Reforecasting a shopping-center acquisition after the anchor goes dark
This article works through a 168,000-square-foot shopping-center acquisition after the anchor closes its store but continues paying rent. It shows how operating co-tenancy, substitute rent, reported sales and delayed termination rights change cash NOI, debt sizing and the capital carried for the inline space.
A rent-paying anchor can be current under its lease and absent for every co-tenancy test that matters to the inline tenants. The anchor's $728,000 of annual base rent remains on the rent roll. Its store is dark. Four inline tenants can immediately replace minimum rent with a sales-based substitute, and three more can terminate if the failed operating condition continues for 12 months.
The acquisition case therefore cannot resolve the closure by deleting the anchor rent or leaving the rent roll unchanged. It must retain the anchor's continuing obligations, apply each inline remedy on its own trigger date, recalculate percentage rent from current sales and carry the termination space only when the contractual clock permits it.
The following case is illustrative rather than client data. The purchase price is $38 million. The senior loan is the lower of 60% LTV and a 15.0% minimum day-one debt yield, with interest-only debt service at 6.75%. The anchor closes April 30, gives notice under a lease that permits it to cease operating while continuing base rent and additional rent, and the acquisition closes June 30.
The acquisition case before the closure notice
The initial model carries 92.0% leased and occupied, $3.840 million of contractual base rent, $180,000 of percentage rent and $1.240 million of recoveries. Operating expenses are $1.720 million, producing $3.540 million of Year 1 cash NOI.
The anchor occupies 52,000 square feet at $14.00 per square foot. Its closure does not terminate the lease, reduce its base rent or release it from expense recoveries. On those lines, the initial model remains correct. The change appears in the 24 inline leases, which do not use one common definition of occupancy.
Four leases test whether the named anchor is open and operating. Three test the same condition but allow 12 months to cure before termination. The remaining 17 do not contain an anchor operating co-tenancy. Two tenants, included across those groups, also pay percentage rent based on reported gross sales.
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| Underwriting line | Initial case | Dark-anchor case | Movement |
|---|---|---|---|
| Leased occupancy | 92.0% | 92.0% | — |
| Occupied and operating | 92.0% | 61.0% | −3,100 bps |
| Contracted anchor rent | $0.728M | $0.728M | — |
| Year 1 cash NOI | $3.540M | $3.236M | −$0.304M |
| Modeled leasing exposure | — | $1.866M | +$1.866M |
| Day-one loan proceeds | $22.800M | $21.573M | −$1.227M |
Applying the co-tenancy clauses lease by lease
The four immediate remedies are not four rent abatements. Each lease substitutes the greater of 6% of gross sales or 50% of minimum rent while the anchor operating condition remains unsatisfied. Their combined contractual minimum rent is $640,000. Using the applicable tenant sales reports, 6% of sales produces $420,000 and exceeds the 50% floor for three of the four tenants. Inline minimum rent therefore falls by $220,000.
The three delayed remedies remain at contract rent during Year 1. If the center has not restored the operating condition by April 30 of the following year, the tenants can exercise termination rights from month 13. The base case does not remove their $780,000 of Year 1 rent. It does carry the 26,000 square feet into a separate re-leasing case at the first date the rights can be exercised.
The 17 remaining leases stay at executed minimum rent. That does not imply that their sales are unaffected; it means the closure does not provide a contractual rent remedy. The two percentage-rent tenants are recalculated from the current sales reports rather than subjected to a second co-tenancy haircut.
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| Lease group | Tenants | Area | Triggered right | Underwriting treatment |
|---|---|---|---|---|
| Immediate substitute rent | 4 | 18,000 sf | Greater of 6% of sales or 50% of minimum rent | $420,000 substituted for $640,000 |
| Delayed termination | 3 | 26,000 sf | Termination after 12 months of failed co-tenancy | Contract rent in Year 1; re-leasing case from month 13 |
| No anchor co-tenancy | 17 | 58,560 sf | No rent reduction or termination right | Executed rent remains in place |
Rebuilding cash NOI without deleting the anchor rent
The anchor continues to contribute $728,000 of base rent and its full contractual recovery share. The immediate co-tenancy formulas reduce inline minimum rent by $220,000. The latest tenant sales reports reduce percentage rent from $180,000 to $96,000. The co-tenancy clauses in this case modify minimum rent but leave additional rent intact, so the $1.240 million recovery line does not receive a blended vacancy haircut.
Effective gross income falls by $304,000, from $5.260 million to $4.956 million. Property operating expenses remain $1.720 million: the anchor continues paying its recovery share, but its closure does not remove common-area lighting, landscaping, security, taxes or insurance from the property cash flow.
Year 1 cash NOI is therefore $3.236 million. That figure preserves a result that a leased-occupancy adjustment cannot: the anchor rent remains collectible, the four immediate formulas are active, the termination rents remain through month 12 and the sales-based income uses the periods required by the leases.
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| Cash-flow line | Initial case | Dark-anchor case | Movement |
|---|---|---|---|
| Anchor base rent | $0.728M | $0.728M | — |
| Inline minimum rent | $3.112M | $2.892M | −$0.220M |
| Percentage rent | $0.180M | $0.096M | −$0.084M |
| Expense recoveries | $1.240M | $1.240M | — |
| Effective gross income | $5.260M | $4.956M | −$0.304M |
| Operating expenses | ($1.720M) | ($1.720M) | — |
| Year 1 cash NOI | $3.540M | $3.236M | −$0.304M |
Carrying the month-13 termination exposure
The three termination-right tenants occupy 26,000 square feet. The base case assumes that all three exercise if the anchor remains dark through the cure date. Replacement leasing begins in month 13 with nine months of downtime, $28.00 per square foot of starting rent, six months free, $45 per square foot of tenant improvements and a $6-per-square-foot commission.
That case requires $1.170 million of tenant improvements, $156,000 of commissions, $364,000 of free rent and $176,000 of vacancy carry. The $1.866 million total is not deducted from Year 1 NOI. It enters the monthly capital schedule at the contractual termination date and the assumed replacement-lease dates.
If the anchor reopens before the 12-month cure period ends, the termination rights lapse and the re-leasing case disappears. If the anchor defaults rather than merely remaining dark, a separate 52,000-square-foot anchor re-leasing case is added; the existing rent and recovery streams can no longer remain in NOI.
The anchor-default case carries 18 months of downtime, $12.50-per-square-foot replacement rent, nine months free, $65 per square foot of tenant improvements, an $8 per square foot commission and $9 per square foot of annual carry. That produces $4.986 million of anchor leasing exposure. Together with the inline termination space, total identified leasing exposure is $6.852 million.
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| Termination-space assumption | Basis | Modeled exposure |
|---|---|---|
| Tenant improvements | 26,000 sf × $45 / sf | $1.170M |
| Leasing commissions | 26,000 sf × $6 / sf | $0.156M |
| Free rent | 6 months at $28 / sf | $0.364M |
| Vacancy carry | 9 months at $9 / sf | $0.176M |
| Total inline re-leasing exposure | Month-13 termination case | $1.866M |
Carrying the dark-anchor case into debt and equity
At the $38 million purchase price, the initial $3.540 million of NOI produces a 9.32% going-in cash cap rate. The $22.800 million loan is constrained by 60% LTV and opens at a 15.53% debt yield.
The dark-anchor NOI produces an 8.52% cash cap rate. At 60% LTV, debt yield falls to 14.19%, below the 15.0% minimum. Debt yield sizes proceeds at $21.573 million, adding $1.227 million to purchase-price equity. Adding the $1.866 million inline leasing exposure brings price equity plus identified co-tenancy capital to $18.293 million, $3.093 million above the initial case.
The downside is not one inevitable treatment. A reopening cures the immediate substitute-rent period and the delayed termination rights. A default removes the rent-paying anchor income and adds the anchor re-leasing package. Both cases start from the same closure notice and the same lease rights; they differ in what happens after it.
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| Model output | Initial case | Dark-anchor case | Movement |
|---|---|---|---|
| Year 1 cash NOI | $3.540M | $3.236M | −$0.304M |
| Going-in cash cap rate | 9.32% | 8.52% | −80 bps |
| Debt yield at 60% LTV | 15.53% | 14.19% | −134 bps |
| Day-one loan proceeds | $22.800M | $21.573M | −$1.227M |
| Interest-only DSCR after sizing | 2.30× | 2.22× | −0.08× |
| Equity to purchase price | $15.200M | $16.427M | +$1.227M |
| Price equity plus leasing exposure | $15.200M | $18.293M | +$3.093M |
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| Case | Treatment | Year 1 NOI | Loan | Leasing exposure |
|---|---|---|---|---|
| Rent-paying dark | Immediate substitute rent; termination rights remain outstanding | $3.236M | $21.573M | $1.866M |
| Reopens after six months | Substitute rent applies for six months; termination clock cures | $3.388M | $22.587M | — |
| Anchor default | Anchor base rent and recoveries removed; anchor and inline re-leasing carried | $2.124M | $14.160M | $6.852M |
Reworking the case in Cap Orbit
Cap Orbit can work across the anchor lease, go-dark notice, inline leases and amendments, tenant sales reports, rent roll, recovery billings, site plan, leasing assumptions, debt quote and existing acquisition workbook in the same deal. The anchor's continuing payment obligations can remain in the model while each operating co-tenancy clause is attached to its own trigger, substitute-rent formula, cure period and termination date.
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| Current source | Model treatment |
|---|---|
| Anchor lease and go-dark notice | Operating covenant, continuing rent and closure date established |
| Inline leases and amendments | Operating co-tenancy, substitute-rent formulas and termination clocks abstracted |
| Tenant sales reports | Substitute rent and percentage rent calculated from the applicable sales periods |
| Rent roll and recovery billings | Contract rent separated from occupied-and-operating status; recoveries retained where required |
| Leasing assumptions and site plan | Termination space re-leased at its actual area, downtime and market package |
| Debt quote and acquisition workbook | Revised NOI carried through debt yield, proceeds, DSCR and equity |
From there, you can have Cap Orbit calculate substitute rent from the applicable sales reports, retain additional rent where the lease requires it, start each termination clock on the closure date and add the replacement leasing schedule to the existing model only when the right becomes exercisable. Contract rent, reported sales, recovery obligations and operating status each retain their source trace.
The same deal record supports the cases that matter here: the anchor remains dark and current, reopens during the cure period, defaults, or is replaced by a qualifying operator. Each case returns the same connected outputs—minimum rent, percentage rent, recoveries, occupied-and-operating area, termination exposure, Year 1 NOI, debt yield, loan proceeds and equity.
That is the standard for AI on this asset class. The useful result is not a rent-roll summary that marks the anchor current or vacant. It is an acquisition case in which operating covenants, reported sales, co-tenancy remedies and replacement leasing resolve into the same cash flow and capital structure.