At a time when many retailers in malls around the country are struggling to survive, billionaire mall owner Rick Caruso essentially says ‘bring it on’. “Amazon has been great for retail,” Caruso told FORBES in an interview on Monday at the Milken Global Conference in Beverly Hills.
Caruso, whose most valuable property is The Grove, an outdoor mall and tourist destination in Los Angeles, likes e-commerce companies for two main reasons. First, companies like online eyeglass retailer Warby Parker have moved into opening brick and mortar stores. Warby Parker is opening a store near his Americana at Brand mall in Glendale, he pointed out. Amazon.com has opened physical bookstores in a handful of locations around the country. Caruso expects the trend to continue.
The second reason that Amazon is good for retail: Competition from companies like Amazon “forces retailers to be smarter and know their customers better,” Caruso added. That doesn’t mean all the malls and retail stores in the U.S. will survive. “You’re not going to save indoor retail. Four years ago I said the malls are going to die unless you reinvent them,” Caruso said on a panel about global real estate at the Milken Global Conference, adding that “good brick and mortar is going to flourish.” Other panelists included real estate billionaires Ross Perot, Jr. and Sam Zell, plus Eric Adler of real estate asset manager PGIM Real Estate (part of Prudential Financial), real estate developer Don Peebles and moderator Barry Sternlicht, who is the chairman and CEO of Starwood Capital Group.
Perot Jr., chairman of real estate developer Hillwood, is also a fan of Amazon. The e-commerce giant is a customer of his; he is building 1 million-square-foot fulfillment centers for Amazon in and around Dallas. Perot Jr. said his company has 8 of these centers in development for Amazon and is in negotiations for another 8 or 9 more. “The Amazon boom is stunning to watch,” Perot Jr. said.
Beyond warehouses, Perot Jr. mentioned a new deal announced last week called Uber Elevate, a service that involves Amazon building a “station” from which drones depart; the drones will land on top of Uber cars. “Uber does the last mile,” Perot Jr. explained, adding that Dallas will be the first city to have Uber Elevate, followed by Dubai.
Zell, who made a bundle when he sold Equity Office Properties to Blackstone for $36 billion in 2006, was the most skeptical of the panelists regarding real estate ownership. People are “building a lot of office buildings” in the U.S., Zell said. “I don’t know where the demand is going to come from.” Zell said he is currently more optimistic about real estate investing in Brazil and Mexico.
One theme that emerged from the discussion: On the margins, real estate offerings are changing. After the panel, Caruso (whose net worth FORBES estimates at $3.8 billion) told me about his “8500” property, an 86-unit high-end apartment building (with retail on the ground floor) that he owns on Burton Way in Los Angeles. Residents have access to hotel-type services, including room service for meals, and a car and a driver on hand. The building has been so successful, Caruso said, that he’s developing a similar apartment building across the street with 145 units. The extra services he provides mean he can charge $10 a square foot for rent rather than $4 – so a 900-square foot studio rents for $9,000 a month. And, despite that pricey rent, Caruso says he’s got a waiting list.
By Kerry Dolan