Big Box Anchored Shopping Center – Percentage Rent Trap – Remote Management – Bargain Rents – 1984 

Acquired 122,000 sf shopping center in July 1984 at the SWQ of the 10Fwy and Bell Rd in Phoenix, AZ. The 5 shop tenants in 6,000 sf dominated management time for this “out of state” property. Smitty’s $0.27 PSF/Mo ground rent on 110,971 sf meant a huge portion of annual rent was paid each January. This was a textbook example of why a higher cap rate should be applied to offset the financial havoc created when monthly rents do not cover debt service and sales volume based income pose significantly higher collection risk that lenders hate. It also exposed flawed presumptions about sales volume growth in a store whose parking lot was already constantly at full capacity. This deal still sold at a 28% profit after an 18 month hold.