Monday, 5 December 2016

Not Going Shopping

In the last couple of decades not only in our local town, but others we know, we have seen a rapid and continuing process of the shops in the town centre and elsewhere changing.

There are many complicated reasons for this, but among the specialist and other shops you might have expect to have a longer life or remain they now seem to be going just as rapidly.

We may have put it down to the internet etc. but there could be another major reason for this destruction of traditional retailing.


From Eileen Appelbaum and Rosemary Batt’s book,

For instance, one way that private equity overlords enrich themselves at the expense of the businesses they acquire is by taking real estate owned by the company, spinning it out into another entity (owned by the PE fund and to be monetized subsequently) and having the former owner make lease payments to its new landlord.

The problem with this approach is usually twofold. First the businesses that chose to own their own real estate did so for good reason. They were typically seasonal businesses, like retailers, or low margin businesses particularly vulnerable to the business cycle, like low-end restaurants. Owning their own property reduced their fixed costs, making them better able to ride out bad times.
To make this picture worse, the PE firms typically “sell” the real estate at an inflated price, which justifies saddling the operating business with high lease payments, making the financial risk to the company even higher. Of course, those potentially unsustainable rents make the real estate company look more valuable to prospective investors than it probably is.
Now where can I find some shoelaces?



  2. I wonder where John Bentley is these days?