Ep 14: REI MBA - Leading Expert on Retail: “Is it Retail Apocalypse or Maybe Not?”
Michael Berne, one of North America's Leading Experts and Futurists on the Retail Industry joins us for an interview and he answers the following question.... "Is this Retail Apocalypse or Maybe Not?"
As the Founder and President of MJB Consulting, Michael has amassed more than twenty years of experience in conducting market analyses, devising tenanting strategies, advising on project site plans and spearheading recruitment efforts on behalf of developers, landlords, investors as well as municipalities, BID’s, CDC’s and other non-profit clients across the U.S., Canada and the U.K.
The firm has long been active across the region, with recent and past engagements in (Philadelphia), Phoenixville, PA, Atlantic City, Newark (NJ) and Westfield (NJ), among others.
Michael is a regular presenter and keynote speaker at industry conferences, including those of the International Downtown Association (IDA), the National Main Street Center, the International Council of Shopping Centers (ICSC), the International Economic Development Council (IEDC), the American Planning Association (APA) and the Urban Land Institute (ULI), among others.
Michael has lectured at University of Pennsylvania and the University of California, Berkeley. He is quoted often in high-profile publications such as the Financial Times, TheStreet, Planning and the Washington Post.
In addition to his widely followed “Retail Contrarian” blog, Michael is a contributor to and founding Board member of a new online publication called the American Downtown Revitalization Review (ADRR). He has penned numerous articles for magazines and has authored an essay for an upcoming book on the history of the Main Street movement and written a chapter in a recently-published volume on the urbanization of the suburbs called, (“Suburban Remix: Creating the Next Generation of Urban Places”).
Before founding MJB Consulting, Michael worked on market studies and commercial revitalization for a planning consultancy, leasing and acquisitions for an urban retail developer, and policy analysis for a citywide elected official.
You can reach Michael through his website at: https://consultmjb.com/
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Interview Transcripts
Tejas Gosai: Hello, ladies and gentlemen. Welcome back to your favorite real estate podcast. This is Real Estate Investor MBA. Our short website now is rei.mba and the regular website is realestateinvestormba.com. We transcribe our podcasts. We have videos that can be viewed. And you can listen to us on Spotify, iHeartRadio, Google Podcast, and a bunch of other resources. Jeremy my co-host below me... Jeremy Moyer and I, Tejas Gosai, helped create this show and we've had a tremendous amount of friends and family and colleagues that have really supported us. So I like to start by saying thank you to everybody and it's amazing the guest we have. One little thing. I am a manager of a Private Equity Fund with my partner over here John LeVine and we have some information available at www.lvpefund.com. And with that said Jeremy, we have an awesome guest today and John helped us bring him on. Can you give the intro?
Jeremy Moyer: Absolutely. Thank you Tejas. Today, we have Michael Berne with us. He's one of the North America's leading experts and futurists on the Retail Industry. So as a Founder and President of MJB Consulting, he's amassed more than 20 years of experience in conducting market analysis devising tenanting strategies, advising on project site plans and spearheading recruitment efforts on behalf of developers, landlords, investors and as well as municipalities across the United States, Canada, and the UK. The Firm has long been active across the region locally to us, in Lehigh Valley, Pennsylvania. They have recent projects and engagements in Philadelphia, Phoenixville, Atlantic City, Newark, and also Westfield, New Jersey, among several others. Michael is a regular presenter and keynote speaker at industry conferences, some including the International Downtown Association, National Main Street Center, the International Council of Shopping Centers, International Economic Development Council and the Urban Land Institute. Michael has lectured at the University of Pennsylvania and the University of California Berkeley. He is often quoted in high-profile publications such as the Financial Times, TheStreet, Planning and Washington Post. In addition to his widely followed "Retail Contrarian" blog, Michael is also contributor to and founding Board member of the new online publication called the American Downtown Revitalization Review. He also penned numerous articles for magazines and also has authored an essay for an upcoming book on the history of Main Street movement and written a chapter in a recently published volume on the urbanization of the suburbs called "Suburban Remix: Creating the Next Generation of Urban Places". Before founding MJB Consulting, Michael worked on market studies and commercial revitalization for a planning consultancy, leasing and acquisitions for urban retail developer and policy analysis for a citywide elected official. That was a mouthful and I cut a lot out. Michael welcome to the show
Michael Berne: Thanks. Thanks for having me.
Tejas Gosai: Thank you so much for being here and real quick. I'm just going to give a quick intro.... (Can't point in the right direction.) ...on John.
Michael Berne: Yeah, to your right.
Tejas Gosai: Yes. So John LeVine is a mentor of mine and I met him years ago at a publicly traded company. He's the Chief Investment Officer of the Lehigh Valley Private Equity Fund and he spent 25 years in the real estate sector having started as a Director of Taxation for one of the largest strip center developers in the country at the time. After being instrumental in helping to create NYSE listed real estate and becoming its Vice President of Finance, John left the industry a couple of years to start his own aircraft financing and charter company; purchasing, financing, and selling millions of dollars worth of business aircraft around the world. John re-entered the real estate industry as a consultant for New York city-based shopping center owner who was ramping up the operation embarking on an acquisition spree that created the company which went from $30 million worth of assets to over $500 million in the period of three years. Acting as the Controller and then as a Cash Manager, John was responsible for investing all available funds on a daily basis. Recently John has worked with two Real Estate Investment Trusts, managing their lease administration and national tenant collections group. So John and I have been working together on the Lehigh Valley Private Equity Fund and he suggested that we have Michael on. So we're all here. Jeremy...let's get into some questions and some fun stuff.
Jeremy Moyer: Yeah, we have a lot to unpack. That's for sure. I have quite a few questions for you Michael. First off.... How do you really feel about the retail space as an asset class specifically in today's economic environment and with everything going on?
Michael Berne: Yeah, you know, I'm not as down and despondent about it as you're probably hearing elsewhere. You know, I think that and this is the title of one of the articles that I recently wrote. I think about, as probably a number of you do, what Warren Buffett says to do in situations like this. Of course, we all know the, "be fearful when others are greedy", but the more relevant piece right now is to 'be greedy when others are fearful'. And obviously, there's a lot of fear out there. And there are a number of retailers...a surprisingly high number of retailers...anchor retailers, that are channeling that very proverb. They are on the hunt for new locations. They are aggressively expanding. And that poses opportunities, especially for certain types of centers and projects, which we can get into a little more later. I'm not saying that there's not a lot of bleakness out there. But if you pick your spots. If you really get nuanced about it, there are Diamonds in the Rough. And you know, I think all of us have seen those statistics which compare the amount of retail space per capita in the United States to other countries and show that you know, we have as much as five times, if not more retail space than a lot of Western European countries. Yeah, if you have a large portfolio, that's probably more relevant, but Retail happens in the micro not in the macro. And even when your oversupplied in the aggregate, there are still opportunities in the nooks and crannies that can be quite lucrative, even now. So I guess I'm not so despondent. And you know, I think my main point with this is try as best you can to ferret out the noise. There's a lot of noise out there, right? There's a lot of forecasts, you know.... arguably skewing on the sensationalist side about where we're going with certain types of commercial real estate. I'll remind you...if you were to start a project today. Not that you are necessarily starting project today. If you are to start a project today, by the time it comes online, we will likely be some way past the crisis stage. In some parts of the country, depending on the regulatory climate, we will be well past the crisis stage. So I think we need to keep the long-term front in mind here, and again try as best we can to ferret out the noise. And so yeah, that would be my summation.
Tejas Gosai: A lot of it....Michael that you were kind of mentioning is derived from this awesome article you published, "Greedy While Others Are Fearful". This is on LinkedIn and a bunch of other places. You can find Michael on LinkedIn, but this is a wonderful article. It's extremely in-depth, you know, just really lays out a lot of what you're talking about. Actually, yeah, there's two articles you did. There's a...this was the first one, "Where Retail Recovers First". Oh no, this is the second one. That's a second one, yeah. Okay, so this one was published in July and references Warren Buffett some of the things that you said and then this one was a follow-up that you just published, you know a little bit more recently. So I just wanted the listeners to kind of know that this stuff is available and you are a fantastic writer. I said that before we started. But Jeremy, I know you have a follow-up.
Jeremy Moyer: Absolutely. Michael you mentioned that some retailers are seeing this as an opportunity to be greedy and they're like doubling down, even tripling down on looking for locations to expand their footprints because they probably have this 5-10 year pipeline mentality, long-term vision and they see what the opportunity, the present has provided them. Do you have a list of some retailers that are actually doing that or maybe even retail subcategories that are actively pursuing a growth in the industry?
Michael Berne: Yeah, so I mean, there are a number of specific tenants in that, "When Others Are Fearful" article and I'll summarize here. You know, and I think to your point Jeremy, I think it's not just a 5 to 10-year pipeline, but it's also the realization that hey actually this is a great time to be expanding because frankly Landlords don't quite have the leverage they did not a lot long time ago, right? Um, you know, there are going to be opportunities to secure desirable real estate in coveted markets at discounted rates. And the savvy retailers and the ones that have the balance sheet to move on that, many of them are doing. So, you know the categories that I highlighted in that article, perhaps the most obvious one is grocery. Although you know grocery has become a far more complex category than it used to be and actually the most of the expansion minded retailers are not necessarily the ones that immediately come to mind. You know, perhaps the most known...the one that will get by far the most attention and already to some extent has started to is Amazon, not only with Whole Foods but with this new Amazon Fresh concept, which it's rolling out first it seems in Southern California as well as Chicagoland but has also been looking quite seriously in the Philadelphia area. It's a more traditional mid-market grocery banner and Amazon's thinking here is to some degree in my mind at least an outcome of having made a suboptimal purchase three years ago. Whole Foods, in the grand scheme of things, is a bit player. I mean 1% to 2% market share. If they really wanted to make a splash in 2017, Kroger would have been; would have had a larger impact; not to say Kroger was for sale. Whole Foods didn't really get Amazon to where it needs to go. Amazon needs a nationwide physical footprint to rationalize the unforgiving costs of online delivery. And that's in my mind what this new format is all about. And so they're going to move quickly to expand it across the country. That will probably the biggest news but there are a lot of other Grocers whether in the special; whether the Natural Foods category with Sprouts, whether in the discount category with Grocery Outlet, which has, you know, obviously arrived in the Philadelphia Market along with obviously Aldi and Lidl. There are some Niche players that have been pretty aggressive as well. So and even some of the other retailers and in other categories that specialize in food...like BJ's for instance...BJ's Wholesale Club, they are expanding. So that's Grocery. And you know, I'll mention some other essential retailers, Target is continuing with its flexible format stores, Tractor Supply in more rural markets. The 'off pricers' as well...they've gotten a lot of criticism because they resolutely de-emphasize online...the online channel. However, I expect them to continue to thrive in the months and years ahead as they have for you know for many years going backwards, you know, going back. You know, TJ Maxx...TJX arguably the best retailer in the business. Has been for a long time. I never bet against them. But also the Burlington's of the world, the Ross's. You know, and even some of the category killer retailers are opening discount banners. Dick's Sporting Goods for instance has been rolling out this new 'Overtime' format, which is kinda off price on, you know, your Nike and your Adidas clothing and and athletic apparel. So off price discount and I would add to that especially in centers that are in lower tier centers, which need to back-fill vacant anchor spaces. A lot of deep discount retailers are going to be aggressive whether that's Aldi's or Big Lots or Harbor Freight. Home Goods...a few in particular, Home Goods owned by TJ Maxx, but also At Home. Obviously the home category has been doing quite well in the last month or two. The theory being that you know, people aren't eating out, they're not traveling so hey, let's spruce up our homes. I don't know how long term that will last but there seems to be a number of retailers expanding there. And finally there are some scattered opportunities in some of the category killer categories. Category killers, you know, these big box stores that specialize largely one line of merchandise. They've been hit hard by e-commerce because e-commerce does what they do just better. And that's why 'power centers' have been...have been on the decline as a format. But in certain categories, there are retailers trying to jockey for market share, and so you're still seeing some growth. For instance, sporting goods, fabrics....I mean crafts. Hobby Lobby is remaining quite aggressive. So, you know, there are some opportunities here in there as well. But those are all discussed in that 'Greedy When Others Are Fearful' article. And again, I just want to point out...a lot of this, you know, is more time sensitive than it usually is because things are moving quickly, but I try to update that article to make sure that it's still reflecting current plans among these retailers.
Jeremy Moyer: That was great Michael. It seems like the answer you just provided with the store names and categories. It's...I guess you can say commercial and even Retail as a sub-sector even has many different sub-sectors with, under Retail. Right and it's specific to what is necessary right now. What, where you kind of see the future going a little bit and it seems like those are the players that are, or the sub-sectors that are being bullish with their with their acquisitions or siting at least. I'm an avid reader. I read a lot on the economy as well. And I just love markets and whatnot. I hear this term 'Retail Apocalypse', right? Yeah, and I'm sure you've heard it as well. You know with the rise of e-commerce, you know, especially right now. I don't know if this has just poured gasoline on that term and the use of it across the industry. You know, 'Death To Retail' and you know, this is...'things are going to blow up'. And it seems like some sectors as you mentioned are actually growing but I'm sure there's also sub-sectors of retail that aren't. Right. Where do you see e-commerce playing a role in all this and do see some sectors being exposed other than retail? What's your thoughts on that?
Michael Berne: Yeah. I mean certainly that the categories. Yeah, there's some categories that have suffered a short-term hit, you know, 'experiential' in particular for obvious reasons. You know, and not just the restaurants and bars, but also the, you know, the larger format entertainment anchors...movie theaters. And frankly, movie theaters have an uncertain future. Although, especially as they're now closing the theatrical window as its called. But you know movie theaters have faced an uncertain future since I believe the 1950s. So, you know, I wouldn't really bet against them either. They seem to be incredibly resilient. But yeah, there's an uncertain future there. But those are short-term hits. I think what's clearly a more structural change right now is not so much that we're seeing the end of soft good shopping. I mean we're obviously a lot...all of the department stores, even the relatively strong ones have been having a rough go of it and obviously a number of inline mall chains as well and and you know two bits of caution there. I mean one...I think the causes for those struggles are sometimes over simplified in many cases. If they were bought by companies that did burden them with a lot of debt, which when it came time to make some key improvements, in terms of more of an omni-channel model, they were lacking the financial wherewithal to make or to fund. So, you know, and that's with a surprisingly large number of these retailers. That said there's clearly been a move in clothing and soft goods in general, not overwhelmingly to e-commerce, which I'll talk about in a minute, but also just to other competitors, you know, as I'm saying, the off-pricers have been growing year after year since the Great Recession. You know, every quarter...same store sales increases, more openings. Outlet malls, if you haven't noticed, there's been a lot of those built in last 12 years and contrary to the past, they're being built in the middle of cities. Philadelphia Fashion District, right the old Gallery Market West so...(correction) Market East...so there's a lot of new competition out there. And so some of this is just, you know, building a better mousetrap, you know, so that's another qualification to make. But you know in terms of e-commerce, you know, just to say a word on that. Um, you know, as I....as my blog is titled, I tend to gravitate to the contrarian view and this is no exception. I actually feel like the narrative about e-commerce versus brick and mortar is...has become so entrenched. That it's very hard to dislodge preconceptions about where they are headed vis-a-vis of each other. You know, if you look at COVID and the crisis we've been working through, you'll see a lot of articles that talk about how this has been e-commerce's 'Shining Moment', right? And you know following this crisis, you know their market share will just continue to rise exponentially, and you know for one thing I would never bank too much on what's happening when things are as unusual as they are right now. I don't know about you. But yeah, I'm shopping for groceries online right now because you know, I don't feel like I have much of a choice. I think it sucks. I think the whole experience sucks and I can't imagine I'm the only one, right? So my point here I know that's just a subjective....you know. Many of you out there might be having a great experience shopping for groceries online. My point is that right now is not the time to be extrapolating anything about how we're going to be acting in the future when this virus is in the rearview mirror. And so and actually if you read annual reports, which I'm sure a lot of you do, retailers almost every one of them are saying two things. One, they are saying, 'God, e-commerce saved us in the second quarter.' And two, it saved us, but thank God we had all these stores because then we could still do the curbside pickup, in some cases, we could ship from store. All of this existing infrastructure, they were very happy to have in place, the ones that did. My point being that if anything this reinforced to them the importance of having that infrastructure and that they're going to just be doubling down on the technology advancements to make sure that the online and the offline are seamless. So and I think that again that reinforces the importance of physical stores. Another point, and this is a widely held misconception about online selling. Online selling for retailers is 'one big money suck'. Right? You don't make money selling online. Virtually every pure-play online retailer loses money, repeatedly, consistently. Okay. You say Amazon. Well Amazon actually has only in the last couple quarters started to eke out a small profit on e-commerce, right? Most of its profit comes from cloud computing where it is the undisputed leader and to a lesser extent, advertising. But e-commerce has for a long time lost money and only now is starting to earn some money. Remember Amazon at its scale is only now starting to earn money. Wayfair miraculously made a profit in the second quarter. That was their first profit EVER. Right? And indeed that's why so many digitally native retailers started, in the last three or four years, to open stores. And frankly that's why Amazon started to open stores. Because unless you have the physical footprint, you cannot rationalize the unforgiving cost of shipping, customer acquisition, and returns when you're operating online. So...and to me, I have trouble, and this applies to food delivery platforms as well. I have trouble believing anything is going to take over if no one can make any money on it. Yes. The consumer is King. But ultimately businesses are in business to make money. And if they can't....well something's got to give. Are we going to start passing on the cost of shipping? Well, that will be a non-starter. I think a recent study I read and I've read several which have basically concluded the same, that I think as much as 80% of Prime users would drop it, in a heartbeat, if they had to suddenly pay for shipping. Now mind you...Prime members are paying for shipping. That's why they pay the membership fee. But it's a very clever tactic to distract them from what they're paying for. If they actually also had to pay per order, they would drop Prime, right? So shipping is an expectation the consumer now has and which it's never going to be willing to pay for in my mind. So until we have drone delivery, shipping is always going to be a cost that weighs heavily on margins for retailers. And that's why they are opening stores. And then the last point I'll make, and you know, I say this to a panel full of guys. You know for a lot of guys out there, you know, the NFL season started on Sunday, and it was like the return to civilization, right? I mean finally we could spend a day watching football. We have all the TV's on every screen. You know this was you know the life right? Well as hard as it might be to imagine for...and this is a gross over-generalization which I'm going to make anyway...as hard as it is to imagine, a lot of women feel the same way about going shopping, right? And I think the point that's lost in the narrative about e-commerce, is that we like doing this stuff, right? This is the stuff of life. The irony, you know the whole thing about, you know, the internet's going to enable us to...will free us from doing all these things, you know that...you know that are so inconvenient and you know, just kind of you know a burden, and it will leave us in the end with really nothing to do because those things are what make life worth living. And for a lot of people, shopping is a part of that. And it serves many other purposes besides just going in…getting the...getting you know...getting tube socks or khakis. It is a pastime. It is a leisure pursuit. It is an occasion for social bonding. Is a form of personal reassurance and identity. It means a lot more. I don't think it's a coincidence that virtually all of the originally digitally native retailers who swore they would never open physical stores, we're men. I don't think that's a coincidence, right? There is a gender element to this and so that's just my way of saying...and again, I recognize there are women who don't like shopping. There are guys who don't like football. I'm not, you know....I'm just saying in the aggregate, the point being that there are aspects of shopping in stores that people enjoy and that we lose sight of that. There's some people who even enjoy shopping for groceries in a store and so just to keep that in mind. But anyway...
Tejas Gosai: Let me jump in here. That was awesome. And the reason we started this program is because we wanted to relate everything that's going on nationally and internationally to our little Lehigh Valley, that is not so little anymore.
Michael Berne: Right. We're now identified as a target and we've been on this exponential curve. John, I'm going to ask you to talk a little bit about some of what you've seen because I talked to John every day. You know, mentor, best friend of mine. But since we've been working together as him as the Chief Investment Officer of the Fund...you know, we're like a tech company now and John he's not really a CIO. He's like the CIA, like constantly figuring out how it relates to the Lehigh Valley. But John, can you just talk about and you don't have to name names? But you know some people in the international / national space that are hammering into e-commerce and you know some things about Amazon if you could share a couple things?
John LeVine: Yeah. Mike, you know all this insight is so important. I mean, we're Lehigh Valley Private Equity Fund investing in real estate. I mean so and a large portion of that, and a lot of my expertise, as you know, was in the retailer / shopping center, you know area of various types: power centers, strip centers, large malls. I mean, Tejas and I worked for the company that owns the Fashion District of Philadelphia. I was there the other day.
Michael Berne: PREIT...right. I was there the other day. Unfortunately, there's nobody there and there's not a lot of stores open and they're going to have a huge problem having spent $400 million. I mean the timing was you know, it was horrible. But you know, one of the things is in terms of e-commerce. You know, there's an experiment going on and that is that the e-commerce portion of these failed businesses will be successful investments. And you know, I'm familiar with someone who has purchased a number of these. My brother just became the Chief Technology Officer for Modell's Dress Barn, Linens and Things, and the experiment is that we can latch onto the former self and you know, when I hear that, I hear what my thought process from the real estate standpoint goes to well, if you're going to be an e-seller and I listened to a great interview by the CFO of Prologis. It takes 3x the warehouse space to house all the product for an e-retailer, and very few people know this, than it does to house the similar product mix let's say at a Walmart. So Walmart online with two million items has to keep that someplace. And of course what is very prevalent in the Lehigh Valley....warehouse space. So, you know, there's you know, what you've been talking about, you know, I think of this as a blob that moves through space and re-adjusts to what's happening and you've described some of that. The urbanization of Suburbia with what happened there. The Suburban Age...that, the suburbanization of the urban setting with the Promenades and whatever. So, you know from our standpoint we are looking at investments and I think you hit it on the head....on the long term, and what's going to happen. And I think there's opportunities. You know, the hotel sector has been hit extremely well, which Tejas has an enormous amount of experience with. But nobody thinks that there's never going to be another hotel built and that the ones that are there are not going to adjust. They’re going to transform. There going to... You know, I read an article about the airline industry with a whole new seating concept, to keep people isolated in an airplane. I mean, so in terms of...in terms of your experience and it sounds like what you're saying is that the things that we love to do and I want you to talk a little bit about really what is the large driver of the consumer. It's impulse buying.
Michael Berne: Yep. Right.
John LeVine: I mean, you know, they try to recreate that on a website. Here's what other people bought but boy you walk by and see that sweater. You weren't there to buy a sweater. So that's never going to go away. And that's going to continue to drive the economy, which is a strong one in the Lehigh Valley. It's got three major cities and you know needs urban, suburban and rural retail. So if you could talk a little bit about that?
Tejas Gosai: Wait....one second. Just real quick...John. We have...you said, you mentioned Prologis. We have...I think Prologis. I forgot the number but they have the largest amount of...
John LeVine: 53 warehouses in the Lehigh Valley. 53 warehouses in the Lehigh Valley and I think they have some...it's crazy the amount of million square footage. It's insane how large these are.
Tejas Gosai: Also John you mentioned to me last night that Amazon may become one of the largest employers in the Lehigh Valley.
John LeVine: Yes. Yes, and they, you know, they're hiring full-time workers not seasonal workers. Because what's happening, I mean they're getting the demand and it's not only for their online business. But as Michael mentioned...it needs to support their bricks and mortar business, you know, the Whole Foods and the other formats. I think probably one of the greatest examples and Michael and I are aware of this of what people thought was the advent of the Apple Store. I mean, it became the highest square foot grossing store in the world just above Tiffany's. So and they're selling phones basically. So, you know, the bricks and mortar, the demise is...how long has the demise been going on Michael and bricks and mortar? Since it started?
Michael Berne: Yeah. Right. I mean how much is it contraction, like structurally for structural reasons. How much of it, just again, building a better mousetrap? You know, I mean, retail evolves and there are winners and losers to that. You know, I think you made a number of good points there John. I think...I'm also intrigued by these brands that have been bought out of bankruptcy; out of liquidation and transformed into online-only operations because I think that at least tries to address one of the three big costs that online retail faces; the customer acquisition piece. Because people already know or remember Linens and Things, you know or Modell's certainly; may she rest in peace. Or you know, you know people remember and know those Brands and that's half the battle. To me...I always questioned if you have a new business and all you have is an online presence, well what good is an online presence if no one knows you're there, right? And at least with these Brands, there's some name recognition which can help with customer acquisition. It will be an interesting experiment. But yeah, I think impulse shopping. You know, if you didn't have impulse shopping, retail would kind of unravel. I mean, that's you know, that's what makes the most, you know, that's what really separates, you know a loss from a profitable quarter, right? It's the impulse shopping. And I think there's a certain sensuality to retail that people are forgetting about and not only in the obvious cases of soft goods, you know with clothing or even with home electronics, you know, your home theaters, you know, you're not going to buy that online site un-seen, you know, or site unheard. But even with the mundane tasks and that's why you know, I bring back the case of grocery shopping. When you're in a grocery store and let me qualify it by saying a well merchandised grocery store and there are a lot of them that aren't. You know, you are, you know, you are led around the store by the sensuality of the items there, whether it's produce whether you know, and the right lighting on produce. You know, whether it's the smell of the bakery. None of that's online. And that's even...you know, and so I've been very underwhelmed by the digital interfaces for like Instacart and... I mean it does none of that. I mean, yeah, it shows you what else you might buy based on algorithms. That's still an intellectual process. Right? That is not, that is not a sensual one. And I think that is a critical piece that's being neglected in the conversation. But you know, in terms of what you're saying about a market like the Lehigh Valley. You know, I think what's interesting right now, and again, I don't...I do see online market share rising as result of this crisis. I just think it will probably hit a plateau and that it's clearly emerging a consensus that it's going to be a combination of the two. You know, that's going to be necessary going forward. And what you're seeing is not just this strength with industrial but also increasingly retailers looking for opportunities to establish hybrids that are one part retail one part fulfillment. You're seeing this first and foremost right now in the more expensive major markets. You know, whether it's outside of New York City or whether it's you know in Los Angeles, where some of the grocers are literally taking pieces of their footprint, of their retail floor plate and converting them into micro-fulfillment centers, right. So that you have in the front grocery and then in the back fulfillments. Now obviously, this is only possible in certain places. You know, sometimes it requires re-zonings which you know, and municipalities sometimes have very different feelings about these sorts of conversions because of the implications, fiscally and otherwise. But you know that's been increasingly done. Stop & Shops has done a lot of that in you know...in Connecticut, particular you're seeing that. So I imagine that's going to be a trend for the future. Of course, it depends on the price of land, right? I mean, you know, it only makes sense when land gets to a certain value that... But yeah, in terms of that critical last mile; infrastructure that can, will increasingly, you know play an important role. And then you know in terms of a Lehigh Valley. There's the question and maybe you all are seeing some of the benefits to this already. There is this question of the extent to which urban flight and work from home will stick post vaccine right? I know there's a lot of different opinions on that. I think where there is some consensus, it seems, is that to the extent that they do stick, that benefits a market like the Lehigh Valley, partly because it is within striking distance of a major metropolitan area...Philadelphia. You know and it does seem to offer a lot of what is driving those trends right now. I personally am somewhat skeptical that either of those will stick or even in the case of urban flight whether they're actually happening, or happening for the reasons that people are saying. But you know, I know there's a lot of difference of opinion on that and I can definitely see that to the extent that they do stick that will benefit a Lehigh Valley. And I imagine... you know, I'm guessing you... there's been a lot of conversation there on that subject. So that you know, that will obviously be something to watch especially, you know, post vaccine if that continues. But yeah.
John LeVine: One other thing Michael. I pulled up, I was able to find an early recording of your great-great-grandfather in 1920. He said exactly the same thing. We were on a 9-year tear, up until '29 and if history gives us any hindsight, we won't have the great stock market crash and depression of 2029. We will bypass that. But history tells you that you get past pandemics. I mean the Roaring '20s. There's a lot of good things that will happen. Unfortunately we'll probably forget a lot of the lessons that we learned over the past, you know year here.
Michael Berne: How about a more example John. Right after 9/11.
Tejas Gosai: Is that true about your grandfather?
Michael Berne: No, but he could have.
Tejas Gosai: Go ahead...hit it.
Michael Berne: After 9/11 you heard.... And I get that 9/11 was a different experience than COVID has been for New York, a different sort of trauma. But that said, after 9/11 you heard a lot of the same things. You heard, Okay, people aren't going to want to live in cities anymore. No one's going to ever want to work in an office tower anymore. We were all going to cocoon. We were going to spend time only in our apartments and houses and never leave unless we had to. Well we then proceeded to have 2 Roaring decades. Arguably, you know, cities like New York and San Francisco needed a correction like this, because there were a lot of trends emerging in recent years that were just ultimately going to be unsustainable for cities. But yeah, we, you know, 9/11 happened. There was this kind of fear and then we saw what happened thereafter. So and I caution...and again, I know that this has been different for New York and frankly, it's...it sounds like its been even more traumatic. I've actually been hunkering down on the west coast because that's just where I was when this started and haven't got on a plane since. But you know that...it sounds like it's been even more traumatic. But still the point being, we don't really know to what extent any of this actually becomes more than an immediate visceral response to a deep trauma, you know.
John LeVine: Well, I think just quickly I think it ends up being just this enormous pent-up demand. Yeah. I mean people I mean I walk around the streets a little bit and go and there's just, you know, people waiting outside to go into a restaurant. They're you know, they're listening to the news and whatever. So, you know, I think even more. Tejas and I worked together. You know 2006 2007 2008, you know during then the Great Recession that happened and the banking problem. It didn't feel like the world was going to end, although think about what was happening during those times.
Michael Berne: Yeah.
John LeVine: Unfortunately what happened and you know, one of the things that we looked at, you know, we look at is jobs. You know, what's going to be the effect on jobs and obviously the basic everyday guy who gets the job done unfortunately is the person who gets laid off but they get reassigned and you know, whatever. So, you know at the end of the day it drives kind of what you look at day in and day out which is the consumer economy. And types of real estate that we invest in that supports either office to go to, a hotel to stay in, store to shop in, medical facility, government building, all these things that, once we get a vaccine, once we you know beat this virus all this pent-up demand. I can't imagine people are dying to go to social events, to concerts, to be with people. I mean my thought process is wow, you know, there was a time in South Philly...South Philly street fairs and where people…just amazing thing. People are waiting for that to happen. Can't wait for that to happen. Yeah. And that drives, you know, the retail environment.
Tejas Gosai: Let me jump in because we are...we have to conclude. This is our longest program we've ever had and I don't want to stop this but Michael I'm going to ask you right now on the spot. Will you come back in like a month?
Michael Berne: I'd love to yeah, this is fun.
Tejas Gosai: It's too good because I'm also curious to see your next piece of writing after the next, you know couple days, but I will say a big piece of what all four of us are doing is taking the the world of unpredictability and a lot of what we've talked about today is psychology and you know human being behavior. And Jeremy and I...almost every single person we've had on this podcast typically talks about psychology more than they talk about business or real estate and it's just becoming more pervasive in what mission we're doing now. So it's really cool because Michael I don't think of you as like a human, you're like a computer that you know, really feeds this data and I don't know how old you are. But you know, I grew up. I made my first website when I was like 10 years old with HTML and I'm seeing all this happen. Right? Like we're here. We launched a Private Equity Fund in the midst of COVID and we waited until now to start our 60-month fundraise and a lot of to go together with what we're all doing. You know, Jeremy has a bunch of properties that he maybe 1031'ing out of soon and the markets really good. So just to bring it back home, you know, we so much data, so much information. It's all on our website. We now have the capacity to put your article on our website if you'll allow us to do that.
Michael Berne: Of course.
Tejas Gosai: And you know, the big thing here is to keep communication going and if you want to talk to Michael, he's not that hard to get a hold of but clearly is a very busy and knowledgeable man, and he's been doing a lot of great stuff. John's available as well. You know, we're raising money for this Fund. And Jeremy, we have some great things for Real Estate Investor MBA. But I wanted to thank you guys and try to round out quickly
Michael Berne: Yeah.
Jeremy Moyer: I appreciate you joining with us Michael. Yeah, I can't wait to the next one. I had a list of questions that I didn't even get to ask. But this was tremendous. I really appreciate it.
Michael Berne: Great. Thanks for having me.
Tejas Gosai: Alright, Cheers. Let's keep it going.
Michael Berne: Have a good one.
