I love shopping centers. Strange as that may sound, multi-tenant retail can be attractive as an
investment. Right now is a sweet spot for that asset type.
CoStar just published an analysis showing retail space in Hampton Roads is tighter than it’s
been in ten years. It shows availability at 5.7%. By comparison, the 5-year average is 6.8%.
A big factor in the tight inventory is the lack of new construction. Between the spike in
building costs and the rise in interest rates post-Covid, developers have been struggling to
make numbers work.
An advantage of shopping centers versus single-tenant properties is that the risk is spread
over multiple tenants. A lot of folks have thought that being the Landlord of a pharmacy or a
dollar store is safe, long-term money. That was until Rite Aid filed bankruptcy, Walgreens
announced closings and Dollar Tree shuttered hundreds of Family Dollars.
While your multi-tenant center spreads risk, if it is in the shadow of an anchor (such as a
grocery or Wal-Mart), you are dependent on that anchor. You’ll want to get a comfort level
that the anchor is doing well and there to stay.
Here’s another positive: If a center is well-managed, the leases will be triple-net (NNN). This
means Common Area Maintenance (CAM), Real Estate Taxes, and Insurance are passed
through to the tenants.
If you’re looking for a potential retail investment, consider these questions:
● Are your leases NNN, or can they be converted as tenants turn over?
● Is the center well-positioned with good access?
● Are the rents at or below market? (If you couldn’t backfill a space at the current
tenant’s rent, it’s a red flag)
● Is the property in good shape or do you need to factor in deferred maintenance?
● Do the leases have strong guaranties?
If those boxes get checked, I can help you put together a pro forma and analyze the value to ensure you’re making a well-informed investment decision.
John J. Wessling, Sr. , Senior Vice President, Partner – jwessling@slnusbaum.com, 757.640.2412
