, ,

All-in-One (Ai1) Walkthrough #3 – Modeling a Hypothetical Retail Development Investment

This walkthrough, our third in the series, takes you through the entire process of modeling a simple development investment. I’ve created hypothetical assumptions for this exercise written out in PDF format (download link below) and then use those assumptions to assess the viability of the investment. I model a hypothetical retail development investment using the All-in-One model.

In an effort to provide greater instruction on how to use our All-in-One Underwriting Tool for Real Estate Development and Acquisition, we’re developing a series of walkthrough videos and posts on the methodology behind the various components of the model. Our hope is that if you are empowered with the how, you’ll be more willing/able to provide feedback to improve the model.

If you haven’t already, you can download the model here. This walkthrough uses beta version 0.3.12 of the All-in-One Model.

Video Walkthrough – Modeling a Simple Retail Development

Assumptions – Simple Retail Development

You can download these assumptions in PDF format here.

Investment Summary

  • Investment name: Saddle Farms
  • Parking: 250 spaces
  • Year built: 2019
  • Analysis Start: Jan 1, 2018
  • Construction length: 18 months
  • Analysis Period: 10 years
  • Building size: 50,000 SF (35,000 SF anchor plus 15,000 SF inline)


  • Market NOI cap rate for comparable retail centers: 5.50%
  • Forecast growth in cap rate: 5 bps per year
  • Exit cap rate: 6.00%

Development Assumptions

Construction Budget

Construction Financing

  • 5% interest rate
  • 70% LTC loan
  • 2% loan origination fee

Operating Assumptions

Rent Roll

  • John’s Market – 35,000 SF (pre-leased); lease start at construction completion; 16 year lease; 12 months free rent upfront;
    • Rent: 12.50 PSF rent for years 1-6; 15.00 PSF for years 7-11; and 17.50 PSF for years 12-16
    • Leasing costs: Tenant improvements of $30 PSF; no leasing commission
    • Expense Reimbursement: 5.00 PSF CAM
    • Future leasing assumptions: N/A
  • Inline space – 15,000 SF (not pre-leased)
    • 5 suites at ~3,000 SF per suite
    • Absorption: 1 suite every 3 months with first suite leasing at construction completion
    • Leasing costs: Tenant improvements of $40 PSF and 6% leasing commission for 1st generation leases
    • Rent: 16.50 as of lease start with 2% annual bumps
    • Lease term: 63 months with 3 months free rent upfront
    • Expense Reimbursement: NNN (100% of pro rata share)
    • Future leasing:
      • Market rent: 16.50 PSF;
      • TIs: New: 20 PSF, Renewal: 7.50 PSF
      • LCs: New: 6%, Renewal: 4%
      • Free rent: none
      • Market rent growth: 3%, 3%, 2%, 2%, 2%
      • Contract rent growth: 2%
      • Expense Reimbursement: NNN (100% of pro rata share)
      • Renewal probability: 60%
      • Lease length: 60 months
      • Downtime: 6 months

Other Income

  • Misc. Income: 15,000 grown at 2% annually

General Vacancy

  • 10%, excluding anchor space

Operating Expenses

  • CAM: 4.00 PSF
  • Mgmt Fee: 3%
  • Insurance: 0.25 PSF
  • RE Tax: 1.25 PSF

Capital Expenditures

  • Capital reserve: 0.15 PSF

Permanent Debt Assumptions

Senior Debt

  • Amount: 65% of stabilized value
  • Loan Fees: 0.5% of loan amount
  • Interest rate: 4.25%
  • Amortization: 30 years
  • Interest-only: None

Junior Debt

  • None

Partnership Assumptions

About the Author: Born and raised in the Northwest United States, Spencer Burton has nearly 20 years of residential and commercial real estate experience. Over his career, he has underwritten $30 billion of commercial real estate at some of the largest institutional real estate firms in the world. He is currently Head of Real Estate Investments and member of the founding team at Stablewood Properties. Spencer holds a BS in International Affairs from Florida State University and a Masters in Real Estate Finance from Cornell University.