One of the publications we look to regularly for insight is PYMNTS.com. In yesterday’s news, we learned of two bankruptcies coming out of the shopping center industry. Two large real estate trusts have filed for Chapter 11 bankruptcy. The names of the REIT operators are less important than the trend these bankruptcies reveal. And their implications for local commerce.
For years shopping centers have been a key driver of local retail sales. Twenty years ago we witnessed a trend away from Main Street to large-scale malls and shopping centers. The taxable revenues generated by those malls have funded local services for years. This more than replaced the revenues no longer generated by the “mom and pop” stores that once lined Main Street.
Hastening the Mall’s Demise
So we’re at another crossroads. Make no mistake, shopping malls around the country have been dying for years due to changing shopping patterns, notably the growth of eCommerce. Like it has in so many other ways, the pandemic has accelerated this trend. And the carnage is visible to all of us. This week’s REIT bankruptcies are an early indicator of what will happen across the country in red and blue states, urban and rural communities.
But here’s where the silver linings come into play. As local jurisdictions receive fewer tax dollars, communities will need to find ways to deliver public services. So imagine a local community that can’t afford to pay for streets to be cleaned, for trees to be trimmed, for gardens to be nurtured, or for buildings to be painted. Local governments will have to make some hard choices to either eliminate city staff or neglect the maintenance of community buildings, gardens, and public spaces.
A Public to Private Shift
We will see community after community face these challenges. A recent report reveals some eye-popping salaries flowing to public employees in San Francisco. Not that we don’t love trees, but there are arborists there earning more than $200,000 per year. A perfect storm seems to be building. Local municipalities will struggle to pay for local services because of a declining tax base. In response, they will seek out private companies to perform services that would otherwise be done by public employees.
This will open doors for local private sector businesses to step in and secure contracts with municipalities. For those local operators that adjust their business model to accommodate public sector work, the opportunities may be enormous. But it will take smart business owners with flexible operating models to seize these opportunities and cash in during these turbulent times.
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