Wexford Crossing is a 9,800 SF neighborhood center, two suites leased and one 3,800 SF suite empty. A fitness operator wants it. They will take $18.00 NNN with a $30/SF allowance and build it themselves, or $20.00 if we deliver it built for $150,000. Both structures underwritten side by side.
Unlevered five-year IRR, 1.93x on $1,750,875 all in. Tenant builds, we write one check at opening.
Unlevered five-year IRR, 1.99x. $2.00 more rent for $38K more capital, spent two months sooner.
Year 1 NOI of $147,371. Stabilized in 2028 at $199,128, or 11.5% on price.
Below this, landlord work loses. At $20.00 the cushion is $0.86 a foot.
| Scenario 1 · tenant allowance | Scenario 2 · landlord work | |
|---|---|---|
| Rent, Suite C | $18.00 / SF NNN, 3% annual | $20.00 / SF NNN, 3% annual |
| Free rent | 3 months | 2 months |
| Who builds | Tenant, under our approval of plans | Landlord, $150,000 bid, paid over months 3 to 5 |
| Landlord capital, Suite C | $135,788 $114,000 allowance + commissions | $174,209 $150,000 work + commissions |
| Rent commencement | May 2027, paying from August | June 2027, paying from August |
| Exit value, end of 2031 | $2,691,920 $222,083 forward NOI at 8.25% | $2,790,958 $230,254 forward NOI at 8.25% |
| IRR · multiple | 15.75% · 1.93x | 16.18% · 1.99x |
Landlord work wins narrowly, and only if the bid holds. A 10% overrun on the $150,000 gives back 21 bps. Opening two months late gives back 26. Both together and Scenario 1 is the better deal. The allowance caps our check at $114,000 no matter what the build costs.
The 2029 dip is Suite A rolling, and it is the same in both scenarios. Page 3 has more on it.
| Year | 2027 | 2028 | 2029 | 2030 | 2031 |
|---|---|---|---|---|---|
| Base rent | 164,130 | 209,467 | 181,196 | 219,982 | 226,581 |
| Expense recoveries | 55,467 | 63,700 | 57,850 | 63,700 | 63,700 |
| Operating expenses | (63,700) | (63,700) | (63,700) | (63,700) | (63,700) |
| Management + reserves | (8,525) | (10,339) | (9,208) | (10,759) | (11,023) |
| Net operating income | 147,371 | 199,128 | 166,138 | 209,222 | 215,558 |
| Leasing + build-out | (135,789) | – | (53,202) | – | – |
| Cash flow before sale | 11,583 | 199,128 | 112,936 | 209,222 | 215,558 |
Sale at the end of 2031: $2,691,920 gross, $2,638,081 after 2% costs. Total cash out, purchase plus capital, peaks at $1,842,157.
| Year | 2027 | 2028 | 2029 | 2030 | 2031 |
|---|---|---|---|---|---|
| Base rent | 167,297 | 217,029 | 188,985 | 228,004 | 234,844 |
| Expense recoveries | 53,408 | 63,700 | 57,850 | 63,700 | 63,700 |
| Operating expenses | (63,700) | (63,700) | (63,700) | (63,700) | (63,700) |
| Management + reserves | (8,652) | (10,641) | (9,519) | (11,080) | (11,354) |
| Net operating income | 148,353 | 206,388 | 173,615 | 216,924 | 223,490 |
| Leasing + build-out | (174,210) | – | (53,202) | – | – |
| Cash flow before sale | (25,857) | 206,388 | 120,414 | 216,924 | 223,490 |
Sale at the end of 2031: $2,790,958 gross, $2,735,139 after 2% costs. Peak cash out $1,872,006, about $30K more than Scenario 1.
| Exit cap | Scenario 1 | Scenario 2 | Spread |
|---|---|---|---|
| 7.75% | 16.95% | 17.38% | 43 bps |
| 8.25% | 15.75% | 16.18% | 43 bps |
| 8.75% | 14.65% | 15.07% | 42 bps |
The order holds across a full point of cap rate. Exit pricing moves both scenarios together. It does not decide between them.
Change in Scenario 2's 43 bps lead, in basis points.
Scenario 2 never earns back its extra capital from rent. It is still $7K behind on cash collected when the property sells. The whole win is the $97K higher sale price that the extra $2.00 of rent supports, so it only pays if a buyer underwrites that rent at full value.
| Suite | Use | SF | Rent / SF | Expires | Assumption |
|---|---|---|---|---|---|
| A | Dental office | 3,600 | $21.00 | Jun 2029 | Renews at $22.50 after 3 months dark and 2 free; $10/SF TI and 4% commission |
| B | Coffee | 2,400 | $24.00 | Mar 2031 | No event during the hold; 3% each April |
| C | Vacant | 3,800 | n/a | n/a | Seven-year fitness lease, per the scenario. 6% commission on years 1 to 5, half at signing |
Both scenarios carry the same 2029 dip: NOI falls from $199,128 to $166,138 when the dental lease rolls. That is the largest single swing in the hold. It is worth more than the choice between the two structures. If the tenant gives notice instead of renewing, the 2029 to 2030 downtime runs closer to nine months, plus a full tenant improvement package.
Send rulings and the model turns the same day. Both scenario models and a one-page memo ship with this summary. The IRR math was checked against an independent calculation.