The Proforma – Your Planning and Performance Tool for your Retail Property

One of the most critical documents that a retail space landlord should have to track the development and performance of their investment is a proforma. Essentially, a proforma can be considered as a “budget” where your return on investment (the cap rate) is mapped out from the expected rents to be paid by your retail tenants, along with factoring your expenses. This document not only can assist you and your management team on what retailers should be placed on your developing property, but also guide you as to what new retailers can come in at what rents to maintain the performance of your property. The proforma is the financial model of your investment.

So, how does one go about making a proforma?

We first start with determining what is the return of investment you require from your retail property. This return of investment is known as the “cap rate” – its equivalent to the interest rate you would get if the same investment were placed in a bank account earning interest.

From this cap rate, we need factor in the expenses and what is the revenue that is collected in order to achieve the cap rate. With the target revenue now set, the process of determining of the mix of tenants and the market rents they typically pay, and the spaces they typically require to operate start to factor in and begin to fill out the possible candidates that can operate at your property. This stage can be quite daunting, as you need a mix of tenants to make the entire destination worth to visit for various reasons and gain foot/car traffic to maintain the sales of your potential tenant. Most locations require an “anchor tenant” – a popular retailer that naturally draws in many clients to give exposure to you other tenants. Retailer concepts have an expected percentage of rent paid in relation to their gross revenue – what is know as a GROC – Gross Retail Occupancy Cost. Some retailers pay 15% (15% of revenue is rent). Others higher, others lower, and it also depends on the BRAND (ie A national chain will typically pay a higher GROC than mom and pop coffee shops). Knowing the GROC and what typical sales are for a successful retailer becomes your guide in what retailers can go into which spaces, and what rents can be paid to get you to your cap rate.

Determining a successful proforma for your investment can be quite difficult and requires industry knowledge to create a realistic and successful proforma. This is where Marino Locations can assist you. With our decades of retail experience, we can review an existing proforma and propose realistic changes to get you to your cap rate, or, we can create a new proforma for a new development or use the proforma to determine if an existing retail property is worth buying. The proforma is your key to understanding the POTENTIAL of your investment, and the PERFORMANCE of your investment.

Contact Marino Locations today, and let us put your proforma into top shape.