So, my only risk here is loss of principal purchasing power due to inflation.

Heck, even just keeping up with inflation is important, particularly when you start to get a large enough portfolio.

Why would someone pay to buy something down the road at the inflated price?

As it stands, you're basically just stuffing both these figures into an inflated vacancy rate which you arbitrarily set at 15%.

That is what all that inflated price is, taking advantage of a less than credit worthy buyer.  

A small part will be paid by inflation but most is a real cost.Overall, this property would not meet my criteria for purchase.Good Luck.Bill

Interest rates, stock prices, employment and real estate seem to be closely tied together and if you ask me stocks are currently artificially inflated by money being printed like crazy, while wages have not kept up with the rising cost of living (including real estate).  

"It is a higher return than any of the bonds we own, it is inflation protected, and if I happen to benefit with some appreciation, all the better." 

As inflation gets out of control in the next year or so, I would be surprised if we don't see double digit interest rates again.

I think the real value is the 2002-ish value plus inflation.