National Real Estate Investor recently interviewed Culhane Meadows’ Chicago partner Michael Smetana to discuss the new plan from the Swedish retail giant Ikea to target urban settings in the United States through mixed-use projects.
Here are some excerpts from Michael’s interview:
Swedish retail giant Ikea, known for its inexpensive, modern, hard-to-assemble furniture, traditionally doesn’t target urban cores. Instead, it typically builds its warehouse-style stores, averaging 320,000 sq ft., in suburban areas. Now, the Ingka Centres shopping center arm of Ikea’s parent company is starting to load up its U.S. cart with inner-city, mixed-use projects anchored by Ikea stores.
Jeff Holzmann, CEO of real estate crowdfunding firm IIRR Management Services LLC, part of Dallas-based real estate investment firm RREAF Holdings LLC, believes Ingka Centres is embarking on a “smart and brave” strategy by rolling out urban properties in the United States. An Ingka Centres spokesman tells NREI that in addition to retail, components of these mixed-use developments could include hotels or multifamily projects.
The Ikea conglomerate is “doubling down on their core business model and doing so at the right time,” Holzmann says. “The Ikea brand is less conducive to e-commerce, as most people want to see, touch and even experience furniture before they buy it. They want to be inspired by the in-store design, get ideas for what they can do in their own homes and learn about what are the options and prices. That is hard to achieve solely online.”
Ingka Centres’ first project in the U.S. is the long-vacant 6X6 building in downtown San Francisco. The property, with about 256,000 leasable sq. ft., will be transformed into a $260 million mixed-use development. It will include a smaller-format Ikea store, as well as other retail outlets.
Right now, many consumers remain wary of heading to a crowded shopping center. But once the pandemic passes and people feel more at ease about visiting busy public places, developing projects like 6X6 in San Francisco might be “the smartest thing” Ingka Centres could have done, Holzmann says.
Real estate attorney Michael Smetana, a partner in the Chicago office of law firm Culhane Meadows PLLC, likens Ingka Centres’ U.S. plan to one that legacy retailer Sears Roebuck & Co. employed beginning in the late 1950s. Back then, as more Americans were relocating to the suburbs from city centers, Sears set up Homart Development Co. to build regional malls anchored by Sears stores. Homart went on to become one of the country’s most prolific mall developers. In 1995, mall developer and owner General Growth Properties Inc. bought Homart for $1.85 billion.
In both of those cases, the retailer extracts profit from the properties that it occupies, Smetana says. Still, he thinks Ingka Centres might need to rely on joint ventures with mall owners to execute “a quick and effective entry into the U.S. mall market.” But the firm should be able to buy U.S. properties “at a significant discount.”
The complete article can be found here.
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