u/HueChenCRE

A First Watch NNN deal landed in my inbox. Jacksonville, FL. Bay Meadows Road corridor. $2.424M ask, 3,600 SF built 2021, corporate guarantee, 4.9% cap rate. $33/SF in base rent.

The financing math doesn't pencil.

Single-tenant investment grade debt right now is somewhere around 5.25%. You're buying at a 4.9% cap. Your cost of capital exceeds your yield from day one. So are you buying all-cash?

The rent bumps don't help much either. 10% every 5 years sounds okay until you do the math: that's roughly 2% per year non-compounded. If inflation holds above 2%, you're losing purchasing power on the rent in real terms the entire hold period. I'd want 15% every 5 years. I know retailers push back, but if they want the option to renew, the asymmetry is already in their favor.

On the occupancy health side, the numbers actually work. True occupancy cost is probably closer to $150K when you add taxes, insurance, and CAM. At an 8% health ratio, this location needs to do about $1.9M to break even on occupancy. First Watch averages $2.3M systemwide. So as long as this store performs at least average, they can afford the rent.

A few other things I'd push back on from the OM:

Broker is claiming $42.56/SF as market rent for restaurant in the area, saying current rent is 29% below market. I'm skeptical. No drive-thru on a 3,600 SF box. I don't think you're getting $42 for that in Jacksonville without one.

"Limited competition" while also listing Panera and Starbucks as nearby co-tenants. Pick a narrative.

Three 5-year options remaining at preset rents. Asymmetrical to the tenant. If market rents drop, they renegotiate. If market rents spike, they exercise and you're locked at $136K. That's three more decades of optionality in their favor.

Location itself is solid. 49K VPD on Bay Meadows, full access, half mile to I-95, Spring Hill Suites and Embassy Suites as literal neighbors, 80K residents in 3 miles at $102K avg HHI. The daytime employment - Deerwood office corridor is right there.

For people that buy these STNL, how are you looking at them? Are you using debt?

Was driving our Tampa competitive set a couple weeks ago and spotted something at a neighboring center I don't see discussed much: Twice the Ice and Watermill Express operating as paying tenants in the parking lot.

Most people I talk to have never seen these in person. Even shopping center experts - they're not common in Miami, FL.

Twice the Ice — takes up roughly 4-5 parking spaces, rent probably in the $500–$1,000/month range

Watermill Express — 2 parking spaces, maybe $300–$600/month rent?

The income is there but modest. The bigger issue for me is the redevelopment risk. If you've got a 10-year lease on a vending machine sitting on surface parking and you want to go vertical someday you've got a problem unless your relocation clause is well constructed. The relo problem is 10X more if you got Tesla charging stations by the way.

I personally tend to pass on these deals for that reason, but I can see the argument if you're in a stable, no-redevelopment-planned asset and need the ancillary income.

Anyone here have these on their properties? Curious what you're actually getting paid.