The 20% IRR deal may steal the spotlight, but the quiet 12% HomeTown retail deal could be the one investors wish they had taken seriously.
Investors love comparing returns, and it's easy to see why. When deals show 8%, 12%, and 20% IRRs, the spreadsheet makes it look simple. Higher seems better.
But real estate is not won on the first page of the deck. A projected return is only as strong as the assumptions underneath it, which is why investors should ask a better question before chasing the biggest number: What has to go right for this return to happen?
That question shifts the conversation, making a “boring” 12% HomeTown deal more interesting. The goal isn't just to find the highest number but to identify which has the clearest path to reality.
A 20% projected IRR depends on new leases, rent hikes, on-budget construction, available debt, and stable exit cap rate. In five years, another buyer must share the original investor's belief.
RockStep pursues value-add deals when basis, market, tenants, and risk align. Higher-return opportunities are attractive if the plan is realistic and the sponsor can execute it.
Many investors mistake the highest modeled return for the best deal, but it often relies on more assumptions. That’s why the 11% to 13% HomeTown retail deal deserves attention.
A 12% deal might not be flashy or prestigious, and could be located in a town unfamiliar to the investor. The asset could be an open-air center, a power center, or a repurposed former mall to better serve the community.
When the return path is visible, the risk-adjusted return may be better than the headline suggests. A 12% projected return based on existing income, known retailer demand, and a flexible basis might be more appealing than a 20% return that relies on perfect timing.
Think of hiking like a trail: a steep one might reach a high viewpoint if weather, path, and stamina are right, but a steadier trail, though less exciting, is often more reliable to reach your goal.
That is the point of evaluating IRR. The number matters, but the path matters more.
When RockStep looks at a deal, the return target matters. Of course it does. But the return number by itself does not tell investors enough.
An 8% core deal in a gateway market seems conservative due to familiarity, recognizable tenants, and a polished broker package. However, this can be misleading: the deal may have a tight cap rate, debt could limit leverage, and rent growth might be the main return driver. The exit may also need another buyer to accept the same low yield.
A familiar city makes explaining a deal easier but doesn't improve the math. A famous address can still be overpriced, and a house in a great neighborhood can have issues like a bad roof, outdated wiring, and no room for repairs.
If the purchase price is too aggressive, the debt is expensive, and the return depends on a generous future market, the investor is still taking risk.
On the other end of the spectrum, a 16% to 20% value-add deal can feel more exciting. A high projected return gives everyone something to rally around, but the investor still has to ask what that number is based on.
Before accepting the highest projected IRR, investors should ask:
Is the return built from income already in place? Income that exists today is different from income the sponsor hopes to create later.
Is tenant demand proven or assumed? A leasing plan is stronger when retailers have already shown interest in the market.
Is the construction budget real? A clean spreadsheet line item may look different once bids arrive.
Does the debt improve the return? Debt can help equity returns, but it can also create pressure if cash flow is thin.
Is the exit value realistic? A return that depends on a more generous future buyer may carry more risk than it first appears.
One reason shopping centers are attractive right now is simple: many deals can still offer positive leverage.
Positive leverage happens when the cap rate exceeds the interest rate. For instance, buying a retail center at an 8.5% cap rate with a 6.5% or 7% debt improves cash flow, as the property's yield surpasses debt costs.
That differs from buying a major-market asset at a 5% cap rate with debt at 6% or higher, where debt initially harms cash flow, and the investor depends on rent growth, refinancing, or exit pricing to boost returns.
In HomeTown retail, RockStep often sees a more practical setup:
The 12% deal gets ignored because it lives in the middle. It is not low enough to be called core, and it is not high enough to win a beauty contest against a 20% value-add model. When the market is unfamiliar, many investors move on before doing the harder work.
They say the town is too small, and sometimes they're right. RockStep has learned this before: some markets are too small or lack growth. When a tenant leaves, there may not be enough demand to backfill the space as the business plan requires.
That lesson matters because HomeTown retail isn’t a blind bet on small towns but a targeted strategy on markets with key drivers.
A strong HomeTown retail market requires a solid foundation like a university, military base, expanding hospital district, tourism, regional jobs, local businesses, or cost-of-living advantages drawing people and retailers.
Then the next question is what retailers are doing. Are off-price retailers expanding? Are sporting goods, hobby, home, grocery, value, and necessity-based tenants looking for space? Are they already nearby?
That is where the opportunity starts.
A smaller market is not automatically a weak market. In retail, the trade area matters. A center may serve customers from many surrounding communities, especially if it is the best retail node in the region.
For example, a shopping center in a smaller city may serve families from nearby towns that lack the same grocery, apparel, sporting goods, or home improvement options. The city's population may look modest on paper, yet the actual customer base can be much larger than it suggests.
The investor’s job is not to ask whether the town sounds institutional. The better question is whether the market has enough real demand to support the business plan.
Investors often wait for institutional capital to validate a market. By then, the easy basis is usually gone. Retailers, however, can validate the market earlier.
Retailers considering stores in a HomeTown market are deliberate in their analysis of traffic, trade area, income, competition, logistics, and economics before expanding. Amazon and COVID survivors are more disciplined now.
If they want the market, RockStep wants to understand why. Retailer interest can serve as a trail's footprints. It does not guarantee the destination, but it signals that someone serious has already studied the path and decided it may be worth taking.
That is part of the internal “12-in-8” work. RockStep is tracking a group of growth retailers across an eight-state footprint and identifying mismatches between retailer demand and available real estate.
Depending on the market, the right strategy may be to:
Buy existing second-generation space: this can provide a retailer with a faster, more cost-effective path to market.
Reposition a shopping center: the asset may already have good bones, but needs a better tenant mix or operating plan.
Redevelop part of a former mall: an enclosed mall may become more useful when reshaped around retailers that people actually use.
Pursue land and ground-up construction: in some cases, the right box does not exist yet, and new development may be the better answer.
The real estate strategy follows the retailer demand. That matters because a good retail investment is not just a building in search of a story. It should be a market need looking for the right real estate solution.
For new investors, the lesson is simple: the highest IRR is not always the best investment, and the most familiar market is not always the safest one.
A 12% HomeTown retail deal may seem modest, as it lacks traditional categories like trophy core or high-drama value-add. It requires local market knowledge, retailer research, and discipline, making it interesting. If the asset has strong fundamentals, positive leverage, retailer interest, and a viable trade area, it can offer a more sustainable return.
The deal may not need a perfect recipe. It may need competent execution, practical leasing, and a market where people already shop. That is a very different risk profile from one that depends on everything breaking right.
For investors, the comparison is not simply 12% versus 20%. It is a clearer 12% path versus a more fragile 20% path. One may look smaller on paper but be stronger in practice.
RockStep uses the phrase “boring cash flow” often, and it is meant as a compliment.
Some investors want the trophy asset, the address, and the deal that sounds impressive. There is a market for that. RockStep is usually looking for something else:
That may not seem exciting at first, but in retail real estate, steady demand can be more valuable than flashiness. The 12% deal might not stand out, but when the asset, tenant demand, leverage, and local market align, it offers the risk-adjusted return investors seek.
Boring cash flow is a little like a reliable pickup truck. It may not turn every head, but it starts in the morning, hauls what needs hauling, and does the job it was built for.