Way to find out how much an anchor tenant affects the retail center’s cap rate?
Is there a way to determine how much having, say, a Costco in my retail center affects the center’s cap rate when compared to a Bel Air/Safeway/Kroger? Would finding comparables between Costco-anchored and Major grocer-anchored centers be viable?
[{"id": "ilpl0cd", "text": "Anchor tenants have big negotiating power that translates into 2 different areas: 1) lower base rents and 2)many exclusions from different CAM charges.\n\nBoth of these reduce the NOI therefore affecting the cap rates.\n\nIf you have a specific example I can provide more details /calculations.", "replies": [{"id": "ilq2bnk", "text": "NOI doesn\u2019t impact cap rate at all, it only impacts valuation. Only way NOI impacts cap rate is by representing that an asset had above or below market rents, which can impact cap rate, buts that is just rent PSF impacting the cap.", "replies": [{"id": "ilru2jy", "text": "Let's say you want to purchase a property and the asking price is 1M that generates NOI of 100k/y.  Then you would determine the cap rate for the property of 10%.\nOr if you want to achieve a 5% cap rate for a property that generates 200k/y . The purchase price would be 4M .\n\nNOI, cap rates and valuation are all connected thru math equations that will give you some general idea about a property without analyzing in details .\n\nAnalyzing only the rents (if they are below or above market rents) will provide you with misleading results , resulting in potential losses for one party.\n\nFor most of the NNN leases the recovery rates for the landlords are not 100% which means that the landlord will \"subsidize\" the CAM recoveries for some tenants therefore reducing the overall NOI for the property.\n\nEspecially when you have major anchor tenants the recovery rate is lower than 100%.\n\nIn some other instances the recovery ratios are above 100% . This is also captured in NOI and then cap rate/selling price.", "replies": [{"id": "iltjvm1", "text": "You\u2019re working backwards. OP is asking about how it would impact the cap rate used to value an asset. Regardless of NOI, when valuing it you need to determine market cap rate for that type of asset.\n\nI.e. if Costco is anchor would someone buy it at a 5 cap vs a 5.15 cap for a Safeway anchored centre?", "replies": [], "depth": 4}, {"id": "iltopwl", "text": "You\u2019re missing my point, which was that you\u2019re statement of \u201cboth of these reduce the NOI therefore affecting the cap rate\u201d was misleading because NOI does not impact cap rate unless you\u2019ve already fixed the sales/purchase price variable.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ilpq2ak", "text": "Just ask the 2 largest investment sales brokers working for nationals in your area. They will know", "replies": [{"id": "ilvln5u", "text": "I asked and got a pretty clear response. But unfortunately there\u2019s nothing to support his claim, which is what I\u2019m really after.", "replies": [{"id": "ilxgz4t", "text": "A simple way to do it would be to locate some single tenant comps if possible. A multi tenant center is nothing more than the sum of its parts, so the tenant that trades most aggressively will presumably do you the most good. That said, there is no simple answer to your question because it assumes all tenants offer the same lease structure and rental rate.  In another comment someone said to \u201ccheck the net lease investment pages\u201d. Your broker should have provided you with quality comps, I know my firm has a massive database. If you don\u2019t go through a broker for comps, Crexi will be a good source for on market comps. Just remember, there are plenty of on market deals with unrealistic asking caps now that the market has moved.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iltuzw7", "text": "Look up their respective credit ratings\n\nLet's say BBB rated corporate paper yields 6%, and AA yields 4%\n\nEven though it's not a clean one to one relation, you could say that a AA tenant would have a much lower risk profile, and your cap rate would go down by some non-insignificant margin, say from a 7 cap to a 5 (swapping the bullet proof tenant for a tenant just hovering above junk bond status)\n\nNot a pure science, but comparing tenants to their bond rating is really the only methodological approach to tie them to cap rates", "replies": [{"id": "ilvlgar", "text": "This is great. I\u2019ll give it a shot - thank you!", "replies": [], "depth": 2}], "depth": 1}, {"id": "ilu0re6", "text": "You can check the net lease investment pages to know how the market prices the credit tenants", "replies": [{"id": "ilvlatr", "text": "This has potential. What are \u201cthe net lease investment pages\u201d and where can I find them? Thanks!", "replies": [], "depth": 2}], "depth": 1}]