Grocery anchored
Underwriting a Grocery Anchored Center
The supermarket buys the traffic and the shops pay for it. Once you see the format that way, the anchor’s below-market rent stops looking like a problem.
Open this deal in the model. It loads with the rent roll, the allowances, the capital plan and the loan already filled in. Change any number and the whole model re-runs as you type.
Open the grocery anchored template →A grocery anchor typically pays $8 to $14 a square foot on a net lease while the shops around it pay $25 to $45. That gap is not a mistake in the rent roll. It is the trade: the anchor takes 50 to 70% of the gross leasable area at a rent that would look absurd standing alone, and in exchange it delivers the footfall that lets the shops pay a premium over what an unanchored strip achieves.
Run the arithmetic and it usually lands near a blended $19 a foot across the center, with the anchor at roughly a third of the base rent on two thirds of the area. The shops are 30 to 40% of the space and 60% or more of the income.
Percentage rent and the natural breakpoint
Anchor leases commonly carry percentage rent at 0.5% to 1.5% of sales above a breakpoint. Where the breakpoint is natural, it is base rent divided by the percentage rate, so a $10.50 rent at 1% breaks at $1,050 a foot of sales, and nothing is owed until the store clears it. A supermarket doing $1,200 a foot pays on the $150 difference. That is real income and it belongs in the model, but it is not contractual and a lender will not size debt against it.
Where the risk actually sits
Not with the anchor. A twenty-year lease with four five-year options at a rent that far below market gets exercised, every time. The risk is the in-line shops rolling on five-year terms, the co-tenancy clauses that let them cut rent if the anchor ever does go dark, and the reassessment that lands the year after you buy.
Cap rates by anchor
The covenant sets the price. Grocery World and Trader Joe’s anchored centers have been trading around 5.5% to 5.8%, Grocery World nearer 6.2%, the national average around 6.7%, discount grocery around 7.1%, and unanchored open-air around 7.8%. Underwrite the exit against the anchor you actually have, not the sector average.
What the template loads with
| Center | 71,587 SF, eleven tenants |
| Purchase price | $20,200,000 · $282/SF |
| Anchor | Grocery World 48,387 SF at $10.50 NNN, 20-year term |
| Anchor share | 68% of GLA, 38% of base rent |
| Percentage rent | 1% over a natural breakpoint, sales at $1,200/SF |
| Pads | Bank branch at $48.00, coffee drive-through at $55.00 |
| In-line shops | Eight leases, $24 to $36 NNN |
| Blended rent | $18.45/SF |
| Debt | Sized on all three lender tests, 6.40% fixed, 30-year amortization |
| Entry cap | 6.42% · exit 6.25% |
| Levered IRR | 8.1% over a 7-year hold |
Nothing is stored anywhere. One subscription covers unlimited use; your account keeps your deals. Press Save link and the whole set of assumptions travels in the address bar, so you can paste it into your deal notes or send it to a partner.
Open the grocery anchored template →Related notes and models
- Anchor Space Is Taking 25 Months to Backfill , model it that way
- Co-Tenancy Clauses , how one vacancy becomes three
- The Blended Cap Rate Is Not the Average , valuing two income streams
- Strip center template , unanchored, credit pads