Stories in Real Estate Recycling

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Includes: AAPL, BGPIQ, BKS, SBUX
by: Michael Steinberg

The Wall Street Journal’s “Stealth Shop Is Starbucks in Disguise” reports that Starbucks (NASDAQ:SBUX) created an experimental store located in a previous closed cookie cutter outlet. The store is signed “15th Avenue Coffee and Tea”, its location in Seattle and has no outward apparent links to its parent company. Starbucks has already begun relabeling three other Seattle stores with their street address and has even customized packaged coffee bags for each location. If the trial is successful, its format will be rolled out to other cities.

Starbucks is trying to reclaim the feeling of local coffee shops with wine, live music and poetry readings. Before the advent of MySpace and Facebook, local bookstores were a major force in social networking. Borders (BGP) and Barnes and Noble (NYSE:BKS) extended the concept with cafes, events tailored to each location, and allowing uninhibited browsing and socializing. Then came the Apple (NASDAQ:AAPL) stores as the hip place to hangout.

The book megastores and Apple have never pretended to be locally owned and operated social venues. While it’s good to see Starbucks innovate and regenerate its cool, customers will soon realize that the location labeled stores have enough in common that they are really a chain. At that point they will become un-cool again. The lesson from Borders, Barnes and Noble and Apple is that chains can be cool places to hangout if the individual store managers are entrepreneurial. No faux localization is needed.

The Journal’s “Empty Mall Stores Trigger Rent Cuts” reports that stores are now in a position to renegotiate leases based on breaches in contenancy clauses. For example, the shuttering of one or more of a mall’s anchor stores or a vacancy threshold can trigger breaches. Just like AIG’s (NYSE:AIG) collateral clauses, I’m sure the mall operators never counted on these clauses being used as leverage against them.

The Journal’s “Keeping Up Appearances: London Turns Eye to Empty Mansions” reports the unoccupied hones in London’s supper-posh Mayfair district are at risk of confiscation and sale by the city council. The homes (valued at up to £50M) at risk are typically owned by foreigners as investments. These mansions are not behind in their mortgage and taxes, but are not maintained in keeping with the neighborhood.

The empty property officer can force the sale of an unmaintained home to a more caring new owner when the current owner cannot be located or refuses to cooperate. The sale proceeds are held to reimburse the previous investor.

This is how the British guard against neglectful real estate “bank accounts.” Just like gold it costs to store money in real estate.

Disclosure: Author is long AIG.