The HomeTown retail deal everyone ignores today may be the one everyone wishes they bought tomorrow.
Many investors seek durable cash flow, realistic underwriting, growing retailers, steady local demand, and a knowledgeable sponsor.
Then a deal appears that checks those boxes in a smaller HomeTown market, and the conversation changes. The projected return may be 11% to 13%, not 18% to 20%. The market may not be Dallas, Nashville, Austin, Phoenix, or Atlanta.
The asset may be an open-air center, a power center, or a former enclosed mall being repositioned around retailers that people actually use. Suddenly, the deal feels too small, too unfamiliar, or too quiet. That reaction matters because investors often think they are evaluating risk when they may actually be evaluating familiarity. They are not the same thing.
Familiarity bias can make a recognizable market seem safer, and an unfamiliar one seem riskier than the fundamentals indicate.
Commercial real estate investors often stick to familiar cities, which feel comfortable and easy to visualize. Smaller hometown markets may seem unsettling because they require more explanation, diligence, and imagination.
Before investors reject an unfamiliar retail deal, they should ask a sharper question: Is this deal actually risky, or does it just feel unfamiliar?
There is nothing wrong with investing in primary markets. This is not an argument that gateway markets are bad and smaller markets are good. The issue is that many investors give familiar markets a safety premium they have not always earned.
An 8% IRR core deal in a major market may feel safe because the city is recognizable. You may have visited it, know people who live there, or recognize nearby employers, airports, and neighborhoods.
A familiar market doesn't change investment math—the return depends on purchase price, debt, exit cap rate, and income growth. A great city can't compensate for a poor basis indefinitely. Even the best boat can take on water if it is bought too expensively, overloaded with debt, or if calm seas are assumed.
If an investor buys at a tight cap rate, uses non-accretive debt, and relies on modest rent growth, the deal may have lower returns but isn't automatically lower-risk.
The same mistake can happen in reverse. A 16% to 20% value-add deal can look more attractive because the percentage is higher, but that return may depend on a long chain of assumptions aligning.
A high projected return often depends on several things going right:
A 20% projected return is like a perfect recipe that needs fresh ingredients, precise measurements, and a well-behaved oven. One mistake may not ruin it, but multiple small missteps can change the outcome.
That does not mean high-return deals are fake. It means investors should ask a better question: What has to go right for this return to materialize?
When viewed through that lens, a clean 11% to 13% HomeTown retail deal may start to look more compelling. It may not sparkle on the first page of the deck, but it may have fewer things that need to go perfectly.
RockStep recently reviewed an open-air center in a smaller Northeast Texas market. Several investors said they were uncomfortable with the opportunity because they were unfamiliar with the town.
That reaction is common. If an investor has never visited a market, has no reference, and can't picture the trade area, the answer is often no. The process attracted about 20 bidders, and the winner bid $5 million over RockStep’s number.
Which signal mattered more? Was it that some investors couldn't immediately locate the town, or that 20 buyers bid, and one paid significantly more than RockStep’s underwriting allowed?
That is the difference between perception and evidence. Perception says, “I do not know this town, so it must be risky.” Evidence says, “Multiple buyers studied the market, valued the asset, and competed for it.”
The lesson is not that RockStep should have paid more. Disciplined buyers have to be willing to lose deals. The larger lesson is that investor unfamiliarity is not the same thing as market weakness.
At RockStep, the term HomeTown is intentional. HomeTown retail does not mean chasing every small town in America. It means focusing on secondary and tertiary markets with real demand drivers beneath the surface.
These markets may not seem impressive nationwide, but they have strong local retail demand, driven by residents shopping for groceries, school clothes, prescriptions, meeting friends, and shopping before Friday night football.
A HomeTown market may become attractive when it has one or more of the following:
These drivers help explain why people live, work, shop, and gather in a market. Once investors understand them, the next step is to look beyond the city's population and study the market's true retail trade area.
The mistake many investors make is looking only at municipal population. They see a smaller city and assume smaller demand. That is not how retail real estate works.
Retail is a trade-area business. A center can serve customers from 20 to 40 miles away if it is the best retail node. City limits matter for census reports but not for a parent driving 35 minutes to buy soccer cleats, groceries, and birthday gifts in one trip.
In many HomeTown markets, the right center may be the dominant retail infrastructure for a much broader region. That matters to customers, retailers, lenders, local governments, and investors.
HomeTown retail is interesting now because retailer demand isn't behaving as many investors assume. The old story was that Amazon would kill physical retail, but that's outdated. Amazon and COVID exposed weak retailers, but survivors are now stronger, with improved balance sheets, e-commerce capabilities, store discipline, and expansion plans.
Off-price, value, sporting goods, hobby, home, grocery, and necessity retailers still need stores because they rely on local, everyday shopping behavior.
Physical stores are no longer just shelves and cash registers. Often, they don't compete with e-commerce but instead support it by facilitating pickup, returns, and fulfillment, building brand awareness, and acquiring local customers.
Retailers want to grow, but in many markets, the right space does not exist in the right format. New construction is expensive, entitlements can be difficult, and construction costs remain high.
Good second-generation boxes help retailers enter markets faster and often better than ground-up development. An unused box isn't just empty space; in the right market, it might be the missing piece for a retailer wanting to be there.
RockStep’s "12-in-8” work is crucial. It tracks growth retailers across eight states, assessing locations, nearby tenants, trade areas, and feedback.
Then comes the real estate question. Should RockStep buy the existing box? Should it reposition a center? Should it redevelop a former mall? Or is the better opportunity to find land and build the box the retailer needs?
That is the work behind the investment thesis. A good retail investment strategy isn’t just about buying a building and hoping tenants arrive. The better approach is to study retailer demand, customer behavior, traffic patterns, existing competition, and community needs before deciding what the real estate can become.
It involves investment underwriting and local detective work, which can make a moderate projected return seem more attractive.
Some investors hear 11% to 13% and think, “That is not enough.” That reaction makes sense on the surface. If another sponsor is showing a 20% IRR, a 12% return does not feel exciting.
But investing is not about which number looks bigger on the first page of the deck. It is about which return has the better chance of happening.
A 20% projected IRR with fragile assumptions may be less attractive than a 12% IRR based on existing income, interested retailers, and room for execution. One is a highlight reel; the other may be game tape.
A disciplined HomeTown retail deal may have several things working in its favor:
Risk and unfamiliarity often feel the same, but they are vastly different.
A market may feel risky because you have not heard of it. That does not mean the market lacks demand. It may have a university, a regional hospital, a growing employer base, or a trade area that supports retail better than its city population suggests.
On the other hand, a familiar market may feel safe because of name recognition. That does not mean the deal has a solid foundation, attractive leverage, or realistic rent growth.
Investors must distinguish between the emotional comfort of familiarity and actual financial risk. When hesitating in an unfamiliar market, the right response might not be a quick no, but rather to ask more probing questions.
Family offices and sophisticated investors do not need another pitch about why retail is “back.” They need a better way to distinguish familiar from safe, high-return from high-probability, and small market from weak market.
That is the question this series will continue to revisit: Are you rejecting the risk or the unfamiliarity?
If a HomeTown market has demand, retailer interest, civic support, a retail node, and a disciplined basis, it shouldn't be dismissed just because the town isn't institutional.
The best deals are often uncomfortable before they are obvious. That does not mean every unfamiliar market deserves investment. It means unfamiliarity should start the diligence process, not end it.
Retail real estate investing rewards those who see beyond the obvious. A recognizable city doesn't ensure safety, and a smaller HomeTown market isn't necessarily weak.
The better question is whether the deal has durable demand, realistic underwriting, a strong operating plan, and a purchase basis that gives the investor room to succeed.
HomeTown retail is not about chasing small markets just to be different. It is about finding overlooked places where real people still shop, retailers still want to grow, and the right real estate still matters to the community.
For investors willing to do the work, unfamiliarity may not be a warning sign. It may be the reason the opportunity still exists.