Conventional Loan Feasibility Study Case Study: A Speculative Strip Center and Pad Sites on the Neuse Boulevard Corridor in New Bern, North Carolina, Not Feasible as Proposed and Feasible as Restructured Around the Pads

An investor proposes a 12,000 SF speculative unanchored strip center with one quick-service pad on 3.2 acres of a 13.54-acre tract rezoned to C-3 at 3530 Neuse Boulevard in New Bern, North Carolina, financed by a bank construction-to-permanent loan at 65 percent of cost. The corridor's asking rents run from $9 to $21 per SF, new construction costs $482 per SF all-in, and the arithmetic does not close: at $24 per SF triple net and 92 percent occupancy the center produces $324,248 of net operating income, a 5.61 percent yield on a $5,781,400 cost against a 7.4 percent market cap rate, a 0.95x debt service coverage ratio on a $3,757,910 loan and an 8.6 percent debt yield, and the lender could advance only 50 percent of cost at 1.25x. Restructured around the pads, a 6,000 SF three-bay building fully pre-leased at $26 per SF with 60 percent of its area to two credit tenants, and two pad sites ground-leased for twenty years to a quick-service drive-through at $90,000 and a coffee drive-through at $72,000, on 2.6 acres at a $3,604,600 cost, the project produces $292,393 of net operating income, an 8.11 percent yield on cost, a 1.38x debt service coverage ratio on a $2,342,990 loan and a 12.5 percent debt yield, and the ground leases alone, net of the operating expenses and reserve, cover 50 percent of the debt service with the strip empty. Determination: not feasible as proposed; feasible as restructured, conditioned on executed leases for 100 percent of the strip and executed ground leases for both pads before the construction loan closes, an NCDOT count on Neuse Boulevard at or above the underwriting basis, the NCDOT driveway permit and the City's site plan approval, and a guaranteed maximum price contract.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 3, 2026

MMCG concludes that the proposed speculative strip center on the Neuse Boulevard corridor in New Bern is not feasible as proposed and is feasible as restructured around its pad sites. The proposal fails on the arithmetic that governs every new unanchored strip center in 2026: the rent the corridor pays does not justify the cost of building. The corridor's asking rents run from $9 to $12 per SF for 1973 product, $14 to $15 for the 1970s and 1990s product on MLK Boulevard, $18 for 2007 product and $21 at the waterfront, and the proposal must achieve $24 per SF triple net on 12,000 SF of new space with no anchor, no pre-leasing and an eighteen-month lease-up. Even at that rent and 92 percent occupancy the center's $324,248 of net operating income is a 5.61 percent yield on a $5,781,400 cost, $482 per SF, against a national market cap rate for retail of 7.4 percent and an average closed cap rate of 6.8 percent; the completed center would be worth about $4,381,729 at the market rate, $1,400,000 less than it cost, and the $3,757,910 construction loan at 65 percent of cost is covered at 0.95x with an 8.6 percent debt yield. A lender holding the project to a 1.25x coverage ratio could advance $2,861,871, 50 percent of cost, and the sponsor would be building a center worth less than its cost with half of its own money.

Restructured, the project keeps what the corridor will pay for and drops what it will not. Two pad sites of 0.7 acres each, delivered pad-ready with the shared drive, utilities and stormwater in place, are ground-leased for twenty years to a quick-service drive-through at $90,000 a year and a coffee drive-through at $72,000, the tenants that the net lease market prices most tightly and that build their own buildings; and a 6,000 SF three-bay building is built only when it is fully pre-leased, with 4,000 SF to two credit tenants on ten-year leases and 2,000 SF to a local tenant on a five-year lease, at $26 per SF triple net, a rent that new construction with national co-tenancy on the corridor supports and that speculative space does not. On 2.6 acres at a $3,604,600 cost the project produces $292,393 of net operating income at stabilization, an 8.11 percent yield on cost, a value of $3,951,260 at the 7.4 percent market cap rate, a 1.38x coverage ratio on a $2,342,990 loan at 65 percent of cost and a 12.5 percent debt yield. The pads are the credit: their $162,000 of ground rent covers the project's operating expenses and reserve and, net of them, 50 percent of its debt service with the strip empty, and the strip reaches 1.0x at 54 percent occupancy and 1.25x at 81 percent. The Year 1 shortfall of $7,745 during the strip's fit-out and the pads' construction is funded from an $80,000 lease-up reserve. The determination is conditioned on executed leases for 100 percent of the strip and executed ground leases for both pads before the construction loan closes, an NCDOT classified count on Neuse Boulevard at or above the underwriting basis of 18,000 vehicles per day, the NCDOT driveway permit and the City's site plan approval, and a guaranteed maximum price construction contract.

This is an MMCG model study: a complete feasibility analysis of an investor retail development on a model site within a real, documented rezoning tract in a real market, prepared with public data to show conventional lenders and developers how MMCG tests a speculative strip center against the corridor's rents, the cost of construction, the market's capitalization rates and the lender's coverage and debt yield policies, and how the project is restructured when the test fails. It is not a client engagement. The site is a model portion of a real tract described in the City of New Bern's planning record; MMCG has no relationship with the tract's owner, any broker, any tenant or any developer, and the analysis does not represent an offer, an appraisal or a recommendation to buy any parcel. Figures drawn from the U.S. Census Bureau, the East Carolina University Bureau of Business Research's 2023 retail market analysis for the city, the City of New Bern's planning packets and fee schedule, Craven County's tax records, CoStar's national retail report of October 2026, Cushman & Wakefield's second-quarter 2026 retail report, The Boulder Group's second-quarter 2026 net lease report, Rider Levett Bucknall and the listing platforms are identified as such. Figures labeled MMCG assumption or MMCG estimate are underwriting inputs set by MMCG from industry benchmarks, and items that could not be verified from a primary source at the study date are listed in the Conditions and Limitations section rather than estimated silently. In particular, the NCDOT count on Neuse Boulevard, the tract's asking price, ground rents for pad sites in New Bern, the lease type and posting dates of the corridor's asking rents, the City's water and sewer system development fees, and a per-square-foot hard cost for strip construction in eastern North Carolina were not confirmed from primary sources at the study date and are carried as stated assumptions.

The Project will develop 2.6 acres of the C-3 tract at 3530 Neuse Boulevard as a pad-led retail site: a shared full-access drive from Neuse Boulevard under an NCDOT permit serving two pad sites on the frontage and a three-bay strip building behind them, with a common stormwater facility and utilities extended to each pad. The physical program as restructured comprises Pad A of 0.7 acres on the eastern frontage, ground-leased to a quick-service drive-through operator who builds a 2,800 SF restaurant with a double drive-through lane; Pad B of 0.7 acres on the western frontage, ground-leased to a coffee drive-through operator who builds a 900 SF unit with a single lane and a walk-up window; and a 6,000 SF single-story masonry and storefront strip building on 1.2 acres behind the pads, divided into three 2,000 SF bays with rear service doors, 45 parking spaces at 7.5 per thousand SF, a monument sign on Neuse Boulevard carrying all three strip tenants and both pads, and landscaping and buffers to the City's standard. The developer holds the land and the strip building in a single-purpose entity, ground-leases the pads for twenty years on absolute net terms with 10 percent rent increases every five years and two five-year options, leases the strip on triple net terms with the two credit tenants at ten years with 10 percent increases at year six and the local tenant at five years with 3 percent annual increases, and engages a local property manager at 4 percent of effective gross income. The Project is positioned as the corridor's new-construction retail node at the interchange end of Neuse Boulevard, taking the drive-through food and daily-needs service tenants whose customers already use the corridor rather than competing with the MLK Boulevard anchors for destination retail.

Marketing and Sales Strategy

The leasing is the project. The developer engages a regional retail brokerage before the land contract closes to market the two pads to the national and regional quick-service and coffee drive-through operators whose site criteria the frontage meets, and the three bays to the national service tenants that follow them: a cellular carrier, an insurance or tax franchise, a medical or dental satellite, a nail salon or a quick-service franchise without a drive-through. The pads are offered as ground leases only, which keeps the developer out of the building cost and puts the tenant's credit behind the rent, and the strip is offered with a $40 per SF tenant improvement allowance and a delivery date tied to the pads' construction so that the strip tenants open with the drive-throughs' traffic. No bay is built on speculation, and the construction loan does not close until all five leases are executed.

Amenities

The subject is a model 2.6-acre portion of the 13.54-acre vacant tract at 3530 Neuse Boulevard, Craven County PIN 8-243-106, which the City of New Bern's Planning and Zoning Board considered for rezoning from C-4 to C-3 at its March 20, 2025 meeting under case REZ-003020-2025 with Development Review Committee comments dated February 24, 2025 that name an NCDOT driveway permit as a requirement. The staff report places the tract inside the 2022 Land Use Plan's Neuse Boulevard Corridor and states that C-3 districts will generally be located on the city's major radial roads. The land is carried at $300,000 per acre, $780,000 for 2.6 acres, as an MMCG estimate for raw arterial acreage on the city's second corridor, below the $400,000 per acre the study carries for an MLK Boulevard outparcel; no asking price for the tract was retrieved and the figure is a disclosed assumption. The study assumes the developer buys 2.6 acres of the tract under a subdivision the City approves with the site plan, and conditions the determination on that approval and the driveway permit.

Neuse Boulevard is the city's second commercial corridor, running from the US 17 and US 70 interchange area toward downtown, parallel to MLK Boulevard and about a mile north of it, and the receiving location for the Walgreens at 2001 Neuse Boulevard that absorbed the MLK store's prescriptions in December 2024. The City's own 2026 case to cure split zoning on about 4.52 acres of Neuse Boulevard parcels and 3.89 acres on S. Glenburnie Road shows the corridor's commercial parcels being regularized for development. No published NCDOT count on Neuse Boulevard was retrieved; NCDOT's 2024 station shapefile covers the segment and the MPO's 2050 plan names Glenburnie Road, which crosses it, for its disproportionately large volumes. MMCG's underwriting basis of 18,000 vehicles per day is an estimate for a secondary arterial, stated as such and carried as a condition, and the pad tenants' own site criteria, which are their condition to sign, will be the second test of it.

New Bern is a regional hub whose retail sales of $1,323,049,000 in 2022, $41,980 per resident, exceed its residents' spending by $560,867,919 across all retail and food and drink in the East Carolina University 2023 analysis, with Craven County in surplus by $227,781,667 and the metropolitan area by $87,744,130. For restaurants and other eating places the city is in surplus by $36,680,926, the county by $10,237,295 and the metropolitan area in leakage by $4,003,038; for the service categories the strip targets the analysis shows a city in surplus and a region that still leaks. The subject does not need the leakage. A quick-service drive-through and a coffee drive-through on an arterial capture the trips already on it, and a three-bay service strip captures the convenience trips of the households and employers within two miles; the study's trade area for the pads is the corridor's traffic and for the strip the 1.5-mile ring north of MLK Boulevard, whose households are part of the city's 14,673 at a median income of $61,031 and a 24.5 percent share aged 65 and over. The demand question for a pad-led project is not whether the trade area has unmet spending; it is whether a national drive-through operator will sign for the frontage, and the study's condition of executed ground leases before closing is the answer to it.

MMCG identified the corridor's retail supply and asking rents from the operators' pages, the listing platforms and local reporting.

Competitor Number 1 Berne Square, 2600 to 2690 Dr. MLK Jr. Boulevard A 1973 strip center asking $9 to $12 per SF for 2,000 to 27,501 SF, the floor of the corridor's rents and the product a new strip competes against for local service tenants.

Competitor Number 2 3715 and 3918 Dr. MLK Jr. Boulevard Strip and freestanding space of 5,627 and 3,600 SF asking $15 and $14 per SF.

Competitor Number 3 3956 to 3968 Dr. MLK Jr. Boulevard A 2007 strip asking $18 per SF for 1,824 SF, the corridor's newest multi-tenant comparable and the rent that new product must clear.

Competitor Number 4 100 Marina Drive Waterfront space asking $21 per SF for 3,750 to 7,500 SF, the corridor's highest ask and the LoopNet market average.

Competitor Number 5 Sheetz, 3500 Dr. MLK Jr. Boulevard at S. Glenburnie Road A 6,132 SF convenience store and restaurant with twelve fueling positions under construction on the former Walgreens site for early 2027, the corridor's next drive-through food competitor and the evidence that national operators are building on New Bern's arterials.

Competitor Number 6 Biscuitville, 3571 Dr. MLK Jr. Boulevard, and Smithfield's, Dr. MLK Jr. Boulevard A quick-service breakfast operator that opened March 19, 2024 and a regional quick-service operator rebuilding on the corridor for late October 2026, the pad-type tenants whose presence sets the pad rent the subject's frontage can command.

Competitor Number 7 4110 Dr. MLK Jr. Boulevard A 12,838 SF building offered for sale at $1,400,000, about $109 per SF, the price at which existing multi-tenant product trades on the corridor against the $482 per SF cost of building the proposal.

The national picture frames the corridor. CoStar's October 2026 national report puts retail vacancy at 4.3 percent, strip centers at 5.2 percent and neighborhood centers at 6.4 percent, with 58 million SF under construction against 11.7 billion of inventory, most of it pre-leased, grocery-anchored, mixed-use or build-to-suit, and asking rents of $26.20 per SF growing 1.6 percent; Cushman & Wakefield's second-quarter 2026 shopping center report puts vacancy at 6.0 percent, asking rents at $25.65 and the pipeline at 13.3 million SF, with strip and neighborhood centers 82 percent of deliveries. Rider Levett Bucknall's first-quarter 2026 Charlotte hard cost for strip retail is $200 to $285 per SF before land, site work, soft cost and tenant improvements. A national asking rent near $26 against a hard cost above $200 is the arithmetic that keeps speculative strip construction near decade lows, and New Bern's corridor rents of $9 to $21 make it worse. The Boulder Group's second-quarter 2026 net lease report shows why the pads pencil when the strip does not: ground-leased McDonald's and Chick-fil-A pads ask 4.45 percent, corporate quick-service 5.85 percent, Starbucks 6.50 percent and franchisee quick-service 6.85 percent, against 6.60 percent for all single-tenant retail and a 7.4 percent market cap rate for retail generally. A pad ground lease to a national drive-through operator is the most valuable retail income the corridor can produce per dollar of cost, because the developer's cost is land and site work and the tenant's credit is behind the rent.

No strip center announced, permitted or under construction on the Neuse Boulevard corridor was identified between 2024 and 2026, and the 315-acre and 98-acre C-3 rezonings at the US 70 and NC 43 interchange are future supply at the western edge of the trade area that the study notes rather than models.

A conventional bank underwrites investor retail to three figures and the study reports all three. The debt service coverage ratio, net operating income over annual debt service, is carried at the lender's policy floor of 1.25x at stabilization. The debt yield, net operating income over the loan amount, is carried at a policy floor of 10 percent, which protects the lender against a cap rate it cannot control. And the yield on cost against the market cap rate is the developer's test, because a project whose stabilized yield on cost sits below the rate at which it would sell is worth less than it cost on the day it opens. The study also reports the maximum loan at 1.25x so that the sponsor can see the equity the lender's policy implies.

The proposal fails all three tests. The restructured project passes all three with margin, and its maximum loan at 1.25x exceeds the 65 percent the lender will advance, which is the position a developer wants to be in.

The tract's C-3 zoning under REZ-003020-2025, the City's approval of a subdivision creating the 2.6-acre site and the two pads, site plan approval with the Development Review Committee's comments addressed, and the NCDOT driveway permit for a full-access connection on Neuse Boulevard are conditions. C-3 permits restaurants with drive-throughs and retail by right; the City's fee schedule carries a $400 site plan review, a $150 commercial plan review and a $50 zoning compliance letter per building, and the pad tenants pull their own building permits. The drive-through stacking for Pad A's double lane and Pad B's single lane is designed to the City's standard and the pads' own site criteria, and a right-in, right-out restriction on the Neuse Boulevard drive would be a condition failure for the pad tenants before it was one for the lender.

Water and sewer are City of New Bern services extended from Neuse Boulevard to each pad and the strip under the shared drive; system development and connection fees are quote-only and flow-driven, and the pad tenants pay their own at their building permits, so the study carries $35,000 of fees for the strip and the common infrastructure inside the permit line as an estimate and conditions the determination on the written quote. A Phase I Environmental Site Assessment under ASTM E1527-21 and a geotechnical report are carried in the land closing line, and the 2.6-acre disturbance requires an NCDEQ construction stormwater permit with the common facility sized for the full site. Property tax is carried at $26,714 in Year 1 on an assessed value of $3,200,000 for the land, the strip building and the site improvements, an MMCG estimate, at the combined city and county rate of $0.8348 per $100 on Craven County's 100 percent assessment ratio; the pad tenants' buildings are assessed to them under the ground leases and the ground rent is absolute net, so the pads carry their own taxes. Taxes, insurance and common area cost on the strip and the shared drive are recovered from the strip tenants pro rata under the triple net leases, and the study carries the vacancy share and the management fee as the landlord's non-recoverable cost.

Source: U.S. Census Bureau; East Carolina University Bureau of Business Research; CoStar; The Boulder Group; MMCG estimates.

The corridor's traffic supplies the pads; the ring supplies the strip; and the city's growth supplies the leases the determination is conditioned on.

Pad A is modeled at $90,000 a year of absolute net ground rent for a quick-service drive-through on 0.7 acres and Pad B at $72,000 for a coffee drive-through, $162,000 in total, as MMCG assumptions for New Bern pad sites against national ground-lease pricing; no New Bern pad ground rent was retrieved and the figures are conditioned on the executed leases. Both leases run twenty years with 10 percent increases every five years and two five-year options, with rent commencing at the earlier of the tenant's opening or nine months after pad delivery, so that Year 1 carries 75 percent of the ground rent. Capitalized at the 6.60 percent average for single-tenant net lease retail, the two ground leases are worth about $2,455,000, 68 percent of the project's cost, which is the arithmetic that makes the pads the credit.

The strip is modeled at $26 per SF triple net on 6,000 SF, $156,000 at full occupancy and $148,200 at 95 percent economic occupancy, above the corridor's $21 ceiling for existing product because the building is new, the co-tenancy is national and the leases are executed before construction; the sensitivity table shows the project at the corridor's $21. The two credit tenants' ten-year leases carry 10 percent increases at year six and the local tenant's five-year lease 3 percent a year, which the study carries as 3 percent growth from Year 4 on the blended roll. Tenants reimburse their pro rata share of property tax, insurance and common area cost, $45,328 at 95 percent occupancy, and the landlord carries the vacancy share, a 4 percent management fee on effective gross income and a $0.20 per SF replacement reserve. Year 1 carries 70 percent economic occupancy on the strip as the pre-leased tenants complete their fit-out and open in sequence.

Location: 3530 Neuse Boulevard tract, New Bern, NC 28560 Size in SF (Gross): 6,000 strip building plus two pad-ready sites on 2.6 acres

Source: Marshall & Swift CoreLogic, MMCG

The shell at $215 per SF sits at the low end of Rider Levett Bucknall's first-quarter 2026 Charlotte range of $200 to $285 for strip retail on a flat site with surface parking, and the $40 per SF allowance is the credit tenants' standard for a white box; Cushman & Wakefield's Southeast in-line fit-out benchmark of $126 per SF is what the tenants will spend above the allowance. The site work line at $600,000 carries the pads' share of the shared drive, utilities and stormwater, which is the developer's whole cost on the pads and the reason the ground rent is nearly all margin. RLB's national index rose 4.45 percent in the year to July 2026 with liquid asphalt up 16.4 percent and the contingency and the paving carry that. The reserve of $80,000 is sized to the Year 1 shortfall of $7,745 and the strip tenants' free-rent periods with margin. The proposal is carried at $5,781,400: 3.2 acres at $960,000, a 12,000 SF shell at $215, a $35 allowance, $650,000 of site work, $120,400 of commissions, $185,000 of construction interest and a $250,000 lease-up reserve for an eighteen-month speculative lease-up.

Loan Assumptions (restructured)

The proposal would have carried a $3,757,910 loan and $340,615 of annual debt service against stabilized net operating income of $324,248.

The restructured project meets the lender's three tests at stabilization: a 1.38x debt service coverage ratio against a 1.25x floor, a 12.5 percent debt yield against a 10 percent floor, and an 8.11 percent yield on cost against a 7.4 percent market cap rate, so that the completed project is worth more than it cost and the lender's loan-to-value on completion is about 59 percent. The construction loan's conditions are the leases: executed ground leases on both pads from tenants whose credit the lender approves, executed strip leases for 100 percent of the building with the two credit tenants' ten-year terms and the local tenant's guaranty, and a guaranteed maximum price contract. The study recommends that the loan convert to permanent on the later of the pads' rent commencement and the strip's 90 percent occupancy, with the reserve held until conversion, and that the lender's covenant be written on the coverage ratio with the ground rent included, because the ground leases are the senior income.

The strip tenants reimburse their pro rata share of tax, insurance and common area cost under the triple net leases, $45,328 at 95 percent occupancy, so the landlord's net exposure is the vacancy share, the management fee and the replacement reserve. The pads carry their own taxes, insurance and maintenance under absolute net ground leases. Property tax at $8,348 per million of assessed value is the North Carolina advantage against the same project in Indiana or Illinois.

The Year 1 shortfall of $7,745, during which the strip tenants open in sequence and the pads' rent commences, is funded from the reserve; the loan is interest-only in that year under the construction facility and the pro forma shows the amortizing payment for comparability. From Year 2 the project covers at 1.38x and builds to 1.42x by Year 5 as the strip rents step. The pads' $162,000 of ground rent alone covers the $47,714 of tax, insurance and common area cost, a $6,480 management fee and the reserve, and leaves $106,606 against $212,367 of debt service, 50 percent, with the strip entirely dark; with the pads in place the strip's first dollar of rent goes to coverage. As proposed, the 12,000 SF speculative center at $5,781,400 produces $324,248 of net operating income against $340,615 of debt service, 0.95x, and a value $1,399,671 below its cost.

With both pads in place, the project's net operating income rises with the strip's economic occupancy at $195,565 per 100 points of occupancy after recoveries and the management fee, from a base of $106,606 at zero strip occupancy. Thresholds are stated in strip occupancy at the $26 rent, and in rent at full occupancy.

The strip covers the debt at 54 percent occupancy with the pads in place and at about $11 per SF at 95 percent occupancy, which is inside the corridor's lowest asks, so the strip's leasing risk sits inside a wide margin. The project does not survive the loss of both pads at any plausible strip rent, which is why the ground leases are executed before the loan closes and why the lender's credit review of the pad tenants is the credit decision.

The restructured project holds coverage at 1.25x and 1.24x with the strip at the corridor's existing-product rent of $21 or at 80 percent occupancy, just below the 1.25x break-evens of $21.08 and 81.2 percent, and falls to 0.97x with Pad A dark. The combined case of $21 rent and 85 percent occupancy falls to 1.17x and a 10.6 percent debt yield, the downside a lender accepts on a project whose senior income is two national ground leases. The both-pads-dark case is the project's structural exposure and the reason for the lease conditions. The as-proposed row is the determination.

The determination of not feasible as proposed and feasible as restructured is subject to the following conditions precedent on the restructured program:

The following items could not be verified from a primary source at the study date and are disclosed: the NCDOT count on Neuse Boulevard, in place of which the study carries an estimate; the tract's asking price, in place of which the study carries $300,000 per acre; New Bern pad ground rents, in place of which the study carries assumptions tested against national net lease pricing and conditioned on the executed leases; the lease type and posting dates of the corridor's asking rents, which the listing platforms do not display; the City's water and sewer system development fees; a per-square-foot hard cost for strip construction in eastern North Carolina from a cost consultancy, in place of which the study carries the Charlotte range; per-project permit valuations for the corridor's recent builds; and the year of the NC 43 connector rezonings.

This model study applies the methodology described on MMCG's retail feasibility study page. MMCG prepares retail feasibility studies for conventional, SBA 7(a) and 504 and USDA Business and Industry lenders nationwide, with engagements from $4,900 and delivery in 9 to 16 business days.