Herschend Family Entertainment's Major Acquisition
073 - Industry Insight IB (CRE)
CRE Market Adapts to Disruption with Strategic Expansion and Sectoral Shifts
The commercial real estate market continues to see significant shifts as firms adapt to evolving industry dynamics. The rise of data centers as a premier asset class is exemplified by Related Cos.' entry into the sector, backed by billions in capital to meet surging demand from AI and cloud computing. Meanwhile, the theme park industry is undergoing consolidation, with Herschend Family Entertainment making a major acquisition to challenge larger competitors. At the same time, the retail sector is experiencing a shake-up, with Forever 21's bankruptcy freeing up mall real estate for landlords to reposition their assets and raise rents.
Despite high borrowing costs and ongoing economic uncertainty, strategic investors are capitalizing on emerging trends. The data center boom is attracting institutional capital, underscoring the resilience of digital infrastructure in an increasingly AI-driven economy. Experiential retail is also proving its strength, as landlords turn department store vacancies into entertainment and food-based destinations. However, concerns persist around potential overcapacity in the data center market and the continued struggle of lower-tier malls to backfill anchor vacancies. As the market evolves, well-capitalized players are positioning themselves to take advantage of shifting demand and sector-specific tailwinds.
Herschend Family Entertainment's Major Acquisition
Herschend Family Entertainment has made a bold move to compete with industry giants like Six Flags by acquiring Palace Entertainment’s U.S. properties from Parques Reunidos. While the financial terms remain undisclosed, the deal triples Herschend’s portfolio to 21 parks, marking its first entry into the lucrative Southern California market with key assets such as Raging Waters Los Angeles, Castle Park, and Boomers parks. The combined company is expected to attract 20 million annual visitors, positioning Herschend as a formidable mid-tier player—closer to Six Flags/Cedar Fair (48.9M visitors) and United Parks & Resorts (21.6M). Analysts suggest this could spark further industry consolidation, with Herschend potentially acquiring parks divested by Six Flags post-merger. The company aims to blend its Dollywood-style customer focus with Palace’s regional reach, creating a "boutique meets scale" model distinct from corporate giants like Disney and Universal.
Key Takeaways:
Geographic Diversification: Herschend reduces its reliance on existing markets by entering Southern California, a high-demand region.
Asset Portfolio Expansion: The deal adds water parks, family entertainment centers, and regional theme parks, diversifying Herschend’s offerings.
Potential for Cross-Promotion: Herschend can leverage its strong brand identity (e.g., Dollywood) to boost visibility for newly acquired parks.
Increased Bargaining Power: With a larger footprint, Herschend gains stronger leverage with suppliers, vendors, and partners.
Industry Consolidation Catalyst: The move may pressure competitors and trigger further M&A activity, especially as Six Flags integrates Cedar Fair.
Related Cos. Expands into the Data Center Market
New York real estate titan Related Cos. is diving headfirst into the rapidly growing data center market, launching Related Digital—a vertically integrated platform that immediately becomes one of the industry's largest new contenders. Backed by $500 million in initial capital and armed with a $45 billion development pipeline, the venture aims to capitalize on exploding demand from AI firms and cloud providers. The company plans to raise $8 billion to fund projects, including a groundbreaking quantum computing facility in Chicago, positioning itself as a serious challenger to established players like Prologis and Digital Realty in the race to build critical digital infrastructure.
Key Takeaways:
Instant Industry Heavyweight: With its $45 billion development pipeline, Related Digital immediately positions itself among the top data center developers, competing directly with established players like Digital Realty and Equinix.
Star Leadership Team: The venture combines Related's real estate expertise with top tech talent, including former CyrusOne executive Brent Behrman as CIO and Vista Equity veteran Greg Myers as CFO.
Aggressive Expansion Plans: Construction begins this summer on a 64MW facility in Ontario, with plans to develop over 5GW of capacity across key markets, including Illinois, Missouri, and Wyoming.
Quantum Computing Breakthrough: The Chicago facility will house what could become the world's largest quantum computer through a partnership with PsiQuantum, marking a major technological milestone.
Capitalizing on Industry Shift: Related follows Prologis' $8 billion data center push and even the Trump Organization's recent entry, as traditional real estate firms rush to meet hyperscaler demand.
Bubble Concerns Loom: While demand appears insatiable, some industry leaders, like Alibaba's Joe Tsai, warn that investment may be outpacing actual usage, creating potential overcapacity risks.
Retail Market Shifts Following Forever 21's Bankruptcy
The bankruptcy and closure of all 350 Forever 21 U.S. stores is triggering one of the largest mall real estate shake-ups in years—but surprisingly, many landlords are not panicking. Instead, they view the fast-fashion retailer's failure as an opportunity to upgrade tenants, boost rents, and revitalize their properties. With mall vacancies at historic lows and virtually no new supply entering the market, property owners now have the leverage to replace struggling retailers with higher-performing brands, such as TJ Maxx, Dave & Buster's, or trendy restaurants.
Key Takeaways:
A Welcome Reset for Malls: Forever 21's exit removes a weak tenant from hundreds of locations, giving landlords a rare opportunity to reposition spaces at higher rents with more profitable retailers.
Strongest Malls Are Thriving: High-end shopping centers are seeing record occupancy and rising rents, with tenant sales growth outpacing inflation—URW's Westfield malls, for example, are retaining their best U.S. assets after a planned sell-off.
No New Supply = Landlord Advantage: With no new enclosed malls being built, surviving properties face little competition, allowing owners to be selective with tenants and command premium leasing terms.
Not All Malls Will Benefit: While top-tier centers flourish, lower-quality malls still face closures, and massive department store vacancies remain difficult to backfill.
A Sign of Retail's Evolution: Forever 21's collapse reflects shifting consumer habits—but rather than signaling doom for malls, it is accelerating the transition toward experiential and value-driven tenants.
Market Takeaways
Data Center Surge: The growing demand for AI and cloud computing infrastructure is driving massive investment, with Related Digital’s $45B pipeline highlighting the sector’s momentum.
Theme Park Consolidation: Herschend’s acquisition of Palace Entertainment's parks signals increasing M&A activity in the entertainment real estate space.
Retail Realignment: The closure of Forever 21 stores is allowing mall landlords to replace struggling tenants with higher-rent, experience-driven brands.
Limited Retail Supply Benefits Owners: With no new malls being built, landlords have leverage to attract premium tenants and negotiate stronger lease terms.
Sector-Specific Growth Strategies: Investors are focusing on high-growth areas like digital infrastructure while navigating challenges in office and traditional retail.
Potential Overcapacity Risks: Some analysts warn that the rapid expansion of data centers may outpace actual demand, creating concerns over long-term viability.
