The FORT Podcast: Andy Weiner – President @ RockStep Capital – Investing in Shopping Malls in Secondary / Tertiary Markets at 15-25% Cap Rates
Andy Weiner, President of RockStep Capital, started RockStep Capital Corporation in 1996. Weiner has built or acquired over 9 million square feet of shopping centers throughout the United States.
Prior to founding RockStep Capital, Weiner served as Vice President of Operations for Weiner Stores, a chain of 159 family clothing stores with locations in Mississippi, Louisiana, and Texas.
On this episode, Chris and Andy discuss:
- Andy’s mall thesis
- A Deal Breakdown of a mall in Small town America
- Implementing a successful company culture via the Rocksteps
Listen on:
Spotify
Apple Podcasts
YouTube
Topics
(00:00:00) – Intro
(00:04:58) – Andy’s background
(00:09:09) – Retail pricing structures
(00:14:06) – Falling in love with small-town America
(00:18:52) – Andy’s mall thesis
(00:21:59) – What Andy looks for when underwriting a mall
(00:30:19) – What are deal killers for you?
(00:33:58) – Capitalizing and Closing deals
(00:38:50) – Deal breakdown: Manhaatan, KS
(00:45:37) – Zombie malls
(00:48:53) – Government funding + battling Amazon
(00:52:07) – Alternative ways to monetize mall assets
(00:54:27) – The Rockstep way
Episode Summary
Andy’s early career was rooted in managing the operations of Weiner’s Stores, a chain of 159 clothing stores. He detailed his experiences handling various departments, including IT, HR, finance, and inventory management. Andy highlighted the challenges they faced, particularly with inventory strategy and competition from Walmart, which eventually led to the company’s closure. These experiences taught him valuable lessons about effective pricing structures, inventory control, and the importance of adapting to market changes.
In the podcast, Andy explained different retail pricing strategies. He contrasted high-low pricing, where prices are initially high but reduced during promotions, with everyday low pricing (EDLP), where prices remain consistently low. He provided examples from major retailers like Walmart and TJ Maxx to illustrate these strategies. Andy emphasized the success of off-price retail models, such as TJ Maxx and Ross, which attract customers by offering branded merchandise at discounted prices and maintaining efficient inventory turnover.
Andy then discussed his transition from retail to real estate. He began with Walmart developments in Houston and later expanded into small-town America. He shared his positive experiences working in secondary and tertiary markets, where communities are more collaborative and supportive. Andy described his first significant real estate deal in Vicksburg, Mississippi, where he involved local investors and a community bank. This model of local engagement and investment has become a cornerstone of his strategy, helping to reduce risk and foster community support for his projects.
The conversation shifted to Andy’s mall investment strategy. He focuses on acquiring distressed properties in secondary and tertiary markets, targeting malls that are often undervalued due to operational challenges. Andy explained the different types of malls, from A+ malls in major metropolitan areas to lower-grade malls in smaller markets. He highlighted the difficulties of managing malls, including dealing with cotenancy clauses, occupancy costs, and the complexities of redevelopment.
Andy provided insights into his underwriting strategies, emphasizing a conservative approach. He underwrites deals based on a base case scenario, considering the lowest possible income and the highest potential expenses. This method allows him to identify opportunities for value creation through careful management and potential redevelopment. Andy shared examples of how he has successfully renegotiated leases, reduced operating expenses, and brought in new tenants to increase the net operating income (NOI) of his properties.
Operational challenges are a significant aspect of managing malls, and Andy detailed how he addresses these issues. He discussed the importance of determining the right amount of retail space for today’s market and securing necessary consents for redevelopment. Andy emphasized the value of involving local investors, who provide market insights and help garner community support. These local investors often serve as informal leasing agents, connecting Andy with potential tenants and alerting him to opportunities and challenges within the community.
Andy also explored innovative uses for underutilized mall spaces. He mentioned converting parts of malls into sports complexes, educational facilities, or other alternative uses to enhance property value and community engagement. He provided examples of successful projects, such as a hockey arena in Janesville, Wisconsin, which was funded by the city and brought in new tenants and additional development opportunities.
Throughout the podcast, Andy highlighted the evolving landscape of retail and real estate. He discussed the impact of e-commerce and how brick-and-mortar stores are adapting to compete with online retailers. Andy noted that successful retailers are leveraging their physical locations as fulfillment centers and using technology to enhance the customer experience. This trend underscores the ongoing relevance of physical retail spaces and the importance of strategic real estate management.
The FORT is produced by Johnny Podcasts