Looking for feedback on single-tenant large drug stores
I'm evaluating Walgreens, CVS, etc. right now and they seem like a relatively safe investment, usually have corporate guarantees, and decent cap rates. Anyone have any experience or advice about this?
[{"id": "fk91rl2", "text": "One negative that turns some investors away on these property types, they often have flat leases.\n\nPM If you're looking for a STNL, I have a clean deal fee simple, nice lease term with escalations, corporate lease, credit tenant.", "replies": [{"id": "fk9eok0", "text": "Where is it?", "replies": [{"id": "fk9t4i9", "text": "North east", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fk92ql5", "text": "Yeah if you are looking for a place to keep your money for longer than 5 yrs. I would definitely recommend looking to something with escalations. \n\nSomething like 10% every 5 years is pretty easy to find if you are open to looking nationally.", "replies": [{"id": "fk97q1y", "text": "Thanks, most of these deals have been pretty flat. I haven't seen anything super compelling in the 3-5MM range that has 10%. Would I stick to Loopnet?", "replies": [{"id": "fk9mf84", "text": "Yeah that is a good place to start. Unfortunately there are a lot of outdated listings on there. Most of the best deals go before they ever hit the market right now. PM me I know of some off-market deals that might work for you.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fk98tho", "text": "Walgreens credit is going down.  Their CAP rates haven\u2019t come down with their credit rating.\nRite Aid has been junk status forever, but still paying rent.  Extremely high risk.  I\u2019d only look at CVS, and an older one with a lower price point.", "replies": [{"id": "fk998gu", "text": "Thank you. We're in the middle of a 1031 and looking at single-tenant NNNs or NNs in the 3-5MM range. Any thoughts?", "replies": [], "depth": 2}], "depth": 1}, {"id": "fk9p3er", "text": "gorgeous", "replies": [], "depth": 1}, {"id": "fkikljl", "text": "I agree about Walgreens not being on your list. REIT\u2019s took them off their targets months ago. Like any deal, just make sure to check the three boxes first. For me those are dirt, building and tenant. After those check off then you\u2019re essentially buying the lease. Make sure there will still be some meat on the bone when you\u2019re ready to exit. \n\nOther properties in your price range would be collision centers and car washes. I also like Urgent Care Centers and Dialysis Centers. All hedges against recession. \n\nWe only use LoopNet after a property has been around for like 90 days and all our accredited buyers have passed.", "replies": [{"id": "fkiqxur", "text": "Thanks, that\u2019s incredibly helpful. I\u2019m new to this and still learning and trying not to make expensive mistakes.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fl9749t", "text": "This sector is going through a lot of changes and you need to evaluate on a case by case basis.  Walgreens sales have been slowly going down across the board and rent is typically double market.  10k-12k SF boxes for both tenants which puts them in an awkward space if you ever need to back-fill.  A few tenants that could go in are dollar stores or auto parts and they will be paying a third of the rent a typical Walgreens or CVS is paying which can flip your investment upside down.  You could also turn the box into a 2-3 tenant strip center but that would take serious TI's.  If you are fine paying in the mid to low 5 caps for a long term deal in a good location with sales reporting along with good numbers, go for it as a coupon clipper.  I would only suggest buying a shorter term deal &lt; 10 years if you can work a blend and extend otherwise you are losing 10-20bps of value a year due to the lease lacking increases.  If you are not cap rate sensitive, look into buying one or two 7-11's, they are the creme of the crop of Net-Lease.", "replies": [{"id": "flae0q5", "text": "This is super helpful", "replies": [], "depth": 2}, {"id": "fr1oizm", "text": "this is great answer.  Also walgreens is getting wise to fact that they are paying above market and there are few options to backfill them, especially at their rental rate.  They are offering renewal for significant rent reduction which will be devastating on anyone who picks one up with shorter term assuming renewal happens.  Don't assume.", "replies": [], "depth": 2}], "depth": 1}]