Daniel Taub is a well-known name in the retail real estate world. He spent most of his career with DLC Management, one of the nation’s largest open-air center owners, heading up leasing and eventually becoming president and chief operating officer of the company. In October, Taub joined Marcus & Millichap as senior vice president and national director of the firm’s retail division. In his new role, Taub will be helping the firm’s retail brokers with deals, as well as advising clients. He recently spoke to Shopping Center Business Editor Randall Shearin about his new role, and about the challenges ahead for the retail sector.
SCB: Why is now the right time for you to take on the challenge of this role at Marcus & Millichap?
Daniel Taub, Marcus & Millichap
Daniel Taub: Timing. As has been the case during other cyclical moments that have impacted the commercial real estate sector, while the pandemic is horrific and unfortunate for everyone, firms that are focused and well positioned to be proactive, go on the offensive and identify opportunities across the platform where it can build on its successes, including in the retail space. The headlines in retail were challenging before the pandemic; there was obviously a lot of pitfalls to navigate, but at the same time, there were then and are now a lot of opportunities. If you don’t paint the industry with a broad brush and look closely at some of things that are going on, there are some positives from an investment and operations standpoint, even with the pandemic. This was an opportunity to take the existing platform, which has one of the deepest benches of access to private capital and apply that what’s going on in the marketplace from a fundamental perspective relative to the availability of a given product that’s trading in the marketplace. It’s a chance to elevate the brand in different ways — to further cross-pollinate between the core Marcus & Millichap retail platforms and Institutional Property Advisors (IPA), which merges the institutional and private capital worlds.
SCB: Can you tell us a little about what your new role will entail on a daily basis?
Taub: Right now, in the beginning stages, it is 100 percent dedicated to talking with and listening to the team, at all levels across the country. Understanding and hearing from the team what they are seeing on a daily basis, their discussion with the market players, buyers and sellers, lenders and amongst the team internally is helping me to both navigate as well as identify areas we can build upon the proven models and successes across the retail platform in all segments. We have some regions where we are not represented within our IPA retail team yet, so we’re focused and looking to add to the team, but we really want to figure out how, within our model, we can better serve our clients. We’re a national platform, and we have access to a tremendous database of clients that we service in both multifamily and retail, both private and institutional. How can we do better to meet clients’ needs? A lot of those institutional clients cross over asset classes, so working with multifamily will be a key component in terms of leveraging what we can provide clients as it relates to research and access to private capital, as well as market intelligence and trends. With the Marcus & Millichap retail platform, we’re looking at how we can take our strengths in private capital and dominance in the triple net lease market and elevate that game? Those platforms need to be meaningful for those who participate in it, and we expect them to grow.
SCB: How will your past experience be useful in this new role?
Taub: I grew up in retail real estate on the ownership side and having gone through multiple different cycles and business plans in an entrepreneurial firm. I had exposure to every facet of owning, operating, managing, leasing, investing, selling and financing retail shopping centers in many markets of all different shapes and sizes with many different types of institutional partners and financing sources. That allowed for tremendous growth and in turn provided experiences to be creative, innovate and develop people, processes and systems that were designed to support the organization focused on achieving its goals, which I believe has value to the retail platform at Marcus & Millichap. We think we’re going to be able to grow both platforms at Marcus & Millichap, and we think this is a good time in the market to put ourselves in a position to leverage opportunities in order to grow, mostly in terms of taking our existing platform and resources and technology and growing the revenue side of the business, and identifying services and businesses that will allow us to more fully serve our clients. I have a lot of experience in helping organizations manage those growing pains in ways that leverage the platform, relationships, resources and technology. How do you do that on the people side of the business? At the end of the day, no matter what asset class you’re in, real estate is a people business, and that’s what we need to leverage. That reinventing is something we had to do time and time again at my prior firm, and we did so as a result of market conditions. Each time we did it, we were able to take ourselves to the next level, and that’s exactly where Marcus & Millichap is poised to go now. There are always opportunities to strike during down times, but you have to have the right infrastructure and culture, and you have to be willing to invest time, money and resources. But if you’re prepared to do that and to outwork your competition in small ways, these times in the cycle have always proven to be opportunistic, not just in terms of deals, but also in terms of positioning yourself to succeed when the market comes back, which it will.
SCB: On that note, retail has obviously taken some hits over the last few months. What are you seeing right now and where is the market headed?
Taub: There are a lot of unknowns that we are all facing as a result of the impact of the pandemic, and nobody can really say with confidence how many of those factors are going to play out. But you can’t take a broad brush to retail. The nuances between different categories of retail — enclosed malls, secondary and tertiary malls, outlet malls, lifestyle centers, single-tenant net-leased, grocery-anchored, unanchored strip — are profound. There are so many different types of retail, and when you really start to dissect the sector in this way, you find it’s not all bad. Headlines sell, but when you look at key components of the industry, there are plenty of positive indicators. Are there also a lot of hurdles? Absolutely. Do we know what impacts of the pandemic — relative to what stays and what doesn’t in terms of ordering online and doing curbside pickup — will last and what won’t? Nobody can say for certain. But we are a social, consumer-based society. In cycle after cycle, we overwhelmingly revert back to this norm, with some holdover changes. The best example of this is flying before 9/11. That event totally disrupted our world, but by 2019, the U.S. had the highest volume of domestic travelers. We do things differently when we fly, but the fundamental behavior just took a while to adjust — it didn’t go away. With the pandemic, there are issues relative to therapeutics and the vaccine and safety, and those will clearly impact when we can return to the new normal. Will the new normal be similar to the old? Sure. Will some things look different? They have to. How long will all of this take? Nobody knows. But retailers, at least those that don’t have their heads in the sand, have done phenomenal jobs adjusting their physical plans and in utilizing technology like apps or AI or delivery services to better serve consumers. For those that do have their heads buried, they were probably in that position before the pandemic, and now they’re just failing faster than they normally would have.
SCB: In terms of specific product types, what are you going to be focused on at Marcus & Millichap, and will those specialties represent any sort of new direction for the firm?
Taub: Obviously, single tenant net leased properties are a product type for which there is a voracious appetite. Sales volume for those are down on a relative basis, but it’s still very strong compared to other classes of retail, and that should continue to be the case, even with some inevitable landmines to navigate in terms of understanding credit and tenancy. But we anticipate an increase in investor appetite for this product type. IPA is going to be driven by the need to help clients, who will either be cycling in or out of retail depending on what their investment theses and portfolios are. So, it’s not so much about what we will or won’t work on, but more so about what our clients need. And institutional clients, whether they be REITs, pension funds, closed-end funds, insurance companies — they’re all evaluating their portfolios and levels of exposure and the future directions of their businesses. Our job is to respond and be an advisor accordingly to those evaluations. The diversity of deals in IPA will vary more dramatically. But we think we have an advantage in terms of the depth of our private capital client base and our platform that allows us to tap into that as well as the team collaboration and client focus. This is going to be a significant buyer of institutional assets that come to market because they’re no longer deemed to be institutional grade assets due to the state of the market or a firm’s decision to exit certain sectors or markets.
SCB: How would you characterize the investment appetite for retail today?
Taub: There’s plenty of capital out there, but much of it today wants the Covid discount. The question is whether or not and to what extent that capital will get the discount, and right now we just don’t know. This is such a different cyclical event compared to the great financial crisis since the economic impacts are being driven by public health. Before the pandemic, there were a lot of great things going on with the macroeconomy that as a result of our management of the pandemic have caused economic issues. The good thing in terms of investment appetite is that there is a lot of capital in all different shapes and sizes. Institutional capital will always move more slowly and conservatively and will seek a deeper understanding of fundamentals, particularly with predictability of cash flows and dependability of income streams. Those are especially important factors given all of the unknowns in retail. But at this point in the cycle, private capital, whether it’s private equity, private operators with different forms of institutional capital or pure private capital individuals or groups — these are the ones that are going to look to go further out on the risk curve, to execute in this market on a regular basis. Like during the great financial crisis, those that figured out how to buy in 2010 were rewarded when the market started to come back in 2012, 2013 and 2014; they increased their returns on investment because they got in early. Our numbers tell us that with the triple net space and the smaller, unanchored strip space, is that there’s plenty of capital. There are the usual hurdles to overcome relative to sponsorship and financing, but there are plenty of scenarios in which these deals are still getting done, and I would expect that to continue.
SCB: What are clients looking for in this environment in terms of judging properties?
Taub: Institutional capital sources are sticking to a much smaller box of fundamentals. REITs had been shrinking the size and consolidating the range of their portfolios to be concentrated in the top 20 or 30 MSAs and quality demographics from risk, growth an operational efficiency perspective. As markets start to become more fluid for REITs, you should see a focus on a small list of MSAs. From the private perspective, the quality of the real estate plays an important factor in terms of how value is created with retailers. If you’re in any secondary or tertiary market, your ability to acquire good fundamentally real estate is going to recover more quickly than if you’re targeting real estate that is removed from core centers of activity and outside growth pathways. The risk-return profile for certain capital sources is also an important consideration. Some capital sources will be more opportunistic; others are looking for current income-producing returns while they create value. Some are using leverage to create those returns. With good sponsorship and the right metrics from a financing perspective, you could be generating double-digit levered returns between buying at the right going-in cap rate, financing the property and not having done anything big. There are a variety of factors at play, but it’s ultimately about solving for the capital in terms of what the risk profile is.
SCB: Are you seeing a lot of institutional investors vary their strategies?
Taub: As our clients give us feedback on how they’re looking at the marketplace and where they see opportunities that fit their existing portfolios and where their investment committees have decided to invest, we’re targeting those opportunities. We’re positioning ourselves to have teams represented in those markets to make sure the client is getting access to those deals. Right now, overwhelmingly, the institutional world is somewhat better off not buying unless the deal checks all the boxes for their investment criteria — market location, rate of return, risk-adjusted underwriting — if all of those factors aren’t met, you’re probably not going to see to many institutional investments, barring some unique scenarios.
— Interview by Randall Shearin