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Retail Apocalypse? Not for Billionaire Rick Caruso

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Rick Caruso

The retail situation in the US looks nasty. Failing anchor stores like Sears and Toys R Us are symptoms of what could be the biggest contraction in US brick-and-mortar retail ever. However, one California developer seems to have figured out how to thrive in a retail economy that’s getting worse all the time. Rick Caruso developed The Grove in Los Angles, which is the second most profitable mall in the USA.

The Grove generates $2,200 USD/square foot, which is second only to Miami’s Bal Harbour Shops. To be sure, The Grove isn’t a normal mall. It has 25 concierges on staff for the sole purpose of making dinner reservations for guests, and according to a recent piece in Forbes, if a child drops their ice cream cone, it will be replaced by a security guard.

Rick Caruso Puts on an Incredible Show

It should come as no surprise that catering to the 1%’s shopping whims would be just about the only way to stay ahead in US retail. According to Rick Caruso via Forbes:

“If you provide something that is unique and relevant, in a setting that people find captivating, you will do well,” and further, “Retail has gotten sideways because it became the commodity. It is not about being high tech; it is about understanding what your customer wants.”

Rick Caruso’s attention to detail and choice of demographics helped him land the 179th position on the Forbes 400. The Grove isn’t his only successful venture, and over the last three decades he has built up a number of properties along the same lines.

A big part of what makes his properties unique, aside from the high-end shops and clientele, is his dedication to creating interesting spaces.

Rick Caruso The Grove Concierge

The Grove Caruso Concierge / thegrovela.com

Another one of his projects, the Commons at Calabasas, used a professional set designer from Hollywood in the design process. The Grove features a trolley that was designed by a Disney Imagineer, as well as numerous other aesthetic features that distinguish it from the kind of mall that is being shuttered somewhere in fly-over country.

His Malls are the Exception

Rick Caruso’s blinding success as a retail-focused real-estate developer comes at a time when the overall retail picture in the US is grim. Despite the frenzy of mall closings over the last few years, the US still has more retail space per capita than any other nation. At 23.5 square feet per person, the US has more than double the per capita retail space of Australia, and more than eight times that of China.

The massive overhang of retail space led Cowen and Company to speculate in a report that the US retail apocalypse is just getting started. Not only are consumers turning to online shopping for most of their needs, but the specific demographics who once supported mid-range malls have also fallen on hard times.

The report from Cowen and Company stated that their data:

“Suggests that the sector remains in the early innings of reduction in unproductive physical retail.”

But there could be a silver lining for developers like Rick Caruso.

The same report speculated that:

“Our take is mall performance bifurcation will accelerate as retailers continue to invest in top malls in the top metro areas at the expense of lower performing malls in secondary and tertiary markets.”

Top malls are exactly what Mr. Caruso has a pile of in his billion-dollar real-estate portfolio, which probably puts him in an enviable position going forward.

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Billionaires

Atlassian’s Mike Cannon-Brookes Buys Australia’s Most Expensive Home

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Mike Cannon Brookes

Despite all the worry over Australian home prices, it didn’t take Mike Cannon-Brookes long to spend a pile on the Fairwater estate in Sydney’s Point Piper. The home was recently vacated by Mary Fairfax, who died a little over a year ago. The home has been in the Fairfax family for more than 100 years, and now it looks like Mike Cannon-Brookes will be raising his family in the 11,000+ square-meter property.

The actual sales price for Fairwater hasn’t been disclosed, but it is thought to have sold for more than $100 million USD. That would make it the highest price paid for a home in Australia by a wide margin.

The previous record was set when the house next door to Fairwater sold to the other Atlassian co-founder, Scott Farquhar, last year. Mr. Farquhar paid $71 million USD for the property, called “Elaine,” which had also been the property of the Fairfax family.

Unlike Elaine, Fairwater has sat unoccupied for the last 25 years or so and was seldom used by Lady Fairfax. Despite the remodeling that is sure to begin soon, Mike Cannon-Brookes is happy to have made the purchase. In a statement, he said that:

“We are delighted with the purchase of Fairwater for our young family and look forward to continuing the legacy of this beautiful Sydney home… We love the idea of raising our four young children in this historic property.”

Fairwater

Fairwater, image by Wikipedia

Big Money in Sydney

Atlassian has been a massive success for Mike Cannon-Brookes and Scott Farquhar. The pair met while attending the University of New South Wales. In 2002 they used $10,000 in credit card debt to found Atlassian. The company has grown into a global presence, and in 2017 Atlassian created revenues in excess of $600 million USD.

Their most popular product is Jira, which was introduced in 2002. Jira started life as a bug tracking software that is still used by software developers all over the world. According to Atlassian, more than 75,000 companies in 122 countries use Jira. It has evolved into a project management tool that has expanded beyond software development.

Given the taste in real estate the founders have, Atlassian will have to keep doing well. The property taxes on a $100 million dollar property have to be eye-watering. The two co-founders have made off like bandits in the wake of Atlassian’s IPO in late 2015.

Like many companies in the tech space, equity investors can’t seem to get enough of Atlassian shares. Even after the shares fell sharply earlier this week on a revenue disappointment, they are still up by more than 100% over the last 12 months at the time of writing. They saw their adjusted quarterly earnings rise by more than 50% YOY, which may help to justify their current valuation.

Investors Love Atlassian

Last year Atlassian lost around 50 cents a share, which makes paying nearly 20 billion dollars for their platform a little rough. Despite the increasing competition from other project management platforms, most notably Slack, there are many in the investment world that see Mike Cannon-Brookes’ company as a herald of things to come.

Atlassian stock 6 months

Atlassian stock 6 month period

Tim Garratt is a partner at Bailie Gifford, a Scottish fund that owns hundreds of millions of dollars worth of Atlassian’s equity. He told the Sydney Morning Herald that:

“Mike Cannon-Brookes has a focus on the next coming decades rather than the next quarter or two. He’s prepared to invest for the long term and we are strongly supportive of that approach… We see the long-term potential for Atlassian to service a hundred million users across the world […]So it is still early days for this exciting business and we’re looking forward to seeing how it develops over the next decade and beyond.”

Despite the optimism that Mike Cannon-Brookes has generated from investors who are already riding high on triple digits yearly gains, his company has something of a spotty record when it comes to gender issues.

A few years ago, one of Atlassian’s employees decided to compare a new piece of software to a complaining girlfriend, which did nothing to sure up the image of an industry that is constantly being accused of a latent gender bias. While Mike Cannon-Brookes scolded the employee after the presentation went viral, he actually gave the offending presentation himself at a conference!

The gaffe clearly hasn’t dented investor confidence in the company, and Atlassian remains one of the biggest software development tools out there today. If Mike Cannon-Brookes’ luck holds up, he may be able to hold on to his brand new house on the water in Sydney.

Featured image by TEDx Sydney

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