Northgate Crossing: Anchor Rollover and the Hold-Sell Decision

Start with the debt and coverage math. Interest-only debt service on $9.2 million at 5.9% is $542,800, so in-place DSCR is $1.62M / $0.543M = 2.98x. The extension's 1.30x requirement is met, but the $500,000 paydown is a liquidity condition, not a coverage problem.

• Hold with existing debt: Requires the $500,000 paydown and leaves the anchor rollover and $1.09 million of capex unresolved. The co-tenancy clause means inline vacancy can trigger anchor rent relief, so the 78% occupancy is a real risk, not a cosmetic one.
• Refinance: At 6.9% and 65% LTV on a $14.9 million value, proceeds could be about $9.685 million - enough to repay $9.2 million and cover costs, but with little excess for capex. DSCR on a $9.6 million interest-only loan at 6.9% is about 2.45x, still acceptable, but the anchor risk remains.
• Sale: $14.9 million less roughly 3% transaction costs leaves about $14.45 million. Repaying $9.2 million leaves about $5.25 million before taxes and closing adjustments. That converts uncertainty into liquidity but gives up any anchor-renewal upside.

Key assumptions: anchor renewal probability, co-tenancy exposure, capex timing, refinance proceeds, and the family's liquidity needs. The decision cannot be reduced to cap rate; it is a risk-transfer decision.

Recommend a dual-track approach: pursue an anchor renewal and a refinance while keeping the sale offer as a backstop, with a decision deadline tied to the loan maturity.

Actions:

1. Open renewal discussions with the anchor immediately, not in 16 months. Test whether the grocer wants to stay, downsize, or exit. A short-term extension with clear co-tenancy relief may be better than a vacant anchor.
2. Obtain a firm refinance term sheet with enough proceeds to repay debt, fund the $500,000 paydown, and reserve for roof and parking lot work.
3. Run sale diligence in parallel so the $14.9 million offer remains credible. Do not sign an exclusive that prevents a refinance.
4. Set a written decision rule: if the anchor commits to a renewal of at least five years with acceptable economics, refinance and hold; if the anchor signals exit or demands major concessions, sell.

Conditions that would change the recommendation: a below-market refinance with a large reserve requirement, an anchor bankruptcy or dark-store notice, a capex bid materially above $1.09 million, or a revised sale offer that nets more than the hold scenario after risk adjustment. The family should also agree on a governance process - one decision-maker, written criteria, and a deadline - because the disagreement itself is a risk to value.

Complete four diligence tracks.

• Lease and co-tenancy audit: Abstract the anchor lease, inline leases, exclusives, radius restrictions, renewal options, and co-tenancy triggers. Model the rent reduction if occupancy falls below 60%.
• Physical condition: Commission a roof and parking lot assessment, not just a reserve study. Confirm whether the $780,000 roof estimate includes decking, insulation, and code upgrades. Check HVAC, sprinklers, and ADA compliance.
• Financial and tax: Verify NOI, CAM reconciliations, recoveries, delinquencies, and real estate taxes. Model sale proceeds after debt payoff, closing costs, and partnership tax exposure.
• Market and anchor credit: Review the grocer's sales, lease expiration profile, and competing centers within the trade area.

Disclose material known conditions to a buyer or lender: anchor rollover, co-tenancy clause, roof and lot capex, vacancy, and any deferred maintenance. Do not characterize the roof as discretionary. A lender will require a capex reserve; a buyer will price the risk. Withholding these facts invites retrade, loan refusal, or litigation.