96,400 SF grocery-anchored retail center
A 46,000 SF grocer at $14.25 per SF holding the center together, six inline tenants rolling around it, one vacant bay, and a restaurant paying percentage rent above its breakpoint.
Halloway Commons is not a real property. Every property in this library is fabricated. There is no address, no listing, no broker, no lender and no transaction behind any of it. The figures are model outputs for illustration, not a valuation, an offer, or investment, legal, tax, appraisal or brokerage advice.
The assumptions
Everything below is an input. Nothing here was inferred, smoothed, or filled in from a market average.
Property and business plan
- Rentable area
- 96,400 SF
- Tenants
- 7, plus one vacant bay
- Anchor
- Regional grocer, 46,000 SF at $14.25 / SF
- In-place rent
- $17.94 / SF, blended across occupied space
- Lease structure
- NNN, $4.42 / SF recovered
- Hold
- 7 years
- Asking price
- $24,100,000
Debt and exit
- Sizing
- 58% loan-to-value
- Rate
- 6.25% fixed
- Interest-only
- 1 year
- Amortization
- 30 years
- Exit cap
- 6.25% on forward NOI
The anchor is cheap for a reason
The grocer occupies 48% of the center at $14.25 per SF against a $16.50 market, on a flat lease with no escalation that runs two years past this hold. That below-market rent is not a mistake to be fixed. It is the price of the traffic every inline tenant is paying up for, and the model leaves it alone.
Where the value sits is the inline: six occupied suites between $15.75 and $34.00 per SF, most of them rolling inside the hold, all of them re-leasing at market with real downtime and real improvement dollars attached.
Percentage rent, done properly
The restaurant pays 6% of sales above a $1,813,333 natural breakpoint on $1.85M of sales. That is $2,200 in year one. Sales grow 3% a year and the breakpoint does not move, so the overage the tenant actually pays more than doubles in year two, to $5,530. The number that compounds is the gap, not the sales, which is the whole reason a breakpoint is worth getting right.
The failure mode worth naming: percentage rent applied to gross sales rather than to sales above the breakpoint turns $2,200 into $111,000. On a 6.25% exit cap that single error moves the exit value by $1.7M.
Vacancy that is already in the roll
One 4,800 SF bay is dark. The model carries it as a vacant suite that leases up at $27.00 per SF after eight months of downtime, rather than burying it inside a general vacancy percentage. General vacancy on the rest of the center sits on top of that, at 5% in year one and 6% for the remaining six years.
Operating pro forma
Figures in thousands of dollars. Negative amounts are in parentheses, the way an operating statement writes them.
| Line | Yr 1 | Yr 2 | Yr 3 | Yr 4 | Yr 5 | Yr 6 | Yr 7 |
|---|---|---|---|---|---|---|---|
| Gross potential rent | 1,773 | 1,803 | 1,833 | 1,866 | 1,894 | 1,906 | 1,939 |
| Other income and recoveries | 400 | 442 | 458 | 461 | 473 | 490 | 530 |
| Vacancy and credit loss | (270) | (132) | (135) | (205) | (215) | (273) | (150) |
| Effective gross income | 1,903 | 2,114 | 2,156 | 2,121 | 2,152 | 2,124 | 2,319 |
| Operating expenses | (448) | (462) | (476) | (490) | (505) | (520) | (535) |
| Net operating income | 1,455 | 1,652 | 1,680 | 1,632 | 1,648 | 1,604 | 1,783 |
| Capital items | (419) | (58) | (85) | (274) | (318) | (305) | (61) |
| Debt service | (874) | (1,033) | (1,033) | (1,033) | (1,033) | (1,033) | (1,033) |
| Levered cash flow (final year includes the sale) | 163 | 561 | 563 | 324 | 296 | 266 | 16,921 |
| DSCR | 1.67x | 1.60x | 1.63x | 1.58x | 1.60x | 1.55x | 1.73x |
Sources and uses, and the exit
Uses at close
- Purchase price
- $24,100,000
- Acquisition costs
- $457,900
- Financing fees
- $139,780
- Total uses
- $24,697,680
Sources at close
- Senior loan
- $13,978,000
- Equity at close
- $10,719,680
- Total sources
- $24,697,680
Exit
- Forward NOI at exit
- $1,853,003
- Sale price
- $29,648,053
- Selling costs
- ($592,961)
- Loan payoff
- ($12,822,982)
- Net sale proceeds
- $16,232,110
Downside and upside
The same three cases the product runs on every deal. The downside is not a haircut on the answer, it is a full re-underwrite with the assumptions moved.
| Case | Levered IRR | Equity multiple | Year-1 DSCR | What moved |
|---|---|---|---|---|
| Downside | 1.9% | 1.13x | 1.38x | Rent growth at 40% of base, expenses growing 20% faster, exit cap 75 bps wider, vacancy 3 points higher, rate 100 bps higher. |
| Base | 9.3% | 1.78x | 1.67x | The assumptions listed on this page, unchanged. |
| Upside | 12.9% | 2.21x | 1.76x | Rent growth at 140% of base, expenses growing 10% slower, exit cap 50 bps tighter, vacancy 1 point lower, rate 25 bps lower. |
Levered IRR against price and exit cap
Rows are the exit cap rate, columns the purchase price. The centre cell is the base case on this page, so the grid checks itself.
| Exit cap | $21,690,000 | $22,895,000 | $24,100,000 | $25,305,000 | $26,510,000 |
|---|---|---|---|---|---|
| 5.75% | 14.9% | 13.1% | 11.3% | 9.6% | 8.0% |
| 6.00% | 13.9% | 12.1% | 10.3% | 8.5% | 6.9% |
| 6.25% | 13.0% | 11.1% | 9.3% | 7.5% | 5.8% |
| 6.50% | 12.1% | 10.2% | 8.3% | 6.5% | 4.7% |
| 6.75% | 11.2% | 9.2% | 7.3% | 5.5% | 3.7% |
Against these hurdles
A recommendation is only worth anything next to the targets it was measured against. These are this example's own hurdles. In the product they are yours, and you edit them.
The hurdles used here
- Target levered IRR
- 10.00%
- Minimum year-1 DSCR
- 1.35x
- Minimum equity multiple
- 1.60x
Altyst does not supply a target return. It tests the model against the numbers you set.
IC Review
- Coverage clears at 1.67x against a 1.35x minimum.
- Equity multiple clears at 1.78x against 1.60x.
- Levered IRR of 9.27% misses the 10.00% target by 73 basis points.
- A price of $23.62M, 2.00% below the asking price, clears all three.
What clears, and at what price
Each price below is solved by re-underwriting the whole model at that price until the constraint is met. The binding price is the lowest of the three, because a deal has to satisfy every hurdle, not the easiest one.
- Asking price
- $24,100,000
- Price for the target levered IRR
- $23,616,941
- Price for the minimum DSCR
- $29,733,728
- Price for the minimum equity multiple
- $25,364,353
- Value at the target going-in cap (6.25%)
- $23,282,027
- Binding price, the lowest of the three hurdle prices
- $23,616,941
- How the six pages in this library were classified, against the hurdles printed above and nothing else.
- Advance: all three hurdles clear at the asking price.
- IC Review: coverage and equity multiple clear, and the levered IRR misses by less than 100 basis points.
- Reprice: a hurdle fails at the asking price, and a lower price is published at which all three clear.
- Reject: no price in the search band clears every hurdle.
- In the product the same six words come from a wider test that also weighs average cash-on-cash, the downside case and a composite score. Three hurdles clearing is necessary for Advance, not sufficient, and Reject there is a downside test rather than a price search.
Checking this yourself
Every figure came from the same deterministic engine the product runs, in exact decimal arithmetic. The same inputs produce the same result every time, which is what makes a page like this worth publishing at all.
The inputs are on this page in full. Rebuild it in a spreadsheet and the lines should agree. Where a number surprises you, the line above it is usually the reason, and the calculation methodology states the convention used for every one.
Permanent link: https://altyst.ai/models/grocery-anchored-retail-center
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