Retail real estate requires deep insider relationships
The guest argued that successful retail and shopping center development is a highly specialized niche dependent on direct relationships with national tenants.
The argument
McNellis explained that established developers can quickly validate a site's viability by calling national tenants directly, whereas outsiders face long delays. He also noted critical traffic flow rules, such as placing grocery stores on the going-home side of the street and coffee shops on the going-to-work side.
The thesis, stress-tested
✓ What validates it
- ✓Securing a pre-lease agreement with a national anchor tenant during escrow
- ✓Traffic count data confirming optimal side-of-the-street positioning
▸ Risks discussed
- ▸Loss of an anchor tenant can trigger lease concessions or vacancies for inline shops
- ▸Newer, larger retail developments nearby can render older centers obsolete
Hear it yourself
"I think the IRR is absolute utter crap. Yeah. You know, for for for those of you who aren't experienced with with the IRR, instead of buying it a building today with a 6% return, if someone will say, oh, the IRR is 12, you know, which sounds much better than 12% than six. But the way they do that is they say, ten years from now, we're gonna sell this building at a four cap or we're gonna fill up for $10,000,000. And that is exactly like predicting how much it's gonna rain ten years. Yeah. Yeah. You know, the the numbers won't lie, but the assumptions are are absolute bunk."
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