Seritage CEO Andrea Olshan on Going Beyond Sears Spinoff’s Retail Roots

“I always wanted to work somewhere else before, but my father is much, much older and there was a unique opportunity,” Olshan said of when she first joined then-MPI. “When I graduated from business school, the timing just worked out such that he was super busy and he said, ‘If you want to learn a lot, I’m building 5 million square feet of stuff, and doing all these things like starting all these funds.’ And, he’s like, ‘Now is the time.’ Timing is everything.”

The motivation to take on a new challenge was also influenced by the confidence she said she has in Olshan Properties’ President Zachary Bornstein and Executive Managing Director Michael Odell. Olshan will remain involved with Olshan Properties as chairman.

Olshan’s arrival at Seritage came nearly six years after Sears, Roebuck and Co. formed the company when the retail giant decided to spin off its real estate portfolio of around 235 properties. One of her first big moves was appointing Mary Rottler as chief operating officer. Rottler had been executive vice president of leasing and operations since Seritage’s inception in 2015.

The appointment made history, too: Rottler, with Olshan and Chief Financial Officer Amanda Lombard, makes Seritage the only publicly traded REIT with females in the top three executive roles.

Olshan spoke to Commercial Observer in late June about plans to create additional value in Seritage’s 154 wholly owned properties through additional leasing to retail tenants and repurposing assets for other uses like multifamily, along with the importance of female leadership and real estate.

This interview has been edited for clarity.

Commercial Observer: What attracted you to this opportunity after a long stretch at Olshan Properties?

Andrea Olshan: It was both a push and a pull. We have an amazing team and I’m so proud of the team. Michael [Odell] and Zach [Bornstein] have been with me there for over 10 years. I put my stamp on it for a really long time and also saw the value of a new perspective. I think it really was a tremendous opportunity for them.

To transition to Seritage, I had been having these feelings for a little while and the pandemic crystallized things for me, because the team really had it, they were on it. It was a lot, but it was never a crisis. They were so in control. COVID battle-tested so many things, but it also battle-tested teams and they emerged victorious.

And then, I get a phone call from a friend who’s a recruiter to pick my brain on the search, and I said to another friend of mine who runs a big real estate fund, “I think it’d be so much fun.” It’s so complicated, which I love. I’m someone who loves jigsaw puzzles. I love to organize my closet. Making order from chaos is my happy place. It was really exciting to have the opportunity to really leverage my skills, because very few businesses in real estate are diverse when it comes to property types and Seritage is.

What’s interesting about these department store repositionings is that it’s a portfolio with a common past, but a totally divergent future and it’s really, really exciting. Sears left a few years ago, so there are a bunch of cash-flowing properties; it’s a matter of redefining them.

But then, there were certain assets where it’s gonna be residential, so it’s [joint venture] partnerships, it’s leveraging the value of the land, which I think is a tremendous opportunity, in terms of, you get a markup in land value and that’s your imputed equity going into a deal. So, there are deals from a residential perspective, where we’re looking at contributing our land, owning a big piece of the deal, and actually getting money back.

Understanding the company was really interesting, because I knew from the sniff test enough about the company that this was a cool opportunity. But then, when I started doing my research going through the interview process, it had to stay almost a sniff because I understood the financials, but I didn’t really understand the dynamics of the portfolio, and I think part of that is the [investor relations] challenge that we have ahead of us.

You referenced the roots with Sears. Six years after the spinoff, roughly how much of Seritage’s income is derived from the department store chain?

Zero. Sears only vacated a few years ago. This was 100 percent leased, triple net. It was pretty much on a gross basis, like over $200 million of income, then fast-forward and Sears starts to get into trouble, they go into bankruptcy, they reject certain leases, they downsize in a lot of spaces.

What we have is our multi-tenant retail bucket, where it was a Sears downsize, so it’s partially leased. We went from this sort of master lease with Sears, and then we went to a downsized Sears, which we leased around and we were almost 100 percent leased with Sears as the major tenant. Then, Sears goes bankrupt and now we’re vacant, so it’s actually more like two chapters of planning and repositioning.

We’ve had to do more analysis on the properties where Sears downsized. It’s not a blank slate, so the business plans took a little more refining from a retail perspective, and now I understand the logic.

You’re in the process now of finalizing plans to try and optimize the value of the individual property assets, partly through additional leasing to retail tenants. How do you navigate this strategy amid the headwinds facing the retail sector, and what kind of individual tenants are you trying to target?

I think we really focused on what wants to be retail. Now, obviously, if you’re 70 percent leased to retail, you want to continue to be retail, right? You can’t just take part of a box where Sears was and make that residential. That doesn’t really work.

When Sears downsized, it was only in the stores where they did very, very well, so it goes to show that those are good retail locations. They weren’t the most compelling retail proposition out there, in terms of brick-and-mortar retail, and, yet, their sales were high enough to justify staying in operation. So, those tend to be good retail environments.

I think there are four trends of winners in retail. One are grocers, obviously, and two are the value players. And, three, it’s really the triple-net, out-parcel restaurants with drive-throughs and curbside pickup — those have always been on the uptick. And, then, I think, the fourth is really just the sort of clicks-to-bricks guys, but those are really smaller footprints that are in the higher-end markets.

But, otherwise, I think what COVID really did for the value players — for the grocers — was, because they couldn’t all of a sudden open a last-mile distribution center … because nobody wanted to go into a store or they were restricted from going to a store, they, actually, finally made their stores their last-mile distribution.

And, it created, I think, a very long-term perspective, like — more permanently — a view of the store as fulfillment, which makes the store a necessary part of the future of the company. And, it gives relevance and a permanence and durability to the store. And, I think that is something that’s really exciting. Every dark cloud has some silver lining and you learn a lesson from everything. And COVID was an accelerator for many, many, many things. I think this was a massive acceleration that has made retailers better.

How else are you trying to boost valuations in your portfolio?

We have a retail portfolio, but then we have a lot of non-retail. So, the multifamily opportunities are unbelievable. It’s interesting, because, historically, a lot of the [reciprocal easement agreements] had restricted uses other than retail. When they were written — you know, 30, 40, 50 years ago, 60 years ago — they never contemplated that there would ever be a higher and better use than retail for being an enclosed mall, and so many of them are restricted to just retail.

Historically, the mall owners were high on the hog, they were very difficult and one of the plays was, ‘Don’t agree to any change in the [REAs], right?’ Say, ‘We’re keeping to all these restrictive covenants.’ You’re going to basically ice somebody out and then you, as the landlord, can buy the box cheaply. But, now, things have changed because the mall owners don’t want more [gross leasable area].

Having other uses, or uses that eat up some of the GLA that you’re not competing with for a limited number of small shop tenants, that’s what you want to do. We’re finding people were like, “Hey, can we do a resi?” or “Can we do storage?” or “Can we do logistics?” or whatever it is, depending on the market. And, they’re like, “Yeah, we don’t want more retail, and especially with curbside pickup”, [which gave out-parcels a relative advantage.]

One of your first big moves came on April 1, when you promoted Mary Rottler to COO, after she spent nearly six years as executive vice president of leasing and operations. Take us through that decision and what went into the process?

Mary has tremendous experience, and we’re doing a lot of things at the same time, and I think that her skill set is really beyond leasing. Her skill set, really, is operations … The Walmart training that she had for so many years, in terms of organization [and] being able to operate on so many different fronts. Now that we have the plan, it’s execution, execution, execution. And, I think that having someone with that level of training, and those relationships and experience with the portfolio — and, also, she knows these markets cold and I don’t — so I really rely on her.

I think it’s a really good balance with Mary in the sense that she understands the markets and has the history, and I have the fresh perspective — but we both have a primacy on execution, organization, accountability. Those are cultural norms that we come from.

I think Seritage was trying to do so many things simultaneously for so long and it’s really hard to do that. A lot of what we need to execute on is the leasing and that side of it, tenant execution, and she’s all over it.

Mary’s promotion makes Seritage the only publicly traded REIT with a female CEO, CFO and COO. Speak about the significance of this achievement in terms of women advancing in commercial leadership positions.

Thanks for noticing. I feel like a lot of people didn’t really put that together. At Olshan, we went from having no female executives to half of our executive team [being] women — and, of our three outside advisers on our board, two out of the three are women. So, I think diversity has a value for its own sake. If you’re getting different views and people are coming from different places, and having different perspectives and different approaches, that is valuable to any organization. Period, full stop.

The real estate market for talent tends to be pale, male and stale. You see a lot more diversity in the brokerage community. But when you look at other REITs, you look at real estate operating companies, there are a lot of family businesses. So, that tends to be, obviously, less diverse if there’s a lot of family members. And it’s also expensive, it’s capital intensive, so it’s hard to start out.

If the candidate pool today is not diverse, then it forces me to look at, How do I recruit people at the entry level? And then, How do I nurture that? And it’s not just about getting someone in the door. It’s about, How do you get them comfortable?

Before we wrap up, tell us about near-term and long-term goals for Seritage?

Realizing the value of this portfolio is the short-, medium-, and long-term [goal]. There is so much here, and I think the focus right now is just the activation and the execution, because I am asking a very lean and mean team to do a lot. It’s 180, plus/minus properties. They all are going to be different. They’re all in different markets and they all have different challenges.

Internally, what we’ve done is we’ve created teams, and made sure that every team has a clear mandate and a bite-sized chunk of the portfolio to activate, and it’s been really successful. I give Mary and Eric [Dinenberg, executive vice president of development] tremendous credit for really working together and getting those teams to execute, and I think we’re already seeing results.