Co-Tenancy and Loan Sizing

Why a clean rent roll can still size 20% light, and which four provisions move the number.

Owners bring in a rent roll showing clean, current, in-place NOI and expect proceeds to follow. Then the term sheet comes back materially light, and the explanation is a paragraph about co-tenancy that nobody modeled.

What lenders are actually pricing

Co-tenancy clauses give inline tenants the right to reduce rent, convert to percentage rent, or terminate outright if an anchor goes dark or if occupancy falls below a stated threshold. From a credit perspective these are contingent liabilities embedded in the rent roll. A lender sizing the loan is not underwriting the rent collected today; it is underwriting the rent that survives an anchor departure.

A conservative lender will run a stress case in which the anchor goes dark and every co-tenancy right that becomes exercisable is exercised. If that scenario drops NOI meaningfully, the loan is often sized against something much closer to the stressed number than the in-place number, regardless of how remote the anchor's departure looks.

The four provisions that move the number

• The occupancy threshold itself. A clause triggering at 70% occupancy is materially different from one triggering at 80%. Many owners have never mapped their thresholds in one place.
• Cure rights and cure periods. A clause giving the landlord twelve months to replace the anchor before remedies attach is worth real proceeds compared to one with immediate effect.
• Whether remedies are rent reduction or termination. Reduction is survivable and lenders treat it that way. Termination rights concentrated among the largest inline tenants compress proceeds hardest.
• Recapture and replacement language. If the clause is satisfied by any replacement anchor rather than a named-category replacement, the risk profile is different and should be argued as such.

Key takeaways

• Retail proceeds are driven by tenancy structure at least as much as by in-place NOI.
• Lenders size against a stressed anchor-departure case, not the current rent roll.
• Thresholds, cure periods, remedy type and replacement language are the four levers.
• Mapping co-tenancy exposure before going to market converts priced uncertainty into priced risk.

This material is for general educational purposes only and does not constitute legal, tax, or financial advice. Principals of Gibson Capital Advisors hold interests in affiliated entities that acquire and develop commercial real estate, including Quadrant Retail Partners. Gibson Capital Advisors acts as adviser, not principal, in client engagements, and discloses any affiliate interest in a transaction at the outset. Gibson Capital Advisors is a debt advisory firm and does not make loans.