Single-Tenant Retail Investment Loss Severity Risk Management

The advent of e-commerce has shown a pivotal weakness in the commercial real estate retail income-producing property business and single-tenant retail investment loss severity risk management is now a top priority with many capital market firms.  The INVIZEN RTS program is specifically designed to help prevent single-tenant retail investment loss severity risk from getting out of hand by providing up to 24 months of advance notice of changes in market conditions that could create a market disruption of sufficient magnitude to place the asset value at risk.

The key isn’t the phony thinking behind “tenant quality” and other misnomers.  If we all focused on tenant quality, then Sears, ToysRus and other so-called quality credit-rated tenants would still be safe bets, but they aren’t.  Time to admit the mistake and leave that behind.

All that really matters for single-tenant retail investment loss severity is whether or not the tenant has a reasonable revenue capture opportunity within their geographical local trade area (or 100% trade area, as they are sometimes called).  A ton of demographic data and analytics goes into these ongoing analyses and the levels of complexity have not made the outcomes any better.  The focus became the reams of data and not what the data really meant regarding the decision to deploy investment capital.

The INVIZEN RTS system changes this fundamental dynamic by focusing on a comprehensive approach to providing investment loss severity risk reduction management on a level unseen in the past.  This is a bold claim and an explanation is required.

The RTS system is a complete end-to-end solution.  An end-to-end solution has to take into account the same processes and outcomes as would attend any commercial real estate transaction:

  1. First, the end-to-end solution has to address intended-uses other than the one at-interest because no commercial real estate property is worth a penny more than the present value of its future income-generating potential – and that potential may not be maximized with what is going on currently at the site.  This has to go further than the traditional MAI appraisal and focus on market-centric issues as the future income potential is not a function of replacement cost or market comps, per se.  The future income potential is tied to the market and the market is never in stasis.  The RTS focuses on the potential for changes (market disruptions) that cause consumers to change their purchasing preferences.  In the end, these changes in purchasing preferences drive the revenues the property would be able to command from a tenant.  RTS does this all in real-time, so instead of waiting weeks (or months in the case of a full-scope appraisal) INVIZEN does this in the course of a day for more than 20 individual intended-use scenario candidates the site may be qualified to support; then
  2. Second, the end-to-end solution has to address the single-tenant retail intended-use scenario at-interest from the standpoint of a complete and tested market feasibility study.  The INVIZEN system tests the market feasibility assumptions and conclusions to see if a reasonable basis may in fact exist for their use in the final market feasibility analysis report by using the data as the basis for a financial feasibility analysis forecast.  Normally, a full, complete and tested feasibility study can take months, but the INVIZEN system does it real-time, so it is done in the course of a day as well.  In fact, it happens almost at the same time as the first step; then
  3. Third, the end-to-end solution has to address underwriting and investment loss severity risk from a sober and realistic viewpoint.  Historically, this has included subjective measures such as reputation, character and resumes.  These are poor decision-making factors at best and management is the easiest thing to change.  The issue is whether or not the property operating business is likely to be exposed to a liquidity crisis that could result in a bankruptcy petition over the course of the holding period.  The INVIZEN system underwriting approach is designed to manage liquidity such that a bankruptcy petition is virtually impossible to occur for up to a 24-month forward-looking period for the full term of the investment because of a unique monitoring solution called the Real-Time Status (or RTS) program.

The entire basis of single-tenant retail investment loss severity risk management can now be encapsulated within the RTS program approach because it is an end-to-end solution that goes beyond the close of escrow and provides real-time, proactive protection for the entire term of the investment.  Only INVIZEN offers this level of performance assurance and it is very affordable.

Find out more by talking to an INVIZEN representative today at 832.663.9634.