How Repvblik turns distressed retail spaces into affordable housing

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Repbvblik CEO Richard Rubin about the company’s focus to reuse forms of real estate and turn it into affordable housing.

Video Transcript

BRIAN SOZZI: Switching gears just a little bit and stay on the retail space, though, mall owner CBL is the latest name to fall into financial distress. It missed its interest payment of $11.8 million to bondholders, making it the first landlord to take steps toward a bond default during the coronavirus pandemic. But these distressed real estate assets create an opportunity for workforce housing creation company Repvblik. Repvblik CEO Richard Rumin-- Rubin joins us now.

Richard, good to see you this morning here. So the retail apocalyp-- apocalypse, as we like to call it, continues to spread around the country. What has that meant for your business?

RICHARD RUBIN: Well, yeah, thank you very much for having me this morning. And yeah, I also read that, you know, that news bit that you mentioned early on. I mean, we don't like to take pride in anyone else's misfortune, but I mean, you know, I think the writing was on the wall for retail, you know, long before COVID-- COVID set in. You know, we're not saying that our business is a panacea for every single retail outlet that's underwater at the moment. But I think we provide for at least one alternative for redevelopment of-- I mean, not only malls, but I mean, a lot of other distressed real estate that's coming to the fore at the moment.

ALEXIS CHRISTOFOROUS: Richard, what has your inventory been like? I mean, your ability to be able to turn these distressed real estate properties and give them new life, you know, as affordable housing or as maybe hotels. I mean, you've got JC Penney now going to have to have a much smaller footprint now that it's in bankruptcy and struggling to get out and become a stronger company. A lot of retailers are going to have to have a smaller brick and mortar footprint. So have you seen demand for what you do rise because of that?

RICHARD RUBIN: Well, yeah, it's a good question. I think, you know, the full level of distress will probably only be seen within the next, I don't know, three to six months, you know, that things will start peeping over the horizon a little bit. We-- we've seen a lot of distressed hospitality assets come to the fore before-- I mean, retail's been-- you know, there's been a lot of big-box retail that's been offered to us for quite some time.

I think that the level of distress is just going to be greater and greater as the likes of Amazon strengthens and people-- unlike, you know, Target and Walmart, who have very strong bricks and mortars, as well as online presence that have managed to adapt to this new world. Seemingly, they haven't suffered at all, but there are a lot of traditional retailers that you mentioned, like JC Penney. When you're talking about 246 stores, somewhere in that region, closing down, I mean, that's no small footprint around the country.

And we know that one of the biggest demands that there is in the US at the moment is within this missing middle, those folks that require accommodation-- and I think it's going to become even greater with the downturn-- those folks that are not covered by low-income housing, tax credit affordable housing development, but can't necessarily-- so they're not poor enough to be able to merit subsidized housing, and they're not rich enough to be able to afford their first home or, in some cases, their first apartment.

ALEXIS CHRISTOFOROUS: Yeah, I think that's a great point. They're sort of the forgotten members of our society, right? They're-- they're not poor enough to get the help, the support that they need, but they're not rich enough to go it alone. So are a lot of the properties that you are sort of reworking, if you will, does it fall into the space you're talking about, which is offering housing to that group of people?

RICHARD RUBIN: Yeah, absolutely. But I mean, you know, we've-- we've really-- we started out five years ago with this particular mission. And there's obviously a confluence between philanthropy as well as capitalism, which I think is always a good cornerstone to be able to grow a business. But the capital, ironically, has flow-- you know, has flowed-- has flowed to a more traditional type of business cases. And those are the business cases that are actually in distress at present.

And that's just kind of the herd mentality that exists with either institutional investors investing in supposedly a more risk averse environment. And it's obviously not the sexiest business case, our business case, because we're not doing-- I mean, we think we're doing a fantastic lifestyle development for the 60% to 120% area median income, but we're not doing, you know, 100-story high rises with the, you know, with rim-- rim flow pools on the top. So, you know, people generally seem to negate this as an-- as an opportunity for investment. But ironically, it's probably the biggest housing demographic and the most under-catered to within the entire country.

BRIAN SOZZI: Richard, how long would it take to-- to retrofit a JC Penney? I'm trying to think if my childhood JC Penney, which may very well close, it's unclear at this point, is it over a year that could be a housing complex?

RICHARD RUBIN: Well, I mean, you know, it's not a-- it's not a one-size-fits-all. There are certain-- there are certain big boxes that make the most sense. Obviously, one's got tricky subterranean space for certain of the big-box mores. But invariably-- I mean, big-box stores.

But if you think about it, I mean, what is the definition of a big-box store? It's just a big rectangular or square service foot plate, so there's really nothing fancy about it. If you remove the walls and the roof, and you're inheriting or purchasing that particular space at-- at a significant discount, you know, we believe that a lot of alternate building technology will also assistant in prefabricating a lot of these modules offsite and effectively dropping them in.

So if there's still pre-existing retail that's operating around it, you're not affecting that particular business unit, which has probably suffered immensely in the last 12 weeks, and even before that. There may be very, very good burgeoning retail that wants to still operate. And that's what makes sense with these things is that they lend themselves very well to being mixed-use precincts. They're already in pre-existing neighborhoods. People are acclimated to recreating, going to the movies, eating, shopping in those areas. So why not turn them into mixed-use precincts instead of just sitting vacant for the next, I don't know, three to five years or longer?

BRIAN SOZZI: All right, well said. We'll leave it there though. Repvblik CEO Richard Rubin, good to see you this morning.

RICHARD RUBIN: Thank you for having me.