If you are a potential investor, please read through the frequently asked questions about our investment opportunities.
There are several advantages of investing in shopping centers in mid and small town America:
- The consumer in these markets is generally a more conservative consumer with more predictable spending habits. During the Great Recession of 2008 and 2009 This consumer did not get hurt to the extent that the consumers did in the more major metro areas. In addition, there were no major housing booms in these markets and consequently no housing busts.
- The banking and lending environment in these markets has stayed relatively the same as it was before the Recession of 2008. Lenders still have money to lend, and loans can still be obtained for solid investments.
- Retailers and restaurants that operate in these mid and small markets are still expanding and their balance sheets are very strong in general. Often their balance sheets have no debt. These companies are also more conservative in their operating philosophy.
- It’s easier to understand the competitive environment in secondary markets and smaller communities. If one purchases an asset well below construction costs, one can effectively compete on the bases of rents against new construction shopping centers.
Provides a great opportunity to take advantage of lower asset prices as a result of the Amazon Effect. RockStep Capital can identify which properties and tenants have manageable exposures to Amazon risk.
By closely monitoring expenses and the strength of each store and restaurant within the shopping center, we will be able to anticipate if there are problems in the reliability of the rent stream. In addition, our understanding of that particular market will allow us to maximize the chance that we will get rental increases at the time of renewals and/or replacement tenants if there is vacancy.
We thoroughly analyze our shopping center investments in such a way that we can anticipate the cash flow stream during the period of the investment and the likely challenges that will result from difficult economic times.
By purchasing the property at a below new construction price, we have a higher probability of achieving our investment goals. Prior to acquisition, we stress an asset by looking at what can go wrong, and what can go wrong simultaneously. If an asset still meets our financial objectives after these stress tests, it becomes a candidate for acquisition.
The hardest part of achieving a strong shopping center return for our investors is identifying which of the various shopping centers that we are analyzing has the highest return with the lowest risk. In particular:
- What is the probability that the rent stream shown in the projected pro-forma can be achieved?
- Is the expense structure and capital outlays identified in the pro-forma be realistic or optimistic?
- Is there enough working capital within the project to deal with unexpected expenditures?
- Can we make a realistic projection on what the sales price of the asset will be in 5-7 years?
We believe that an appropriate approach for an exit cap rate is one no higher than the purchase cap rate. Increases in value can occur by improving net operating income through superior leasing and management execution, and through distribution of excess cash.
In today’s economy, the consumer has dramatically slowed down consumption and reduced sales for tenants within shopping centers and restaurants. Consequently, if the consumer continues to move it’s spending to e-commerce, it puts pressure on the viability of shopping centers. That’s why it is critical to purchase shopping centers with two criteria:
- Understanding of the viability of each particular as it relates to the Amazon Effect.
- Identifying if rent reductions have already been achieved (this is good) or will they come in the future (this is bad).
There are a number of things that could go wrong. First, the tenant in the shopping center might go bankrupt or refuse to renew their lease at the time of renewal. Tenants might successfully negotiate lower rent reducing the profitability of the center. If the economic environment for shopping centers remains difficult, it could be challenging to sell the shopping center at a respectable profit.
The typical investor with RockStep Capital is a high net worth individual, family office, foundation, or institutional group that seeks an alternative investment platform to the stock market.
RockStep’s goal is that each investor will receive a current preferred return on their investment, then all of their capital back, and then a majority of the profits after six or seven years when the property is sold. In addition, if there is excess cash beyond debt service, the preferred return, and working capital requirements then that capital will be returned to investors. After investors receive their preferred return and all of their capital back they will receive the majority of profits.
Yes, as promoters and sponsors we will be making a cash investment in the shopping center. In addition, if recourse debt is the only debt available, we will be personally signing the loan and be personally liable for the loan. The investor will not have to sign the loan.
If the deal doesn’t work out, the most likely reason is that the rents we received were below our target rent projections, and/or upon the sale of the shopping center, we were not able to achieve our minimum sales goal.
On a yearly basis, paid quarterly, if there are sufficient funds each investor will receive their preferred return.
The minimum investment for each specific property ranges from $100k to $250k. An investor may invest in more than one project.