Closing The Deal: Comparing Retail & Multifamily Purchasing Processes

In commercial real estate, few investment categories are as nuanced as retail. Over the years, I’ve seen the assumptions many investors bring to the table: that multifamily is inherently safer, that retail is riskier because of e-commerce, or that underwriting a shopping center is the same as underwriting an apartment complex.

But those assumptions don’t always hold up. Buying a retail property comes with its challenges. It’s not just about location and rent rolls. It's about tenant quality, co-tenancy risks, lease structures, financing hurdles, environmental liabilities, competition, market cycles, and evolving consumer behavior. 

Here’s how I see it.

Financing Retail: More Limits, Higher Stakes 

One of the first hurdles retail investors face is financing. The lending landscape for retail is far less favorable than it is for multifamily. In multifamily, government-backed programs like Fannie Mae and Ginnie Mae make it easier to access higher leverage and lower interest rates. Multifamily generally has higher loan-to-value. Their debt is Jennie Mae, so it's at a lower interest rate. Retail typically is 50 to 60% loan-to-value, and our interest rates will not be as low.

That kind of difference has big implications. Right now, even multifamily investors are feeling pressure from rising rates. There’s still negative leverage because they’re valued at a five-and-half-cap. In other words, borrowing costs outpace returns, and for retail, where financing is already tighter, that risk is magnified. It means we have to be extremely disciplined about our underwriting, and we can’t afford to make optimistic assumptions.

Conservative Underwriting Is The Name Of The Game

In retail, we live and die by the base case. We don’t build our models on what could happen if everything goes right. Instead, we take a realistic look at existing leases, market rents, tenant credit, and expenses to determine whether the deal works under current conditions. Our job is to make those optimistic estimates underwriting more realistic in what we call a base case. And our goal is to beat the base case.

We make sure our assumptions hold up even if rent growth is slower than expected or if we don’t fill a vacancy as quickly as we’d like. We always identify the upside, but we never count on it in our underwriting. If a deal doesn’t hit a mid-teens IRR under the base case, we pass.

Tenant Quality Can Make Or Break A Deal 

This is where retail really separates itself from multifamily. With apartments, you’re leasing to hundreds of tenants on short-term, relatively uniform leases. But in retail, your income may depend on just a few key tenants. If one underperforms—or leaves—it can dramatically impact your returns.

That’s why tenant quality is so critical. You want what is called investment-grade credit tenants. These are tenants who will not go out of business, won’t declare Chapter 11 bankruptcy, have a good operating strategy, good merchandise strategy, good people strategy, and are competitive. 

We’re not just checking credit scores. We look at: 

• Store metrics (sales per square foot, return on investment)
• Brand performance and positioning
• Lease terms and clauses (especially co-tenancy)
• Reporting transparency and responsiveness 

We want tenants with strong store metrics, high returns on investment, and clear reporting. And that scrutiny doesn’t end once the lease is signed—we monitor performance throughout the hold.

Physical And Environmental Risks Are Real - And Costly 

Retail properties often come with a legacy of environmental exposure that isn’t common in multifamily. Older centers may have been built on former gas station sites, or housed dry cleaners that used harmful chemicals. 

These aren’t just check-the-box concerns. Environmental issues can lead to delays, lawsuits, or remediation costs that kill a deal’s economics. Beyond that, we also have to look closely at the physical condition of the property—roofs, HVAC systems, parking lots, lighting, and paint. Depending on the region, snow removal costs can vary wildly. If it is in a cold zone that has snow, snow removal is a big variable. 

Essentially, due diligence has to cover every inch of the physical structure. We look for deferred maintenance, aging systems, and potential capex surprises that could impact cash flow in the first few years of ownership.

Retail: Tight Competition And High Barriers To Entry 

Compared to multifamily, the competitive landscape in retail is much more concentrated. In multifamily, there’s tremendous competition. There are a hundred competitive sites in a three-mile radius. In retail, there might be two. That means each retail property must be evaluated in a much smaller competitive set. However, it also means that the barriers to entry are higher.

Nowadays, it’s too expensive to build. Most retail investment today happens in second-generation space. That adds complexity to the leasing strategy, especially when you inherit older leases, outdated buildouts, or legacy tenant obligations. We have to consider lease rollover schedules carefully since we don’t want all tenants expiring at once. Then, we have to assess how we stack up against nearby centers in terms of aesthetics, tenant mix, and foot traffic.

The Deal Process Is Multi-Layered And Fast-Paced 

Retail deals often follow a formalized broker process. It’s competitive and fast-moving, and usually involves multiple rounds of bidding. Generally, the top three to five bids will be invited to do a best and final. Sometimes, there will be a third or a fourth round.  If it goes on to that point, it can be very frustrating.

To compete, we enter what I call “deal mode.” That means mobilizing the entire team (acquisitions, leasing, property management, finance, investor relations, and our mortgage broker) to complete full underwriting and diligence in just a few weeks. We don’t wait until after the deal is awarded to do the work. We do it upfront. If we have capital committed and if we have found competitive debt, we’ll make an offer.

It’s an all-hands-on-deck approach, and if we win, we’re ready to close without delay.

You Can't Afford To Miss On The Execution 

Winning a deal is great, but failing to close is a reputational risk we can’t afford. There’s the loss of all the funds associated with due diligence. You might lose your earnest money... The brokerage community and the seller might say, ‘Hey, let’s not choose RockStep on future deals because I just don’t believe they can follow through.’ That’s why we don’t bid unless we know we can perform.

The cost of walking away isn’t just financial; it’s relational. Brokers and sellers remember. That’s why we prioritize certainty of close just as much as pricing. Even when we win as an all-cash buyer, we still ensure financing options are lined up post-closing to avoid surprises.

Discipline Wins Out Over All Else 

Retail has come a long way in recent years. After being perceived as risky because of the “Amazon effect,” the sector is now seeing renewed interest. What was considered a safe investment in multifamily has become more risky because of negative leverage.

Additionally, more capital is flowing into retail. More equity is chasing retail today than two to three years ago... So it will be easier to close retail on a relative basis than it was two or three years ago.

But just because the capital is there doesn’t mean you can take shortcuts. If anything, the renewed attention makes disciplined underwriting even more important. More bidders mean tighter margins and greater competition—but the fundamentals of the asset still matter most.

Final Thoughts: Know What You Are Getting Into 

Retail real estate rewards experience, diligence, and discipline. It’s not as uniform or easily modeled as multifamily, but it offers a unique value proposition if you know how to evaluate it properly. From co-tenancy clauses to tenant credit, environmental risks to lease expirations, every retail deal is a puzzle—and we take the time to solve it.

At Rockstep Capital, we’ve identified good things that can happen, and we work hard once we close to make sure some, if not all, these good things can happen. But we don’t underwrite it that way. The base case has got to hit a mid-teens IRR (Internal Rate of Return).

In retail, you earn your wins. But when the pieces come together, the payoff is worth it.