Mark Tersigni outlines the investment case for open-air retail centers, arguing that the sector’s struggles have been overstated because the format behaves differently from enclosed malls. The report notes that for years, analysts grouped all retail properties together, ignoring the fact that an open-air center anchored by a grocery store relies on a different set of customers and tenants than a traditional mall. According to the source, Tersigni spent years underwriting both types of properties within a large portfolio, which highlighted the practical advantages open-air centers hold as consumer habits shift.
How the Formats Operate Differently
Putting enclosed malls and open-air centers in the same category makes sense at a very broad level. They’re both retail properties. Once you start looking at how they operate, though, the similarities become much less useful. Tenant mix is one of the biggest differences.
Many open-air centers are anchored by grocery stores or other businesses tied to regular needs and services. People may visit because they need groceries, a prescription, a haircut, dinner, or something else that can’t necessarily be replaced by an online order. Traditional enclosed malls have historically depended more heavily on department stores and discretionary shopping. Those trips became easier to replace as consumers gained more ways to shop without going to a mall.
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The physical properties also differ. An enclosed mall has interior common areas that have to be heated, cooled, cleaned, secured, and maintained. A typical open-air center has fewer of those shared spaces and a simpler physical layout. Those differences affect what happens when something goes wrong. Losing a tenant is a problem in either format, but filling an individual storefront in an open-air center can be very different from replacing a major department store or rethinking an entire section of a mall.
For an investor underwriting both types of property, those distinctions eventually show up in the numbers.
What Lenders Saw in Open-Air Retail
The financing market provides another useful view of how investors and lenders came to regard the format. Lenders conduct their own analysis before committing capital to a property. They look at tenants, leases, cash flow, property values, debt coverage, and the risks that could affect repayment. The financing they’re ultimately willing to provide says something about how they view the underlying assets.
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That doesn’t mean financing proves an entire property type is safe or guarantees how those assets will perform in the future. What it does show is that sophisticated lenders were willing to commit significant capital to open-air retail after conducting their own diligence. For a format that had spent years caught up in a much broader story about the decline of physical retail, that distinction matters.
It is easy to compare malls and open-air centers using industry reports or broad market data. Tersigni had the less common experience of underwriting both within the same portfolio. That gave him a direct view of how individual properties responded as consumer habits, tenant demand, financing conditions, and the retail industry itself changed. His responsibilities also extended beyond individual property models. Tersigni created and managed the corporate model used by the company’s private equity ownership to forecast investment returns, bringing individual property plans together into a portfolio-wide view.
Working across those decisions makes it difficult to rely too heavily on a general story about an asset class. Two properties that appear similar at first can have very different prospects once you account for their leases, debt, capital needs, and tenant performance. That’s also why experience through a difficult market can be so useful. As others working in retail real estate have observed, some of the most useful judgment in the industry develops through years of watching properties perform under changing conditions.
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Stronger open-air retail performance doesn’t mean every center is suddenly a good investment. The same property-level questions still matter. Is the tenant mix healthy? When do the major leases expire? How much capital will the property require? Is the debt manageable? What happens if an anchor leaves or refinancing becomes more expensive? Those questions become especially important when a property type becomes more popular with investors. Once more capital begins chasing the same assets, simply identifying the stronger retail format isn’t enough. The price paid for an individual property still has to make sense.
That brings the discussion back to underwriting. Tersigni has written about the connection between accounting and real estate investing, particularly the habit of questioning assumptions and tracing numbers back to their source. Those skills are useful when market sentiment is negative, but they’re just as useful once sentiment improves. Open-air retail spent years being discussed as part of a much larger story about the future of physical stores. Investors willing to examine the properties individually could see that the story didn’t apply evenly.