Amazon has been busy shopping – not shopping at malls, but shopping for malls.
The company snapped up approximately 25 malls between 2016 and 2019, converting them to fulfilment centers, according to an NBC News report from April 2021.
It’s an interesting case study about reimagining space that was underutilized after more shoppers turned to online retailers. Of course, those malls likely saw vacancies for a long time in between, which probably created financial strain for landlords.
The malls suffered from a lack of fungibility, and it’s a risk in some traditional commercial real estate like office space, hotels, and retail.
Less fungible real estate assets are at risk of becoming undesirable or unusable over time due to age, changing consumer appetites, or even black swan events like the Covid-19 pandemic. And it’s a phenomenon you likely encounter every day when driving around town.
For example, aging suburban office parks that are no longer sought after, factories shuttered after manufacturing was offshored, restaurants that went under during stay-at-home orders, or uncrowded movie theaters competing with the convenience of new streaming services.
When properties become obsolete or unpopular, large-scale improvements or wholesale changes in use become necessary to save them. At best, such improvements or changes are cost prohibitive. At worst, they are unfeasible.
Fungibility is less of a concern with farmland, according to a 2021 U.S. farmland investment overview by Green Street Advisors. Demand for food is continual, which means demand for farmland is continual. Yet, the supply of quality arable land in the United States is shrinking, which explains why farmland is a near-zero vacancy sector.
And Green Street noted that farmland can be adapted relatively quickly if consumer appetites suddenly change.
For example, a row crop farmer can plant fewer acres of one crop or alter a crop rotation in a single season (It is worth noting that permanent crops are less fungible due to the long lifespan of the trees).
Changes can often happen without capital expenditure by the landowner.
And unlike traditional real estate assets that depreciate over time and require constant reinvestment of capital, the CapEx burden for farmland can be de minimis over the long run, Green Street found, consisting mainly of irrigation and drainage maintenance.
Even in the worst-case scenario, where a farm is no longer feasible for farming (for example, due to a decline in water availability), that land would be attractive for a host of other money-making uses, ranging from renewable energy, conservation arrangements, or even other real estate development.
In other words, it’s fungible. And to us, that’s kind of fun.