The Case for Smaller Necessity and Service Retail

1. Executive Summary: Midwood's Investment Thesis

We buy fixable problems. Open-air centers with necessity and service tenants are benefiting from limited new supply and tight space availability.[1] Those conditions don't make every center a good investment, but they give well-located existing properties a useful demand base.

Midwood targets unanchored strip centers and neighborhood retail properties valued between $6 million and $10 million. We refer to this part of the market as the "institutional gap": many large funds target bigger assets, while smaller properties are often held by private or remote owners.[9]

We look for operating problems we can price before closing, including stale rents, weak local oversight, and visible deferred maintenance. The plan is simple: buy at the right basis, fix the physical and leasing problems, and reassess once the NOI has changed.

2. The Structural Supply-Demand Imbalance

New retail construction has been limited for more than a decade, particularly for neighborhood and strip centers. E-commerce continues to pressure some retail formats, but service and convenience uses still require physical locations.[2]

2.1 The Constrained Development Pipeline

Between 2009 and 2024, annual retail completions averaged 0.5% of total inventory.[2] In 2025, 10.2 million square feet of new retail space came online nationally, 63% below the 2015–2019 average.[13] High construction and financing costs still make many new projects difficult to justify. In some submarkets, that leaves existing neighborhood and strip centers with little new competition.[1]

2.2 Record Low Vacancies and Landlord Pricing Power

Limited new supply and steady tenant demand have kept vacancies low. Unanchored strip centers averaged roughly 4.5% to 4.7% vacancy in the cited market report.[10] Tight space can support rent growth and longer lease terms, although results still depend on the property, tenant mix, and submarket.[1]

3. Why Service-Oriented Retail Holds Up

Medical, fitness, food, and personal-care tenants deliver services that can't move fully online.[15] That makes the tenant mix as important as the real estate.

3.1 Medical Uses in Retail Space

Urgent care, dental, and physical therapy practices are moving closer to patients in neighborhood retail locations. Retail space can cost less than hospital-campus space, while specialized build-outs give tenants a reason to renew rather than move.[12]

3.2 Discount Retail and Dollar Stores: The Inflation Hedge

Dollar stores sell consumables and other basics that generate routine visits, particularly when household budgets are tight.[1] Dollar General and Dollar Tree remain two of the largest operators in the category, but tenant credit and store performance still have to be underwritten property by property.[19]

3.3 Health, Wellness, and Experiential Services

Service tenants, including fitness studios, salons, and pet-care businesses, accounted for 50.4% of U.S. retail leasing activity in 2025.[21] Their work requires a physical location, although demand and tenant quality still vary by concept and trade area.[15]

4. Why This Lane: The $6M to $10M Tranche

Midwood focuses on the $6M–$10M gap because it sits between many local buyers and the minimum deal size of many institutions. At this size, speed, judgment, and direct construction oversight can affect the outcome.

Large institutions often target assets valued between $20 million and $100 million so the potential return justifies the management overhead.[6] Private buyers, family offices, and 1031 exchange buyers account for much of the sub-$10 million market.[9]

We don't depend on finding hidden properties. We look for specific operating problems: below-market rents, weak lease structures, deferred maintenance, and remote ownership. The return has to come from the basis and execution, including repairs, lease work, and NOI growth.[11]

5. Regional Market Dynamics: Midwest Scarcity and Yield

The Sunbelt has attracted population growth, institutional capital, and new construction. The Midwest offers a different tradeoff: less new supply in many markets and, in some cases, higher going-in cap rates.[2]

Cushman & Wakefield reports that more than 80% of Midwest metros have unemployment below the national average.[30] In Minneapolis–St. Paul, suburban retail vacancy ended 2025 at 5.4%, although metro vacancy was higher at 6.1%.[31] Some Midwest centers also trade at higher cap rates than comparable Sunbelt properties.[33] We still underwrite each submarket for jobs, tenant demand, existing supply, and the development pipeline.

6. Execution Edge: The Midwood Playbook

Midwood is most comfortable when the problem is visible and can be priced before closing.

We treat claims in an OM as unverified until we confirm them. We pass when rent, vacancy, and demand checks don't support the value-add case. We look for:

• Deferred maintenance that owners stopped addressing.
• Remote self-management and weak local oversight.
• Leasing messes in submarkets where local demand is real.

Repairing known scope early can reduce emergency work and make the property easier to operate. Our underwriting combines property-level market checks with operating experience built across 115+ transactions and general contracting work.

7. Key Risks We Respect: Operational and Physical Mitigation

We are comfortable with mess, but not blind to downside. We know where this strategy can break, and we build around that.

8. Partnership Process

Midwood is applying its acquisition, construction, leasing, and vendor-management experience to smaller commercial properties where those skills can affect NOI.

We expect to invest personal capital alongside our partners and earn economics through execution and performance. The person raising capital also sources the deal, calls the market, selects the vendors, and runs the plan.