Mark Tersigni Outlines the Investment Case for Open-Air Retail Centers

For much of the past decade, the outlook for retail real estate seemed fairly settled. Online shopping would continue taking sales from physical stores, struggling retailers would close locations, and property owners would eventually feel the effects through lower occupancy, rent, and property values.

What that prediction didn't always account for was how different one retail property could be from another.

An enclosed mall anchored by department stores doesn't depend on the same customers or tenants as an open-air center built around a grocery store, restaurants, and businesses people visit every week. Yet for years, properties with very different economics were often discussed under the same broad heading of "retail."

Mark Tersigni, a real estate investment professional and Certified Public Accountant, spent years underwriting open-air retail centers and enclosed malls within the same multibillion-dollar portfolio. Looking at those properties side by side made the differences difficult to ignore.

The concerns surrounding retail weren't unfounded. Some properties faced serious challenges as shopping habits changed. But those pressures didn't affect every format in the same way, and open-air centers had some practical advantages that became increasingly important as the market changed.

Open-Air Centers and Enclosed Malls Work 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.

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.

The Advantages Aren't Particularly Complicated

Some of the strengths of open-air retail are fairly ordinary.

Customers can park near the business they're visiting. Many tenants provide products or services people need regularly. Operating the common areas can be less complicated than maintaining a large enclosed property. When one tenant leaves, the problem may stay limited to that space instead of affecting how customers use an entire section of the property.

None of that guarantees that an open-air center will perform well.

A weak location is still a weak location. An unhealthy anchor tenant can create problems for neighboring businesses. Deferred maintenance eventually has to be paid for, and a poorly structured lease can make rising expenses much more painful for the owner.

But those are risks an investor can examine property by property.

Tersigni spent years doing exactly that. He built and led an underwriting team of five analysts responsible for a portfolio of more than $5 billion in large-format open-air retail and enclosed malls. The team's work covered acquisitions, dispositions, business planning, asset management, and transaction support.

That meant looking well beyond whether "retail" as a category was expected to perform well. More useful questions focused on what was happening at a particular property and whether its leases, tenants, expenses, capital needs, and financing supported the investment case.

The Details That Matter in an Underwriting Model

Occupancy is an obvious place to start when evaluating a retail property, but the current percentage only tells you so much.

An investor also needs to know when leases expire and how much rent is tied to tenants that may leave. The lease structure determines how operating expenses are divided between the landlord and tenants. The condition of the roof, parking lot, mechanical systems, and other parts of the property affects how much capital the owner may have to spend over the next several years.

Anchor tenants introduce another layer. Their leases can contain provisions that affect other tenants in the center, so the departure of one major retailer can have consequences beyond the space it occupied.

The challenge is figuring out which assumptions have enough influence to change the investment outcome.

That's where Tersigni's accounting background becomes useful. His career began in audit at a Big Four accounting firm, and he has held a Certified Public Accountant license in Ohio since 2014. That experience carried into the way he approached real estate underwriting and investment decisions.

The same attention to detail extended through the end of a transaction. On property sales, Tersigni reviewed settlement statements to make sure the final numbers were accurate and complete. Over a two-year period, the portfolio he worked on completed more than $1 billion in property sales.

At that scale, small assumptions don't always stay small.

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.

Tersigni was a key contributor to originating a $1 billion single-asset, single-borrower CMBS loan backed by roughly 40 open-air retail properties. It was the largest open-air retail securitization of 2023.

A transaction of that size requires detailed analysis across the properties securing the loan. The individual assets still matter even when they're being financed together, so the underlying models and assumptions have to hold up through extensive review.

That doesn't mean a large 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.

Underwriting Both Formats Changes the Comparison

It's 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.

He worked with the executive team and ownership on strategic transactions, joint ventures, ground leases, crossed loans, and properties approaching debt maturity. He also managed more than $1 billion in property-level commercial mortgages.

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.

What Matters for Open-Air Retail Now

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.

As Tersigni's work in retail real estate reflects, the underlying method hasn't changed simply because the market now views the format more favorably. Investors still have to read the leases, understand the debt, account for future capital needs, and decide whether the assumptions behind the projected return make sense.

The market's opinion of open-air retail may have changed. The work required to decide whether a particular property is worth owning hasn't.