Joshua Campbell, SVP of Growth & Innovation at Stan Johnson Company

The following is a thought leadership column from Joshua Campbell, SVP of growth & innovation at Stan Johnson Company. The views expressed are the author's own.

The Wall Street Journal recently reported that famed investor Carl Icahn has made a major bet against shopping mall debt. While his investment is reported to be specifically and directly related to the CMBX 6, the core belief behind it is that mall owners will fail to retain and attract enough tenants to pay rents that will service their debt through 2022 when the mortgages in the index come due. With retail investment sales volume down from 2015's peak and below-forecast corporate earnings reports at some of the nation's largest retailers, many investors may look at Mr. Icahn's bet and wonder what the large-box retail industry can do to increase cash flow and net income over the next three years to beat those negative bets. From my perspective, there are some clear trends emerging that may help answer that question.

Large-box retailers are starting to reconsider the componentization of their spaces in order to create new value. While subleasing has long been a strategy to reduce costs, landlords and landowners are looking at their floor and site plans and re-shaping the individual components of each. Some low performing shopping malls have evaluated the cost of leasing individual suites ranging from 1,000 to 10,000 square feet and have asked, "why try to execute and manage 10 separate leases with 10 different tenants when I could combine this space and lease it as one?"

Using this strategy, some underperforming shopping malls have demolished walls to attract larger occupiers with non-traditional services for a mall setting, such as surgery centers, health clubs, and even local government offices. At the opposite end of the spectrum, larger strip centers are looking at their plats and seeking drive-thru and single-tenant operators to ground lease or purchase outparcels in their parking lots to generate cash flow or cash infusions.

By fundamentally reconsidering the components of their real estate, operators have realized that there can be additional benefits to attracting new tenants and retailers to their properties. For instance, tenants that generate high pedestrian or drive-thru traffic, such drugstores or quick service restaurants, have the potential to drive that traffic to the large box anchor retailers co-located with them. We see this trend – the value of co-location – accelerating in experience-driven retail spaces, new urbanism, and outpatient medical services.

Technology Proves It It's no secret to commercial real estate insiders that a wave of investment in "CRE Tech" is just hitting the shores of a traditional business practice. These new technologies are providing real estate owners with insights and efficiencies they've not had before. Over $6 billion of new investments in CRE Tech were raised from 2016 to 2018, and landlords now have a choice of new start-ups to evaluate for help with automating their leasing process – which can reduce commissions and other high cash costs – to studying foot traffic in near real-time through geo-fencing. By leveraging this technology, landlords can use automated valuation models driven by machine learning to predict which business models and tenants offer the greatest prospect of co-location success.

Quarterly consumer spending has increased in each reporting period but one over the past three years, and the upcoming holiday shopping season is projected to surpass $1 trillion for the first time. As consumers continue to spend, retailers such as Target, Old Navy, Dollar General, ULTA, Planet Fitness, AutoZone, and many more continue to expand. Whether large retail owners can find the right tenant mix and cost structure to beat bets like Mr. Icahn's remains to be seen, but one thing is for certain – there is more creativity and technological capability behind those efforts than ever before.