Fifth Wall’s $100M Retail Fund Pushes Online Brands Into Brick-and-Mortar World

LOS ANGELES—Venture capital CRE firm Fifth Wall has closed on a $100 million fund whose goal is to transition online retailers to a physical presence. The fund’s backers include Acadia Realty Trust, Cushman & Wakefield, Macerich, and Nuveen Real Estate. As part of the fund’s investment mandate, Fifth Wall will work to connect online brands with its retail landlord partners for their space needs.

The fund is targeting a growing universe of online retailers. So far, digitally native brands have opened over 1,800 stores around the US in the last decade, a trend pioneered by Bonobos and Warby Parker, which have opened dozens of stores to become omnichannel operators.

The need for financing for this step is significant. Fifth Wall says, arguing that it is difficult through e-commerce alone to develop brand awareness, deliver engaging customer experiences, and achieve profitable operations.

Also, most venture capital investors in e-commerce are not familiar with the challenges or complicated dynamics of brick-and-mortar retail growth, Fifth Wall says. Similarly, many large retail real estate owners aren’t fully aware of new potential tenants for their space—hence the push to match these companies with potential landlords.

“Digitally native brands often aren’t familiar with the challenges of retail real estate expansion and we’ve observed that many traditional VCs lack the experience to be able to meaningfully engage on issues like site selection, store design, merchandising, and staffing,” Kevin Campos, a partner at Fifth Wall, who leads the fund’s investments in omnichannel brands, says in prepared remarks. Fifth Wall has assembled a consortium that includes many of the largest retail real estate owners, he continued, adding that “we believe they’ve invested in the Retail Fund because they want to see these new brands earlier and help them succeed with thriving stores.”

Fifth Wall also has a theory that some of the most innovative users of retail space will come from outside of “traditional” retail categories. For example, the firm identified flexible office as a “uniquely complementary tenant” within shopping centers, and “a highly efficient replacement” for large format vacancies.

After Fifth Wall’s investment in Industrious, for instance, Macerich collaborated with the flex office provider to open a location at Scottsdale Fashion Square in a 40,000 square foot space formerly occupied by bankrupted department store Barneys New York.

“Our top properties in top markets are natural platforms for a wide range of innovative concepts, such as Industrious, UNTUCKit and b8ta, benefiting from Fifth Wall’s expertise and investment,” Tom O’Hern, CEO of the REIT, said in prepared remarks.

Fifth Wall has already made investments in omnichannel brands and retail concepts, including Allbirds, Carbon38, Cotopaxi, Foxtrot, Heyday, Industrious, Interior Define, Madison Reed, Taft, and UNTUCKit.