it again. So they just, they just told us to keep it. Keep it to sell,
Mike Zlotnik: especially the low end product where the cost is low.
Robert Levy: Correct.
Mike Zlotnik: The overhead to, to deal with the return is just too high.
Robert Levy: Right. It’s just too. I said the cost around that whole system, that whole ecosystem of pure e commerce is just too high. It doesn’t, it doesn’t work.
It doesn’t make sense where it makes sense is if you have brick and mortar locations to kind of support that. You know, that’s why Warby Parker and those are opening up brick and mortar. So it’s just how they make money is how they service their customer. It allows for easy pickup and delivery. Um, it allows for easier returns and stuff like that.
And, um, and that’s how kind of, you know, e commerce and retail have and brick and mortar have merged and where, um, you know, e commerce and retail companies can make money. And Walmart has done a fantastic job of straight of kind of of transforming themselves into a, you know, a great brick and mortar company that has fantastic e commerce capabilities. That’s an example.
Mike Zlotnik: Thank you, Rob, for your wisdom. Um, like all other, like many other things, all good things sort of come to an end, so does this episode. Any final, uh, thoughts, another fresh book that you read? Uh, and then how would folks want to reach out to learn more about LBX?
Robert Levy: Um, so as, as well, I’ll, I’ll answer that question first. So, as far as to reach out, uh, LBX, uh, myself, my partner Phil Block, uh, our head of Ations, uh, Heath Bender, you can find all of our information on our website, um, LBX investments.com. So please reach out to us if you have any questions you want to, uh, ask us. Uh, anything about our current portfolio or opportunities going forward, we’re, we’re happy to discuss.
As far as final thoughts go, um, I don’t know. I think we’ve kind of said a lot. I, I think, um, you know, I think the next year or two are going to be really interesting. I think it’s going to be a little choppy waters, which from my perspective is a positive. Um, I think that’s where, you know, really good operators with the right relationships and platforms can create value, and I think we’re one of them.
So, uh, looking forward to it. And, uh, Mike, looking forward to continue to invest with you and your team and, um, and doing some good deals together.
Mike Zlotnik: Thank you for sharing and enjoy your skiing. Thank you. Well the season is still cold. Do a couple more trips. Enjoy it before the weather gets warmer.
Robert Levy: Thank you.
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