Retail Feasibility Study: Trade Areas, Tenants and Financing

A retail feasibility study tests whether one proposed or existing store building, strip center, neighborhood center or net lease pad can earn enough from its tenants to repay the loan, and whether it keeps working when a major tenant leaves. It measures spending in the trade area, the sales each tenant needs to pay its rent, the competing space, and the financing rules that decide who can borrow.

Four public numbers frame the work:

• The market is large but sales move slowly in store categories. Retail establishments sold $6.97 trillion of goods in 2022, from 1,040,277 establishments [1]. In the first eight months of 2026, sales at food and beverage stores rose 0.7% from a year earlier while nonstore retailers rose 10.3% [2].
• Online sales take a growing slice. E-commerce was 13.9% of retail sales in 2022, up from 10.4% in 2019 [16][17].
• SBA does not finance landlords. SBA procedures say shopping centers that rent space to independent businesses are not eligible, with a narrow exception for membership models [3]. An owner that occupies its own store can qualify if it uses at least 51% of an existing building or 60% of a new one [5].
• USDA can. The Business and Industry program lists "facilities for lease to private businesses engaged in commercial or industrial operations" as an eligible project, in rural areas [13].

This page explains what the study must prove, how trade-area demand and rent capacity are measured, which tenant and anchor risks decide coverage, and how SBA, USDA and conventional lenders read a retail file. A worked calculator tests supportable space, coverage and an anchor loss with illustrative inputs.

Every study reaches one of three findings. The project works as proposed. It works if stated conditions are met, such as a signed anchor lease, less in-line space, a larger reserve or more equity. Or it does not work as proposed, and the report says which changes would make it work.

What is a retail feasibility study?

It is an independent report, written for the lender's credit file, that tests whether a retail property can support its proposed financing. It covers the trade area and its spending, the tenants and their leases, the competing supply, the building and its budget, the loan structure and the cash flow that pays the debt.

Retail feasibility work usually involves one of five property types:

1. Owner-occupied store. A retailer buys or builds its own building and may lease part of it. SBA 7(a) and 504 often fit here.
2. Single-tenant net lease pad. One tenant, such as a pharmacy, auto parts store, tire dealer or quick-service restaurant, leases the whole building and pays taxes, insurance and maintenance.
3. Unanchored strip center. A row of small shops with local and regional tenants, no store large enough to draw traffic on its own, and short leases.
4. Neighborhood center. A center built around a grocery store or another daily-needs anchor, with in-line shops and outparcels.
5. Community center. A larger center with several anchors, such as a discount store, home center or off-price apparel store, plus in-line space and pads.

The Census Bureau classifies the tenants under retail trade (NAICS 44-45) and the restaurants and service businesses that share the same centers under food services (722) and personal care (8121) [1][21]. The landlord, when it is not a tenant, is a lessor of nonresidential buildings (531120) [21].

A study is not an appraisal. An appraisal estimates what the property is worth on a date; a feasibility study tests whether the project works and what would have to change if it does not. The feasibility study and appraisal comparison explains how lenders use each. A study also differs from a borrower's business plan, which argues for the project; see feasibility study versus business plan. For what makes a report one a lender can rely on, see what makes a feasibility study bankable.

What does a lender need the study to prove?

The lender needs proof that rent or business cash flow repays the loan under the program's rules, and that the space, the tenants and the leases fit those rules. SBA's regulation sets the standard: "Loans must be so sound as to reasonably assure repayment" [8].

Exhibit 1. Lender questions and the evidence a retail study supplies

Source: 13 CFR 120.110, 120.111, 120.131, 120.150 and 120.910; 13 CFR 121.201; 7 CFR 5001.3 and 5001.105; SBA SOP 50 10 8.1; 88 FR 43115, as cited in each row.

A conventional lender adds its own tests: loan to value, coverage on the property's net operating income, lease rollover during the loan term, and the credit of the main tenants. Banks also track how much of their capital is lent against income property, which affects their appetite for an investor-owned center; the section on conventional lenders below covers those screens.

How large is U.S. retail, and which categories are growing?

Retail is large and uneven. The 2022 Economic Census counted 644,146 retail firms operating 1,040,277 establishments with 17,077,240 employees [1]. The Annual Retail Trade Survey, benchmarked to that census, shows total retail sales rising 30.9% from 2019 to 2022, while department store sales fell 16.8% and electronics and appliance stores slipped 1.0% [16].

Exhibit 2. Retail sales by kind of business, 2019 and 2022, and the e-commerce share of each category

Source: U.S. Census Bureau, Annual Retail Trade Survey, estimates adjusted to the 2022 Economic Census, sales and e-commerce tables (NAICS 2017 basis) [16][17]. "Withheld" means the Bureau did not publish the e-commerce estimate (disclosure or quality). Sales are not adjusted for price changes; shares and changes calculated by FSC.

Two lessons follow for a center. First, the categories that anchor neighborhood centers, grocery, pharmacy and general merchandise, are large and grew between 2019 and 2022, but they grew with prices as well as volume, so the study does not treat nominal growth as new demand for space. Second, the online share differs by category: it was 0.8% for building material and garden dealers and 2.9% for food and beverage stores in 2022, against 7.0% for clothing and accessories stores [16][17].

The current year shows the same split. The Advance Monthly Retail Trade report covers sales through August 2026.

Exhibit 3. Retail sales, January to August 2026, and change from the same months of 2025

Source: U.S. Census Bureau, Advance Monthly Retail Trade Survey, August 2026, Table 1, not seasonally adjusted, eight-month totals and percent change [2]. Estimates are not adjusted for price changes.

Gasoline stations rose 15.7% and nonstore retailers 10.3%, while furniture and home furnishings stores fell 1.6% and department stores were nearly flat at 0.2% [2]. A study for a center whose rent roll leans on furniture or department-store space has to explain why its tenants will hold sales; one built around grocery, pharmacy, service and food tenants has a steadier base, but slow growth, so rent growth assumptions stay modest.

Which tenants are exposed to online sales?

Tenants that sell goods a shopper can compare and ship are the most exposed; tenants that sell a service, a meal, a fill-up or a same-day need are the least. Nonstore retailers made 72.7% of their 2022 sales online [17]. The survey also reports e-commerce sales inside store-based categories, such as clothing and sporting goods stores, so a rising share inside a category does not always mean lost store traffic.

The study translates this into lease risk. For each tenant it asks three questions: does the customer have to visit, does the store also serve as a pickup or return point, and how long is the remaining lease term compared with the loan term. A center whose largest leases expire inside the loan term and whose tenants sell goods available online carries more rollover risk than one with long leases to grocery, pharmacy, medical, fitness and food tenants. For restaurant tenants specifically, the restaurant feasibility study covers sales and occupancy tests in depth.

How is trade-area demand measured?

Demand is measured from the people who live and work within a realistic drive time of the site, the money they spend in the store categories the project offers, and the share of that spending the project can capture against existing stores. The Census Bureau's per capita estimates give a national cross-check for each category.

Exhibit 4. Retail spending per resident, gross margin and operating expenses by kind of business

Source: U.S. Census Bureau, Annual Retail Trade Survey, per capita sales, gross margin and total operating expense tables, adjusted to the 2022 Economic Census [18][19][20]; shares of sales calculated by FSC from the sales table [16]. Operating expenses are the survey's total operating expense estimate for each kind of business; the last column is gross margin less operating expenses, calculated by FSC. Estimates are not adjusted for price changes.

Spending per resident across all retail categories was $20,928 in 2022, or $16,264 excluding motor vehicle and parts dealers [18]. A trade area of 30,000 residents therefore implies roughly $488 million of non-auto retail spending at the national average, before income adjustments; the study then narrows that to the categories the center will actually offer.

The method runs in six steps:

Exhibit 5. Six steps from population to supportable square feet

Source: FSC method; data sources as cited in each row.

Three cautions keep the estimate honest. Spending moves with income, so a trade area with household income well below the national median spends less per household in most categories, and the study adjusts rather than applying national averages. Residents do not spend everything locally; regional centers, employment centers and online sellers take a share, which is the leakage the next sections measure. And a single trade-area number hides daytime population: a site near offices, a hospital or a highway interchange can draw buyers who live elsewhere, which the study counts as inflow only when it can show the evidence.

How do retail sales and store counts vary by state?

They vary more than population alone would suggest. Retail sales per resident in 2022 ranged from $11,427 in the District of Columbia to $31,194 in Washington, and employer retail establishments per 10,000 residents ranged from 23.9 in Arizona to 45.7 in Wyoming [1][22][25]. Sales are counted at the selling establishment, so states that host warehouse, headquarters or online fulfillment operations can show sales that local residents did not make, and states whose residents shop across a border show less.

Exhibit 6. Retail sales, store counts and household income by state

Source: U.S. Census Bureau, 2022 Economic Census, Retail Trade (EC2244BASIC), sales [1]; County Business Patterns 2023, employer establishments, NAICS 44-45 [21][22]; Nonemployer Statistics 2024, retail trade [23][24]; Vintage 2025 population estimates for July 1, 2022 and July 1, 2023 [25]; American Community Survey 2025 1-year estimates, table B19013 [27]. Per resident and per 10,000 residents calculated by FSC. Sales in thousands of dollars in the source are shown in millions. The full table with populations is in the evidence file.

A lender reads the state table as context, not as a market conclusion. A high count of stores per resident, as in Vermont at 45.3 and Maine at 43.1, often reflects small towns each needing its own grocery, pharmacy and hardware store, not oversupply [22][25]. A low count in a fast-growing state, such as Arizona at 23.9, can mean larger stores rather than a shortage [22][25]. The trade-area work decides the question for the site.

Do small counties lose retail spending to regional centers?

Many do. When county retail sales are compared with the household income of county residents, small counties keep a smaller share of their residents' income in local stores. In counties under 10,000 people, retail sales equaled 43.1% of household income, against 55.0% in counties of 100,000 to 249,999 people; 27.4% of the smallest counties had sales under a quarter of household income [1][26][28].

Exhibit 7. Retail sales compared with household income, by county population

Source: U.S. Census Bureau, 2022 Economic Census, Retail Trade, county sales and establishments, NAICS 44-45 [1]; American Community Survey 2018 to 2022 5-year estimates, aggregate household income (B19025) and occupied housing units (B25003) [28][29]; Vintage 2025 county population estimates for July 1, 2022 [26]. Joined by county FIPS code and calculated by FSC; 25 counties whose 2022 sales were withheld or zero and 20 counties that did not match across all three files are excluded. Retail sales include motor vehicle and fuel sales and purchases by nonresidents and businesses, so the ratio is an indicator of where spending lands, not a measure of resident spending.

The pattern matters for two kinds of projects. A small-town grocery, pharmacy or hardware store can recapture spending that now leaks to a regional center an hour away, so the study should quantify the leakage the project will close; for a rural project financed with a USDA guarantee, that evidence supports the market section of the required study. A regional center, by contrast, depends on inflow from surrounding counties, and the study has to show that those shoppers will keep coming when a closer competitor opens. County figures are only a screen; the study measures the actual trade area.

Which tenants fill neighborhood centers, strip centers and pads?

Daily-needs retailers, services and restaurants. Their sales per store differ by a factor of ten or more, which is why a center's rent roll has to be read tenant by tenant.

Exhibit 8. Sales and staffing by store type, 2022

Source: U.S. Census Bureau, 2022 Economic Census, Retail Trade, United States, NAICS 2022 industries (EC2244BASIC) [1]. Per establishment figures and payroll shares calculated by FSC. Averages mix small and large stores and do not describe any single tenant.

The averages are a screen, not a rent test. A supermarket averaged $12,255 thousand of sales per establishment and a pharmacy $12,395 thousand, while a convenience retailer averaged $1,201 thousand and a florist $811 thousand [1]. A grocery anchor that sells well brings traffic every day; a small-shop tenant depends on that traffic. The study therefore asks for the anchor's sales history at the site where one exists, and for each in-line tenant's financial statements where the lease is material to coverage.

Service tenants fill much of the in-line space in unanchored strips and neighborhood centers. They are small businesses, often owner-operated, and their credit is the owner's personal credit.

Exhibit 9. Service and food tenants that lease center space, 2023

Source: U.S. Census Bureau, County Business Patterns 2023, United States, all legal forms of organization (NAICS 2017 codes) [21]. Payroll per employee and size shares calculated by FSC.

Most beauty, barber and nail businesses had fewer than five employees, and so did 78.3% of nonresidential lessors, the landlords themselves [21]. For the lender, a rent roll of such tenants means short credit histories, personal guarantees, frequent turnover and leasing costs every few years. The study budgets for that turnover rather than assuming a stabilized vacancy rate from a larger center.

Many retail businesses have no employees at all. Nonemployer businesses are firms with no paid employees, and the Census Bureau counts them separately from employer establishments.

Exhibit 10. Nonemployer retail businesses (2024) compared with employer establishments (2022)

Source: U.S. Census Bureau, Nonemployer Statistics 2024, United States, retail trade by subsector [23]; 2022 Economic Census, Retail Trade, employer establishments and sales [1]. Averages calculated by FSC. The two series cover different years and different businesses; they are shown side by side to compare scale, not to measure change.

There were 2,178,016 nonemployer retail businesses in 2024, averaging $64,260 of receipts each, against 6,705 thousand dollars of sales per employer establishment in 2022 [1][23]. Few nonemployers lease center space, but some do, especially in kiosks, small-shop suites and seasonal leases. A study that finds such tenants on the rent roll treats their rent as the least secure income in the center.

How much rent can a retail tenant afford?

Only as much as its sales and margin allow. The useful test is the occupancy cost ratio: base rent plus the tenant's share of common area maintenance, taxes and insurance, divided by the tenant's sales. When that ratio rises too far for the tenant's category, the tenant stops paying, asks for relief or leaves at renewal, whatever the lease says.

Exhibit 4 shows why the margin for error is thin. In 2022, food and beverage stores kept 5.8% of sales after operating expenses, general merchandise stores 7.3% and health and personal care stores 9.8% [16][19][20]. A tenant pays its rent out of gross margin, along with payroll and every other operating cost, so a rent increase comes straight out of what is left.

Exhibit 11. How the occupancy cost ratio changes with tenant sales (model)

Source: FSC model; rent, recoveries and sales levels are illustrative assumptions, not market figures.

The study gets each tenant's sales from the lease's sales-reporting clause, the tenant's financial statements or, for a franchise, the franchisor's disclosure document. Where none exists, it builds sales from the trade-area capture and checks the result against Census sales per establishment for the category (Exhibit 8). It then compares the proposed rent with what comparable centers achieve and with what the tenant can carry, and uses the lower figure. A proposed rent that only works at sales the trade area cannot produce is the most common reason a retail study narrows its conclusion.

What happens to coverage when an anchor leaves?

Coverage can collapse, because the anchor's departure removes its rent, shifts its share of operating costs to the landlord and can trigger rent cuts or termination rights for the small-shop tenants. The study models that sequence explicitly.

Three lease terms drive the result:

1. Operating covenant. Whether the anchor must keep the store open, or only keep paying rent. A tenant can pay rent on a dark store, which keeps the landlord's income but removes the traffic.
2. Co-tenancy clause. In-line leases often let the tenant pay reduced rent, or a percentage of sales, when the anchor closes or occupancy falls below a stated level, and to terminate if the condition lasts.
3. Recapture and assignment rights. Whether the landlord can take back a dark anchor box and re-lease it, and whether the anchor can assign or sublet to a weaker tenant.

Exhibit 12. Anchor loss in a 60,000 sq ft neighborhood center (model)

Source: FSC model; every input is an illustrative assumption, not a market figure.

In the model, the base case covers debt at 1.40 with break-even in-line occupancy of 57.6%, but losing the anchor with co-tenancy drops coverage to 0.49, and no level of in-line occupancy restores it until the anchor box is re-leased. That is why lenders look past the current rent roll to the anchor's lease term, renewal options, sales at the site and corporate credit, and why a study for an anchored center includes a re-leasing case: months dark, the cost to divide or rebuild the box, the rent a replacement anchor would pay, and the leasing commission.

The calculator below runs this test with your own illustrative inputs. It converts trade-area households, income, spending share and capture into supportable square feet, then tests rent, vacancy, expenses and debt service, and repeats the coverage test with the anchor dark. Its default inputs are illustrative only, and its result is not a feasibility conclusion.

What does a single-tenant net lease pad study test?

It tests the tenant more than the building. A pad leased to one tenant has one source of rent, so the study asks whether that tenant's store will earn enough at this site to stay through the loan term, and what the building is worth to someone else if it does not.

The tenant's credit has two layers. If the lease is signed by a national corporation, its published financial statements matter. If it is signed by a franchisee, the lender relies on that franchisee's finances and the strength of the brand. The Federal Trade Commission's Franchise Rule fixes what a franchisor must disclose, and those items are the study's starting evidence for a franchise pad.

Exhibit 13. Evidence for a single-tenant pad and where it comes from

Source: 16 CFR 436.5 (Federal Trade Commission Franchise Rule disclosure items); SBA SOP 50 10 8.1; FSC method.

The Franchise Rule says a franchisor may provide financial performance information "if there is a reasonable basis for the information" and it appears in the disclosure document [34]. Item 19 is optional, so many systems disclose no sales figures; the study then relies on the operator's own statements and comparable-store evidence. SBA adds that a brand meeting the FTC franchise definition "must be on the Directory in order to obtain SBA financing" [3].

Three pad risks deserve their own tests. A lease shorter than the loan, or with renewal options only at the tenant's choice, can end the rent before the debt is repaid. A drive-through, fuel or service-bay building with a specialized layout costs more to convert; SBA's list of limited or special purpose properties includes gas stations, car washes and service centers with pits and in-ground lifts, which raises the 504 equity requirement [3][9]. And an operator with several units financed at once can carry more debt than any one store shows, which SBA lists as a feasibility study trigger: "significant rapid growth of the Applicant and/or affiliate group" [3].

How much new retail space is being built?

Construction spending on shopping centers rose from 2022 to 2025 even as total commercial construction spending declined. Private spending on shopping center construction was $8,544 million in 2022 and $13,205 million in 2025, a rise of 54.6%, while general merchandise store construction fell 48.9% [30].

Exhibit 14. Private retail construction put in place, 2022 to 2025 ($ millions)

Source: U.S. Census Bureau, Construction Spending (C30), annual value of private construction put in place, 2022 to 2025 [30]. Not adjusted for price changes; changes calculated by FSC. Medical buildings are shown for comparison with the medical office feasibility study.

National spending says nothing about a particular trade area, but it shows where developers are putting money: into multi-tenant centers and food and beverage buildings rather than freestanding general merchandise stores. Locally, the study counts every competing project that has a site plan approval or building permit, because a center approved but not yet built will compete for the same tenants during the subject's lease-up.

How do zoning rules on big stores and chain stores change a project?

They can cap store size, require a special permit for chain tenants, or require an economic impact study before approval, and each changes what the center can lease and how fast. The study reads the current code for the site; the examples below show the range.

Exhibit 15. Examples of size and formula-business rules

Source: San Francisco Planning, chain stores page; City of Malibu, formula retail page and Ordinance No. 431; City of Sebastopol, formula business ordinance questions and answers; City of Albuquerque, big box regulations page and Integrated Development Ordinance definitions (revised through May 2018); Maine Revised Statutes, Title 30-A, sections 4365-A, 4366 and 4367.

Malibu's ordinance exempts eight formula uses: grocery, drug stores and pharmacies, gas stations, banks, real estate offices, movie theaters, postal offices and medical offices [37]. Sebastopol's code does not bar grocery stores that are formula businesses from its downtown; they may open with a use permit [38]. In San Francisco, voters made formula retail a conditional use in neighborhood commercial districts in 2007, and the city prohibited it in three districts as of May 2011 [35]. Albuquerque's council passed its large retail facility ordinance 7 to 2 on August 20, 2007, and the city states that it "does not prohibit big boxes" but regulates location, access and design [39]. Maine's statute applies only where a municipality has adopted it by ordinance [45]; it defines the study area as the municipality and abutting municipalities and lets the municipality set the fee [41][42].

For the lender, these rules turn into conditions. A study for a center whose leasing plan depends on chain tenants in a formula-restricted district should show that permits are in hand or that local tenants can fill the space at the projected rent. Where a store exceeds a size threshold, the schedule should include the review, and the budget should include its costs.

Can SBA finance a retail building or shopping center?

SBA can finance a retailer's own building, but not a landlord's center. SBA procedures state that shopping centers and similar models "that generate income by renting space to accommodate independent businesses that provide services directly to the public are not eligible," unless revenue comes from membership dues rather than rent and the other membership conditions are met [3]. The regulation behind the rule bars "passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds" [4].

What SBA can finance is an operating retailer that occupies most of the building. A grocer, pharmacy owner, hardware dealer or franchisee can buy or build its store, lease the remainder to other businesses, and use SBA 7(a) or 504, provided the occupancy test is met. The SBA loan programs page summarizes both programs, and the SOP 50 10 8.1 update explains the current procedures.

Exhibit 16. SBA rules that decide a retail loan

Source: SBA SOP 50 10 8.1, effective October 1, 2026 [3]; 13 CFR 120.110, 120.111, 120.131, 120.910 and 120.861 [4][5][6][9][10].

The regulation also bars using proceeds for "investments in real or personal property acquired and held primarily for sale, lease, or investment," except for an Eligible Passive Company [7]. The Eligible Passive Company lease must be "subordinate to SBA's mortgage," and the property company must assign all rents under it as collateral [6]. Each owner of 20% or more of either company must guarantee the loan [6].

Exhibit 17. Occupancy tests for six illustrative retail layouts (model)

Source: FSC model applying SBA SOP 50 10 8.1 and 13 CFR 120.131 [3][5]; layouts are illustrative.

SBA's procedures say "the SBA Lender may include the square footage of all common areas" when computing the owner's share, and allow no more than 1 year after closing to meet the occupancy requirement [3]. Because the rules turn on measured square footage, the study works from plans or a measured survey, not from listing brochures.

Which size standards apply to retail tenants?

The applicant must be small under SBA's size standards, which for retail are receipts limits by NAICS code. An Eligible Passive Company and its operating company must each be small [6].

Exhibit 18. SBA size standards for common retail and center tenants

Source: 13 CFR 121.201, Small Business Size Standards by NAICS Industry, revised as of January 1, 2026 [11].

When does USDA Business and Industry financing fit rural retail?

When the project is in a rural area and the lender wants a guarantee for a project SBA will not take, including a center leased to other businesses. The Business and Industry program lists eligible projects that include "purchase and development of land, buildings, or infrastructure for public or private commercial enterprises" and "facilities for lease to private businesses engaged in commercial or industrial operations" [13]. The USDA loan programs page explains the guarantee.

Exhibit 19. USDA Business and Industry rules for a rural retail project

Source: 7 CFR 5001.3, 5001.105, 5001.118, 5001.306 and 5001.406, revised as of January 1, 2026 [12][13][14][15][44].

The program also names healthy-food retail. Local and regional food projects qualify when they expand "the availability of staple food in underserved areas with moderate and low-income populations by maintaining or increasing the number of retail or institutional outlets" [13]. A rural grocery that replaces a closed store fits this purpose, and the county leakage evidence in Exhibit 7 is part of the case. Eligible uses of loan funds include the "purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties, including expansion or modernization" [43].

The feasibility study for a B&I loan must be prepared by "an independent qualified consultant acceptable to the Agency," and its scope depends on the project's complexity [15]. The regulation defines the study as an evaluation of "the economic, market, technical, financial, and management feasibility of the proposed project" [12], so a retail study adds those components to the trade-area and tenant analysis on this page. The lender requirements overview compares the study requirements across agencies.

What do conventional lenders and bank regulators look for?

They look at the property's own income, the tenants' credit and lease terms, value, and how the loan fits the bank's concentration limits. A bank or credit union usually finances investor-owned centers and net lease pads that SBA cannot, so this is the main path for a multi-tenant project in a metropolitan area. See conventional loan programs.

Two federal rules shape that lending. The first is the 2006 interagency guidance on commercial real estate concentrations. It defines income property loans as those where "50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income," which captures investor-owned centers but not a retailer's own building [31]. The second is the appraisal threshold: OCC rules exempt commercial real estate transactions of $500,000 or less from a full appraisal, and require a state certified appraiser above that amount [33].

Exhibit 20. Federal rules that affect conventional retail lending

Source: Interagency guidance, Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, 71 FR 74580 [31]; 12 CFR 34.43 (OCC), revised as of January 1, 2026 [33].

What do regulators expect when a retail loan goes wrong?

They expect the lender to have tested the downside before the loan was made. The 2023 interagency policy statement on commercial real estate workouts includes a hypothetical shopping mall construction loan that shows how a lease-up shortfall plays out [32].

Exhibit 21. The regulators' hypothetical retail construction loan, by scenario

Source: Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts, 88 FR 43115, July 6, 2023, section on income producing retail property [32]. The loan, values and ratios are the regulators' hypothetical, not market data.

The example's lesson is plain: the takeout lender required 75% occupancy, and weak conditions and "a shift in consumer behavior to a greater reliance on e-commerce" left the project at 55% [32]. A feasibility study that tested lease-up against the trade area's real demand, and showed coverage at lower occupancy, would have told the lender before construction what the regulators describe after the fact.

Which assumptions move coverage most?

In-line rent, vacancy, the anchor's renewal rent, unrecovered expenses and the interest rate. The model below changes one assumption at a time from the anchored-center base case in Exhibit 12.

Exhibit 22. One change at a time: coverage in the illustrative center (model)

Source: FSC model; every input is an illustrative assumption, not a market figure.

Each single change in the model costs between 0.11 and 0.13 of coverage, so a project that starts near the lender's minimum has little room; the anchor cases cost far more than any other change. The study therefore states each assumption's basis: rent from comparable leases and tenant capacity, vacancy from the trade area's supply and the tenant mix, expenses from the property's history or a line-by-line budget for taxes, insurance, maintenance and management, and reserves for roofs, parking lots and tenant turnover. For how lenders compute the ratio itself, see debt service coverage for SBA and USDA loans.

The lease structure also matters. In a triple-net lease the tenant reimburses taxes, insurance and common area costs, so expense growth passes through; in a gross or modified gross lease the landlord carries it. The study reads every lease's recovery clause, including caps on controllable costs and anchor exclusions, because an anchor that pays a fixed or capped share can leave the landlord with costs the model in Exhibit 22 calls unrecovered.

What must a retail feasibility study contain?

It must contain the evidence a credit officer needs to approve, condition or decline the loan, in an order the officer can follow.

Exhibit 23. Sections of a retail feasibility study

Source: FSC study scope; program rules as cited in the sections above.

What does the study cost and how long does it take?

The scope and delivery date are set after a short scoping call, once the property type, the capital source and the documents available are known. No fee or schedule is quoted on this page. Four things drive the scope:

1. Whether the property is existing, with a rent roll, leases and operating history, or proposed, with a leasing plan and budget.
2. How many tenants are material to coverage, since each material lease is read and each material tenant's sales are tested.
3. Whether a program test comes first: SBA occupancy and eligibility, USDA's rural area and equity tests, or a zoning review for size or formula-business rules.
4. Whether plans, a contractor's budget and measured areas exist, or the study must start from a site plan.

The deliverable is a written report with exhibits and a financial model, and written answers to the lender's follow-up questions. After closing, the model serves as a baseline the lender can compare with actual rent collections, occupancy and expenses each year.

How the study runs

1. Scoping: confirm the property type, capital source, program, loan amount, and the tests that apply.
2. Document intake: rent roll, leases and amendments, tenant sales reports, operating statements, plans, budget, purchase contract, zoning approvals, and for an owner-occupant, business financial statements and tax returns.
3. Field and market research: site and trade-area inspection, competing center survey, traffic and access, approved and permitted projects.
4. Model: demand and capture, rent capacity by tenant, operating budget, debt service, base and stress cases.
5. Review: the draft is checked against the lender's questions and revised only for new facts.
6. Final report: signed by Sarrah Allen, MAI. More about who prepares the study is on the about page, and other property types are listed on the asset classes page. For a project with apartments or offices above the shops, see the mixed-use feasibility study.

Download the evidence behind this page's exhibits (CSV, 777 data points with sources)