Sunday, March 27, 2011

Commercial Real Estate

From a Credit Bubble Stocks correspondent

There is a nice looking strip mall on Penn Avenue, in Bloomington, at its intersection with 90th Street. It is 3/4 empty. This strip mall collects customers from traffic that is driving north or south on Penn. There is a large furniture store on Penn, just south of 90th, on the southbound side of Penn. It has been empty for several years.

There is a much larger, more varied mall - Southtown - and quite a few other nearby stores, at 78th and Penn. It draws enough traffic away from the Penn & 90th strip mall to have mostly put it out of business in a depression like this one. Anyone driving east or west on 90th who bothers to turn onto Penn can reach Southtown in 3 or 4 minutes, tops. Anyone driving south on Penn probably has passed Southtown, three or four minutes earlier

There is an older, smaller strip mall on 90th Street, starting at Penn and going half a block east on 90th. It is full. It trolls traffic that is driving east or west on 90th. There is no other shopping area on 90th close enough to draw east- or west-bound traffic away from this mall.

The shopping center anchored by the Festival supermarket at 98th and Lyndale, has three empty stores. The former Burger Brothers sporting goods store in that shopping center is still empty after six years. One of the stores in this mall is occupied is occupied by a tailor. He is just one man. He is rattling around in space that used to be filled by a Blockbuster video store.

Also, there is the Mall of America. Its T-shirt store count goes up, year by year. It is in what has been called a 'senseless killing neighborhood" that has low income, low education and high crime. The Light Rail boondoggle sends endless streams of Section 8 youths who drive customers away.

I understood, a long, long time ago, that most of the baby boomer yuppies who refused to have children would find nobody to buy their stocks and their two-story houses when they wanted to retire.

One thing that happens with old people is that they stop buying things. I have looked at the interiors of thousands of houses. When people are older than 55 or 60, they have almost nothing new in their houses unless they are quite wealthy.

So lots of strip strip malls are going down because baby boomers mostly failed to reproduce.

Marginal locations will die off during this depression, possibly to be re-purposed as soup kitchens, Make facilities, store-front churches, grow rooms, low-security prisons or easy mini storage.

I'd liken the ongoing die-off of marginal commercial locations to what happened to agricultural land use following the mass die off caused by the Black Death plague in the 1340s and 1350s. Marginal land slipped from production. Survivors living on marginal land migrated to fill any fertile land emptied by the plague, abandoning land on hilltops or land that was too-dry, too-cold, too-stony or too-infertile.

Some strip malls and shopping intersections will survive. 50th and France looks as fat and happy as a tick that has just had a blood meal.

So much that we have taken for granted is going to be destroyed because people failed to make intelligent plans.
Very bearish for commercial real estate.

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