Why Are Shopping Centers One of the Best Real Estate Investments in 2025?

Shopping centers have quietly become one of the most attractive real estate investments available today, and most investors are missing the opportunity. While multifamily and industrial properties dominated headlines for years, retail real estate has transformed into what industry insiders now call “the yield play” of commercial real estate.

On this episode of The Real Estate Investing Club, host Gabe Petersen sits down with Andy Weiner, founder of Rockstep Capital, a vertically integrated shopping center investment firm that has built or acquired 10 million square feet of retail properties across 11 states. With 28 years of retail investing experience and a family legacy in the retail business dating back to 1926, Andy reveals why shopping centers offer investors something that’s become increasingly rare: positive leverage, high cap rates, and recession-resistant fundamentals.

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Shopping centers are now one of the best real estate investments because they offer positive leverage (cap rates of 9-17% vs. 6-7% debt rates), limited new supply, strong tenant demand from survivors of the Amazon/COVID shakeout, and fundamentals that don’t require betting on future appreciation—unlike multifamily properties trading at negative leverage.

What Changed to Make Retail Real Estate Attractive Again?

For over a decade, retail real estate was the outcast of commercial property investing. The narrative was simple and relentless: Amazon would destroy brick-and-mortar retail, shopping centers would become obsolete, and malls would turn into ghost towns. Investors fled to multifamily and industrial properties, viewing anything retail-related as toxic.

But something fundamental shifted about three years ago, and it’s created one of the most compelling investment opportunities in commercial real estate.

“Two things have happened to make retail one of the desirable sectors, maybe the most desirable sector in today’s world,” Andy explains in the episode. “One is COVID and Amazon basically destroyed the weak players.”

This creative destruction wasn’t just dramatic—it was transformative. The retailers that survived didn’t just hang on by their fingernails. They evolved. They developed sophisticated e-commerce strategies, built their own distribution networks, created proprietary apps, and figured out how to not just protect market share against Amazon, but actually grow it.

As Andy puts it: “These companies that have developed the strategy have very strong balance sheets. And they’re telling Wall Street, ‘Hey, we want to grow by 50 stores or 200 stores a year.'”

Here’s where the opportunity gets interesting. These well-capitalized retailers with proven omnichannel strategies want to expand aggressively. But there’s a problem—or rather, an opportunity for investors. “They’re growing into an inventory of shopping centers that’s not growing,” Andy notes. “You don’t hear about people building shopping centers anymore.”

The math is straightforward: Strong demand plus stagnant supply equals upward pressure on occupancy and rents. For investors who own “second generation retail”—existing shopping centers in good locations—the wind is at your back.

This isn’t speculation about what might happen. It’s already playing out across the country. Retailers like TJ Maxx, Ross, Dollar General, and various grocery chains are actively seeking expansion space, but developers aren’t rushing to build new shopping centers the way they’re still building multifamily projects. The supply-demand imbalance favors existing owners in a way we haven’t seen in retail for nearly two decades.

What Types of Shopping Centers Can You Invest In?

Not all retail real estate is created equal, and understanding the different categories is crucial for investors trying to navigate this space. Andy breaks down the retail property landscape into four distinct categories, each with its own risk profile, cap rate, and investment strategy.

Strip Centers are the smallest format, typically around 10,000 square feet with five tenants. Think of that small collection of shops near your house with a dry cleaner, a Chipotle, maybe a nail salon, and a few other service businesses. These are neighborhood-serving properties with relatively simple operations.

Neighborhood Centers step up in scale to around 100,000 square feet. These might have a grocery store as an anchor tenant, or they might not. The key characteristic is that they serve a broader geographic area than strip centers and typically include a mix of retail and service tenants.

Power Centers are the big boxes you see along major highways—typically 200,000 to 500,000 square feet. “They generally have TJ Maxx, Ross, restaurants around it,” Andy explains. These centers rely on big-box retailers as anchor tenants and benefit from the traffic they generate to support smaller in-line tenants.

Enclosed Malls represent a unique opportunity in today’s market. These are the traditional malls where stores face an interior corridor. While they’ve been out of favor, they’re trading at extraordinary cap rates—mid-teens according to Andy—for investors willing to do the homework.

The cap rate ranges tell you everything about perceived risk and opportunity. Rockstep is “buying a grocery anchored center at a nine cap in Louisiana,” Andy shares on the podcast. Meanwhile, “the enclosed mall space is a mid teens cap rate opportunity.”

To put those numbers in perspective, many multifamily properties are trading at 4-6% cap rates. The difference in yields is substantial, and for investors who can properly evaluate retail properties, it represents a meaningful arbitrage opportunity.

Each category requires different expertise and management approaches. Grocery-anchored centers benefit from recession-resistant traffic patterns—people need to eat regardless of economic conditions. Power centers depend on strong anchor tenants and highway visibility. Enclosed malls require repositioning expertise and a longer investment horizon.

Why Does Positive Leverage Matter in Retail Investing?

This is perhaps the most critical concept for understanding why shopping centers have become so attractive relative to other commercial real estate sectors. Positive leverage is the difference between making money and making excuses, yet many investors don’t fully grasp its importance.

“We have the advantage of having positive leverage,” Andy emphasizes. “Cap rate at acquisition is higher than your interest rate on your debt.”

Let’s break down what this means in practice. When Rockstep buys a shopping center at a 9% cap rate and finances it with debt at 7%, they have 200 basis points of positive leverage. Every dollar of debt they use increases their equity returns because the property is yielding more than the cost of the money.

Now contrast that with today’s multifamily market. “In the multifamily space, it’s valued at a five cap, but you’re borrowing at six or six and a quarter,” Andy explains. “That’s negative leverage.”

Negative leverage is like running uphill with a backpack full of rocks. Every dollar of debt you use actually decreases your equity returns because your borrowing cost exceeds the property’s yield. The only way to make money in this scenario is if the property’s net operating income grows fast enough to overcome the negative carry.

“With negative leverage, you have to have a strategy of appreciation and prayer,” Andy says pointedly. “Prayer is never a great strategy in real estate.”

He’s not being flippant—he’s highlighting a fundamental problem. When you buy a multifamily property at a 5% cap rate with 6.25% debt, you’re betting that rents will grow, expenses won’t spike, and the property will be worth significantly more when it’s time to sell or refinance. That’s not investing based on fundamentals—that’s speculating on future conditions you can’t control.

Positive leverage in shopping centers means you’re making money from day one based on the actual cash flow of the property, not on hopeful projections about rent growth or appreciation. The property’s yield covers your debt service and generates positive cash flow to equity holders without requiring any particular market outcome.

This distinction becomes critical during economic downturns or when interest rates rise. Properties with positive leverage can weather storms that would sink properties dependent on appreciation. The cash flow cushion provides optionality—you can hold through tough times because the property pays for itself plus returns to investors.

As Andy puts it: “If you own second generation retail, you’ve got the winds behind you” in terms of supply-demand fundamentals, AND you’re getting paid to hold the asset through positive leverage. That’s a combination that’s become increasingly rare in commercial real estate.

Which Markets Offer the Best Shopping Center Opportunities?

While many institutional investors cluster in primary markets bidding up prices, Rockstep has built its entire strategy around what Andy calls “hometown markets”—secondary and tertiary cities that most sophisticated investors overlook.

“We’ve got about 100 employees. We are hometown players. We have a fund called Hometown America,” Andy shares. The firm currently owns assets across 11 states, with a clear geographic preference that tells you everything about their investment thesis.

When Gabe asks about specific markets, Andy’s answer might surprise investors used to hearing about Austin, Nashville, or Phoenix: “Rapid City, South Dakota. Manhattan, Kansas. We’re buying a property in Lake Charles, Louisiana. I do like Arkansas, Mississippi, Louisiana, Kansas, the Dakotas, Nebraska. I love Idaho.”

Notice what’s missing from that list—no coastal markets, no Silicon Valley, no New York or Los Angeles. This is intentional, driven by both economic fundamentals and operational realities.

“We’re red state guys, or we’re red county in blue states or purple states,” Andy explains. “We are in the conservative part of the world, and we like the fact that they’re generally more pro-business, generally less government entanglements. That allows us to kind of rock step and be more creative.”

The business environment matters tremendously when you’re operating physical real estate. Property taxes, permitting processes, regulatory compliance, and local government cooperation all impact returns. Markets with business-friendly environments reduce friction and costs.

But Andy also names specific states to avoid: “States I try to avoid are Illinois, California, up East, where you’ve got out-migration.”

Population trends matter in retail because you need bodies to support shopping centers. Markets experiencing net out-migration face headwinds that even the best operators struggle to overcome. You can’t force people to shop at a center if the population base is shrinking.

The hometown market strategy also incorporates a risk management element that larger, institutional players can’t easily replicate. “Every time we buy a mall, we get local investors to be part of our equity to reduce risk,” Andy explains. “They help with entitlements, property taxes, incentives.”

Local partners bring more than just capital—they bring relationships, knowledge, and influence. They know which city council members to talk to, which contractors are reliable, and which community concerns need addressing. This local intelligence is invaluable in smaller markets where relationships matter more than they do in institutional-grade transactions.

The capital stack strategy reinforces this approach: “We get local community bank lenders.” These aren’t agency loans or CMBS financing. They’re relationship-based loans from banks that know the market and the borrower, offering flexibility that institutional lenders can’t provide.

What Are the Essential Drivers for Successful Retail Investments?

The single biggest mistake retail investors make is buying in markets that lack what Andy calls “essential drivers”—the economic and demographic anchors that sustain shopping center performance through market cycles.

Andy learned this lesson the hard way. “We bought a deal in Minnesota in a smaller market west of the Twin Cities, and we paid too much for it,” he admits. “The market didn’t have essential drivers. It didn’t have any of these five things.”

So what are these five essential drivers? Andy identifies them clearly: “A military base, a college, a hospital, a government, or a major employer.”

These aren’t random characteristics—each one represents a stable, recession-resistant source of employment and population. Military bases don’t shut down during recessions. Colleges continue operating. Hospitals are essential infrastructure. Government employment remains steady. Major employers provide the economic foundation for retail spending.

“We have now focused on markets that have at least one, preferably two or three essential drivers,” Andy says, explaining the lesson from that Minnesota deal. This isn’t just about having economic activity—it’s about having the RIGHT kind of economic activity.

The difference becomes obvious when vacancy hits. In a market with essential drivers, when a tenant leaves, there’s a pool of potential replacement tenants because the economic base supports retail activity. In a market without these drivers, vacancy can linger because there simply isn’t enough economic depth to support the space.

Consider Manhattan, Kansas—one of the deals Andy highlights as a favorite. It’s home to Kansas State University, which provides a stable population base of students, faculty, staff, and the ecosystem that supports them. The university isn’t going anywhere, which means the economic foundation for retail remains constant.

Or take Rapid City, South Dakota, which Andy also mentions as a successful investment. It serves as a regional hub with tourism (Mount Rushmore proximity), a military presence (Ellsworth Air Force Base), healthcare facilities, and state government influence. Multiple essential drivers create resilience.

The essential drivers framework also helps explain why certain markets that look good on paper fail in practice. A town might have low unemployment and decent incomes, but if the economy is driven by a single manufacturing plant that could relocate or a resource extraction industry that’s cyclical, it lacks the stability that essential drivers provide.

“Some markets are too small,” Andy notes. Even with essential drivers, there’s a minimum population threshold below which retail simply can’t generate enough revenue per square foot to justify the space. The essential drivers framework helps identify markets that have sustainable economic foundations at sufficient scale.

This approach transforms underwriting from wishful thinking into evidence-based analysis. Instead of projecting generic rent growth and expense ratios, you’re evaluating whether the market has the structural characteristics to support retail performance long-term.

What Cap Rates Can You Expect in Different Retail Categories?

Understanding the cap rate ranges for different retail property types is crucial for evaluating opportunities and knowing when you’re getting a good deal versus when you’re overpaying.

The range is remarkably wide, reflecting different risk profiles, management intensity, and market perception. From Andy’s examples throughout the episode, here’s what the current market looks like:

Grocery-Anchored Centers: 8-10% cap rates. The Louisiana property Rockstep is buying closed at a 9% cap rate. “We’re buying a grocery anchored center, a shopping center at a nine cap in Louisiana a week from Monday,” Andy shares.

What makes this deal even more compelling is the replacement cost arbitrage. “The center was destroyed in Hurricane Laura 2020, rebuilt for $32 million—new roof, new HVAC, new interiors, new facade—and we’re buying it for $19 million,” Andy explains.

Think about that math. A brand new center that would cost $40 million to build today (including land and parking) is being acquired for $19 million. The debt is structured at 7%, creating that positive leverage dynamic on a property with essentially brand-new bones.

Power Centers and Neighborhood Centers: These typically trade in the 7-9% cap rate range depending on location, tenant quality, and lease term remaining. The presence of strong national credit tenants can compress cap rates, while secondary locations with regional tenants command higher yields.

Enclosed Malls: Mid-teens cap rates. This is where the real yield hunting happens for experienced operators. “The enclosed mall space is a mid teens cap rate opportunity,” Andy states. “We bought a mall at 17 cap, debt is at 50%.”

The math on that Kansas mall deal is instructive: “We pay an eight pref, we return 20% of capital per year for each of the first two years without a refi.”

Let’s break that down. They’re buying at a 17% cap rate, using 50% leverage. They’re paying preferred equity holders 8%, and returning 20% of invested capital annually to common equity for two years—all from operating cash flow without needing to refinance or sell. That’s the power of high cap rates combined with proper leverage and strong operations.

The cap rate dispersion reflects market perception more than actual risk in many cases. Enclosed malls carry the stigma of the “retail apocalypse” narrative, even though specific properties in specific markets with the right tenants and proper management can perform quite well.

For investors, this creates opportunity. When you can buy cash flow at 17% and borrow at 7%, you have 1,000 basis points of spread to work with. Even if something goes moderately wrong, you still have enormous cushion in the returns.

The key is understanding why the cap rate is where it is. A 17% cap on a mall with 40% occupancy and no essential drivers in the market is a value trap. A 17% cap on a mall with 85% occupancy, strong local demographics, and essential drivers is a mispriced opportunity.

How Do You Reduce Risk When Investing in Shopping Centers?

Risk management in shopping center investing goes far beyond basic due diligence. Andy’s approach, refined over 28 years and 10 million square feet of transactions, offers a masterclass in de-risking commercial real estate investments.

The first risk mitigation strategy is the local investor partnership model. “Every time we buy a mall, we get local investors to be part of our equity to reduce risk,” Andy explains. “They help with entitlements, property taxes, incentives.”

This isn’t just about spreading financial risk—it’s about operational risk reduction. Local investors bring intelligence and influence that out-of-state operators can’t replicate. They know which property tax assessments are inflated and how to appeal them effectively. They understand local entitlement processes and have relationships with planning commissioners. They can help secure tax incentives or TIF districts that wouldn’t be available to outside investors.

The local lender strategy reinforces this approach. “We get local community bank lenders,” Andy notes. These aren’t commodity financing relationships where you’re loan number 4,387 in a CMBS pool. These are banks that know Andy, know the property, know the market, and can make decisions based on relationship and local knowledge rather than just underwriting models.

When something goes wrong—a tenant bankruptcy, a needed capital improvement, a refinancing in a tight market—having a local bank partner who understands the situation and has flexibility makes all the difference.

The essential drivers framework, discussed earlier, represents another layer of risk management. By only investing in markets with military bases, colleges, hospitals, government, or major employers, Rockstep ensures a stable economic foundation that supports retail activity even during downturns.

The vertical integration of Rockstep’s operation—100 employees handling all aspects from acquisition to asset management to disposition—means they control the entire value chain. They’re not dependent on third-party property managers who might not share their standards or responsiveness.

Perhaps most importantly, the positive leverage and high cap rate strategy builds in risk protection through mathematics. When you’re buying cash flow at 9-17% cap rates and borrowing at 7%, you have substantial cushion. Occupancy can drop, rents can soften, or expenses can spike, and you’re still cash flowing.

Andy’s principles document—the 25 “rock steps” that every employee learns—includes “Be prepared” as rock step number six. This cultural emphasis on preparation, planning, and proactive management permeates the organization and shows up in how they approach every aspect of every deal.

The Minnesota deal that went sideways taught a clear lesson: “As a result, there just wasn’t demand when vacant space came up. So we have now focused on markets that have at least one, preferably two or three essential drivers.”

Andy’s advice to his younger self reinforces the risk management mentality: “Stamina. If you do development in real estate, you better have a lot of cash because it’s cash out for a long time before you get a deal done. Stamina and patience.”

Risk management isn’t about avoiding all risk—it’s about understanding the risks you’re taking, getting paid appropriately for those risks, and having multiple strategies to mitigate downside outcomes.

What’s the Investment Outlook for Shopping Centers?

The confluence of factors making shopping centers attractive today isn’t likely to reverse quickly. The fundamental dynamics—strong tenant demand, limited supply growth, positive leverage, and high cap rates—represent structural market conditions rather than temporary anomalies.

Supply constraints will persist. “They’re not building multifamily, they’re not building—well, shopping centers,” Andy notes, acknowledging that development has essentially stopped. Without new supply entering the market, existing owners benefit from scarcity value.

Tenant demand remains robust. The retailers that survived the Amazon/COVID shakeout aren’t pulling back—they’re expanding. These aren’t zombie companies desperately trying to stay relevant. They’re profitable businesses with strong balance sheets, proven omnichannel strategies, and aggressive growth plans.

The positive leverage advantage will continue as long as cap rates remain elevated relative to debt costs. While interest rates have come down somewhat from their peaks, the spread between retail property cap rates and debt costs remains healthy, especially for value-add and opportunistic deals.

For investors willing to do the work—understanding retail dynamics, evaluating local markets, building local partnerships, and actively managing properties—shopping centers offer something increasingly rare: the ability to generate strong current income without betting on appreciation.

As Andy puts it: “In today’s world it is the yield play.”

Key Takeaways from Andy Weiner on Shopping Center Investing

On Company Philosophy: Rockstep Capital operates as a vertically integrated firm with 100 employees, managing 10 million square feet across 11 states. The company’s 25 “rock steps”—principles every employee must know—create a high-performance culture focused on preparation, nimbleness, and mission-driven execution.

On Deal Examples: The Louisiana grocery-anchored center (destroyed by Hurricane Laura, rebuilt for $32M, acquired for $19M at a 9% cap with 7% debt) demonstrates the replacement cost arbitrage available in retail. The Kansas enclosed mall (17% cap, 50% leverage, 20% annual equity return) shows how stigmatized assets can generate extraordinary returns for skilled operators.

On Market Selection: Focus on secondary and tertiary markets (“hometown America”) with business-friendly environments, population stability, and at least one essential driver. Favor markets in states with pro-business policies over high-tax, high-regulation coastal markets experiencing out-migration.

On Risk Management: “Prayer is never a great strategy in real estate.” Build in safety through positive leverage, essential drivers, local partnerships, community bank lenders, and having “tons of cash” as Andy emphasizes when discussing successful deals.

On Lessons Learned: The Minnesota deal that lacked essential drivers taught Andy to never deviate from fundamental criteria. As Gabe summarizes: “Stick to your underwriting criteria. When you do, things go wrong.”

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