Reviving the Retail Real Estate Sector with Creative New Ventures
The retail real estate sector has been facing tremendous headwinds as customer behavior has shifted to online shopping. The issues that retail real estate has faced have been compounded by a global pandemic, keeping customers home. Companies have shifted their focus to either online or omni-channel models, with significant investments being made into same day/next day delivery. In order to lure customers into physical locations, retailers need to focus on creating a unique experience that cannot be duplicated online. With billions of square feet and trillions of dollars in value, the retail real estate sector plays a critical role in the US economy.
Offering entertainment is nothing new in the retail industry. It is common for malls to have movie theaters, rides, and other attractions to draw in shoppers. Restaurants are often attached to retail shops to keep a steady stream of customers flowing in, with the goal of creating a vibrant scene where customers patronize the nearby shops before or after they eat. Trampoline parks, escape rooms, and even indoor rock-climbing venues have been popping up in repurposed retail locations across the country, filling spaces vacated by traditional retailers. But one company, Area15, is looking to take this sector in a new direction by creating purpose-built Experiential Art and Entertainment complexes.
Area15’s first location (Las Vegas), just celebrated their 1-year anniversary. I was fortunate to have the opportunity to sit down with their CEO, Winston Fisher, to learn about their business model and get insight into his views on the future of Retail Real Estate.
“We owned a parcel of land in Vegas, and we were trying to figure out what to do with it. I was looking at real estate and the changing nature of the industry. Ultimately, real estate is a commodity business today. Owners and investors are grinding out these returns. You develop a multi-family asset today and you are building it to what – a 5 ½% return? That’s crazy. So when I thought through the transition of real estate and where I believe that it was going, where we could make outsized returns, and what customers were really looking for, we believed that the future of real estate is all about content. I saw this firsthand when building apartment complexes. No longer were we just building a place for somebody to live. We were focused on building a lifestyle. Then, we looked at the decline of malls, and the concept of how we can build an emotional connection. And that led us to the idea of a Content Box; a venue full of amazing content, including art and entertainment, with the purpose of building an infused emotional connection for customers. That is where the idea for Area15 was born from”.
“Area15 is a growth company and we are going to expand outside of Las Vegas. There are tentpole cities where we know that there needs to be an Area15. We’ve recently closed on some land in Orlando, which is very exciting. We are really interested in cities like Atlanta, Chicago, and Dallas, otherwise what we like to call Convention Center cities which are heavy with tourists. But then there’s also this idea of Area15 Min, where we take over empty big boxes. It would be a little bit of a different experience, but there’s a lot of great malls that have some dark space where we could create a curated program around a certain amount of space that would help revitalize the mall while also taking advantage of the existing foot traffic. So, we see this Max and Min strategy that are equally important and ultimately feed each other.
The third area of expansion, which to me is really the most exciting opportunity for growth, is leveraging Area15 not only as a physical company, but also as a digital company. We call our digital growth our Experience Channel. As we build out this comprehensive digital offering, we are asking ourselves what role Area15 plays in the Metaverse. How do we use NFTs? What role does video-streaming platforms play? There are all these different really interesting channels that create touch points with consumers, and we can leverage our physical space as a portal that can lead our customers into this vast world of content and digital engagement”.
“Yes. And while we are not there yet, that is 100% the goal. We are an entertainment company. Whether it is concerts, or costume parties, or art exhibits, there are so many creative ways that we can fuse the in-person experiences at Area15 with the digital world. The opportunities that this will provide are limitless. But I also want to be clear about what we are not going to be doing. We are not going to be inventing the metaverse. Area15 has content, we have brand recognition, and we have a physical portal that will work really well with some of the metaverse providers. This is where I see us getting a little bit different from just being somebody who engages in the metaverse. We believe that we can be part of the fabric of the metaverse. But, it is the seamless combination of the physical and digital world that is critical for these experiences. The experiences cannot be duplicated in a purely digital world. We are humans and we need our senses to feel energy. I don’t care what anyone says, if you watch a concert online you don’t feel the energy of everybody singing together live. Do not mistake how powerful the physical is, but it is the connection with digital where the exponential value comes in”.
“At this point, we are focused on building a strong foundation first. And then we will take that strong foundation and bring it to the next level. One of things that I always tell the team is that we need to go from crawl, to walk, to run. Many people have grand ideas, but execution is vital. Vegas is the land where big announcements are made, but rarely do they come to fruition. When companies come to Vegas, they often announce massive bigger than life plans, but rarely do they actually pull it off. Not that 200,000 is small by any measure, but we weren’t interested in opening a million square foot facility. We wanted to build something that created a real connection with our guests. We announced this project, we funded it, and we opened it. Not to mention that we sold 2 million tickets our first year, and this was all right in the middle of a global pandemic. This is the definition of our crawl, walk, run philosophy. I still think we’re in the crawl stage, but we are building the foundation for massive future growth”.
“When building a curated experience, there are definitely benefits to purpose-built spaces designed around the physical characteristics that will deliver the best customer experience. As an example, we need to have high ceilings with limited amounts of columns. This design allows us to deliver experiences such as our powered zipline. We like to have the show controls seamlessly built into the space we design. Area15 was not designed to fix a problem. It was designed to recognize the changing dynamics of the new economy. I always look at great companies as not fixing what’s broken. They’re actually inventing a new category. We are someplace between an amusement park, a mall, and a concert venue. We are that whitespace that is so needed because we have created this new experience that is exactly what consumers and business people are looking for. Defining a new category is difficult. Amazon was very different from traditional retailers, and customers who were used to shopping at big box stores realized that it was a very different experience. They created a new category. We are convinced that we are onto something special with Area15, and we felt that it was important to invest the capital to purpose build locations to meet the exact experience that we were looking to introduce to the market. I think that Area15 proved this based on the fact that even though it was launched during a global pandemic, we were able to generate over 2 million visitors to a venue which is located off of the actual Vegas strip. There’s a reason why some of these other traditional retailers have failed and Amazon succeeded, because they weren’t trying to be what they were. They were trying to be what the consumer wanted.
As we expand some of our smaller format Min locations, we believe that there will be some unbelievable opportunities for us to leverage existing retail locations that we can repurpose. But for our flagship venues, especially early on, we felt that it was important to build exactly to our design specifications”.
“There are several components of Area15. The first, similar to a traditional retail landlord, is that we lease space. Examples of some of the companies that we lease space to are Meow Wolf, Lost Spirits, and Dueling Axes. We also have popup experiences which we consider to be a very important part of our curated offering. An example of a popup is Museum Fiasco which is an immersive audiovisual installation that explores relationships between space, time and perception. The second component, which we own and operate is what we consider the spine of the complex that includes the center bar (Oddwood), the food, and gift shop. Additionally, we have an amazing event space that we own and operate. We have held events ranging from corporate dinners, to an iHeart music festival, to a party we hosted called Playa Playground. And then the last component is what we call our entertainment activations such as our powered zip line and interactive VR. We are focused on providing entertainment options that cater to everyone that walks through the door”.
“We are very big into our backbone data and I’m very proud of the technical and data analytics teams we built at Area15. It is important to note that while we put a tremendous focus on analyzing every data point such as dwell time, attractions attended per visit, what is being purchased, and so on, we do it in a way that protects the privacy of our guests. We are not looking at individual guest data; every data point that we analyze is anonymized. To answer your question, we are seeing an average visit time of two and half hours”.
“Yes. Our popup space is always rotating. Additionally, the art will continuously rotate as well. Another constant change are the events that we host. As examples, we hosted a Valentine’s Day party for couples, we are always holding different concerts, and we even have a burlesque show. We are always keeping the content fresh. But the great thing about Vegas, and other cities that we are expanding into, is that you’ve got so many total visitors each year. It would be a lot harder in a small market where you’re only going after the locals. Tourists are important to our success”.
“We have built our own entertainment district. Besides the main building, the Illuminarium is opening up soon which will add another 35,000 square foot building. Our tenant, Lost Spirits Distillery, has 30,000 square feet outside that main building. We just opened Arrow Bar Lift Off, a 132 foot tower that lifts people up where they can have a drink at the top with amazing views of the strip. So we’ve created this district that continues to expand, and we believe we can do 5 to 6 million tickets, if not more. We have a lot of capacity”.
As I listened to Winston passionately detail this venture to me during the interview, I reflected on my own experiences during the past 2 years. After spending so much time indoors during the pandemic, I absolutely crave live entertainment. When my wife and I have that rare opportunity for a night out without the kids, the options in front of us are fairly limited. Typically, we end up at one of the same restaurants that we’ve eaten at a million times, or we catch a movie, but sadly that is about the extent of the excitement. Hearing about the existence of an Experiential Art and Entertainment Complex definitely piqued my interest. There is no question in my mind that we would choose to visit a venue like Area15 if the option was local to us.
The retail real estate industry is facing challenges that would have been impossible for most people to comprehend 20 years ago. But it is often during the most challenging times where the greatest opportunities are born from the vision and courage of entrepreneurs. The sky-high rents of retail space in the past made it too risky for most to experiment with radical new concepts. With retail rents way down, and the majority of the population experiencing cabin fever, the timing may be better now than any time to repurpose vacant space for entirely new types of entertainment venues.