What would a typical ratio of rent to gross sales be for a convenience store or similar single-tenant retail type of property?
For example suppose there is a convenience store with gross sales of $1 million annually. What would be the upper limit of the annual rent the tenant would realistically be able to pay based on this? My understanding is that it wouldn't typically be higher than 10% or so, but maybe I am wrong.
[{"id": "i7c9z87", "text": "When I did retail, we referred to this as a \u201chealth ratio\u201d. I remember the big grocers being sub 5%, and many of the in-line tenants being in the 10-25% range. Once you see those health ratios pushing 30%+ we would underwrite a lower renewal probability or a vacate. I think being above 10%-20% is fine. \n\nBut I may be a bit out of touch\u2026", "replies": [{"id": "i7cc1zd", "text": "Thanks, that makes sense!\n\nCan I ask what general area this was in?", "replies": [{"id": "i7cyer2", "text": "Across the southeast. Don\u2019t think location is relevant though.", "replies": [], "depth": 3}], "depth": 2}, {"id": "i7d71zo", "text": "How does one learn more about \u201chealth ratios\u201d?", "replies": [{"id": "i7d7u98", "text": "It's a simple calculation.\n\nTotal Rent / Sales.\n\nSo if in a year a tenant's rent is $100,000 and their annual sales are $1,000,000, their health ratio is 10%.\n\nIf a company makes low margin on sales they should have a better (lower) health ratio, since it's just sales, not profit. However, if they have high margins (i.e. services) then a worse (higher) health ratio is OK.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i7cd0lw", "text": "Basic rule of thumb is 10% and then adjust based on the typical margin the store has. The grocers are sub 5 and the high end retailers can be 30+.", "replies": [{"id": "i7df0yn", "text": "I wonder what an Apple store is given the high volume and high margin business?", "replies": [], "depth": 2}], "depth": 1}, {"id": "i7d13q9", "text": "Are you including gas in that gross sales figure? If you are does the store operator own their pumps and buy from a jobber or are they under a distributor agreement?", "replies": [{"id": "i7da7yv", "text": "There's no gas component, just a c store", "replies": [{"id": "i7dau0o", "text": "Primary foot or vehicle traffic?", "replies": [{"id": "i7dm9ov", "text": "It's all vehicular, it's a freestanding retail building", "replies": [{"id": "i7g1th7", "text": "4% is the 10 year average on what I'm looking at\n\n4.6% is the same with gas.\n\nDon't think the n is very high at such a small revenue figure for what it's worth.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i7ecq9o", "text": "10 percent or lower for convenience stores / retail", "replies": [], "depth": 1}, {"id": "i7eimc3", "text": "100k max", "replies": [], "depth": 1}, {"id": "i7f1yyl", "text": "8% is the gold standard", "replies": [], "depth": 1}, {"id": "i7f4xev", "text": "$1 mil in sales grocery only or is that gas and grocery? 30% gross profit on grocery and they make about 0.20 a gallon gross profit on fuel. Also this nnn or gross?", "replies": [{"id": "i7fotyh", "text": "There is no gas station, it's just a c store. Assuming a modified gross lease (landlord is responsible for insurance, real estate taxes, structural repairs, asset management expenses, tenant is responsible for interior repairs and maintenance, pays utilities directly, pays real estate taxes over base year)", "replies": [], "depth": 2}], "depth": 1}]