It is deadly scary

Not sure if anyone has also noticed but every time I drive around, I cannot help but notice the sign “Vacancy available” or “Space available for rent”, which becomes more and more along the streets or roads that are good for retail business. With the fast advancing of the new technology facilitating for online retail sales, people are more and more willing to go shopping online than to malls or stores. This is an irreversible trend that will only become more and more pronounced. With the virtual reality technology becoming more mature, online shopping will be even more close to the real life experience in the physical store. In a few years from now, it is not unthinkable that the majority of sales will be conducted online and it will be a rare thing that people will have to go to stores to buy something. In other words, those owners holding commercial properties will be more and more struggling to fight for survival. This is a dire trend for commercial real estate that is doomed to slowly die. Shorting this sector for long term is likely profitable. If you are not convinced, just look at here. Purely depressing!!

One trust fund (REIT), Simon Property Group (SPG) is a specialized fund for commercial properties. Per its description, SPG is an equity real estate investment trust. The firm invests in the real estate markets across the globe. It engages in investment, ownership, management, and development of properties. It primarily invests in regional malls, premium outlets, mills, and community/lifestyle centers to create its portfolio.  Since peaked in Aug, SPG has crashed over 20% and is trading hands around $180. At the moment, it is a bit oversold but I think the downtrend will continue with the overall dying sector looming after it recovers a bit from this level. One strategy to short SPG is to buy its long term (LEAP) put options. You don’t lose much if it simplycontinues to go up but may be quite profitable if it indeed starts to crack and go down hard in the next year or two. Another way to trade for this trend is to short JCP, a retail store that will likely disappear in a few years. It has already recovered some since early November and it may continue to try to pop up a bit in the coming shopping season. But at most it may go up probably to around $10 and at that level, it will be a great long-term short. The whole sector is on the death roll with mounting debts soon come due for refinancing but they simply don’t have any earning power to service the debts. The inevitable increasing of interest rates will only accelerate the dying process for them.

At least stay away from them, folks!