Increasing the Odds in Retail Loan Roulette

Small retail properties support the needs of modern life, from eating to dry cleaning to movie rentals. Shoppers can cash a check, pick up a prescription, get their hair styled or buy flowers at such stores. Indeed, strip malls and freestanding outparcels have become embedded into the landscape as the archetypal backdrop of our daily routine. Although these stores are often ubiquitous and generic by design, they are not equal in the eyes of lenders.

Owners, caught up in the frenzy to lease their properties, often lose sight of how lenders will view their decisions. Keep in mind that lenders require detailed information about lease terms and rates, tenant financials, demographics and a variety of other factors before they agree to mortgage financing. Small retail real estate loans usually total $5 million or less, and borrowers can increase their chances if they know what issues are typically of concern to lenders.

For example, lenders may accept some irregularities in a deal if the owner is an accomplished borrower with a substantial retail portfolio. However, if the landlord has no track record, the lender will put more emphasis on location fundamentals and lease dynamics.

A key piece of information is a demographic study of the location. What are the traffic patterns? What is the income level in the surrounding community? Who is the competition? Does the location have any special features that could hurt or help business? For example, a shopping center might be the only stop between a business park and a residential area, meaning workers will stop by for bread, prescriptions, haircuts or car repairs.

Joseph Jaggers

Joseph Hobson Jaggers (1830–1892) was a British engineer, referred to as, but not an exclusive holder of the title of, the man who broke the bank at Monte Carlo.

Jaggers gained his practical experience of mechanics working in Yorkshire's cotton manufacturing industry. He extended his experience to the behaviour of a roulette wheel, speculating that its outcomes were not purely random numbers but that mechanical imbalances might result in biases towards particular outcomes.

In 1873, Jaggers hired six clerks clandestinely to record the outcomes of the six roulette wheels at the Beaux-Arts Casino at Monte Carlo, Monaco. He discovered that one of the six wheels showed a clear bias, in that nine of the numbers (7, 8, 9, 17, 18, 19, 22, 28 and 29) occurred more frequently than the others. Exploiting this characteristic, Jagger swept through his first day earning USD 70,000. Over the next three days, Jaggers amassed $300,000 in earnings with other gamblers in tow emulating his bets. In response the casino rearranged the wheels, which threw Jagger into confusion. After a losing streak, Jaggers finally recalled that a scratch he noted on the biased wheel wasn't present. Looking for this telltale mark, Jaggers was able to relocate his preferred wheel and resumed winning. Counterattacking again, the casino moved the frets, metal dividers between numbers, around daily. Over two days Jaggers would lose, giving up, he took his remaining earnings, USD 325,000, and left Monte Carlo never to return.

In 1892, Fred Gilbert wrote a popular song, The Man Who Broke the Bank at Monte Carlo that is mistakenly attributed to Jaggers' exploits. Instead, the song is a celebration of Charles Wells, another Englishman, who in 1891 won handsomely in Monte Carlo.