Due Diligence = Guaranteed Success
Case Study 1
Rite-Aid | Georgia
Bill identified a net-lease property currently with a 12+ year lease with Rite-Aid. Recently upgraded to a Rite-Aid Wellness Center with re-merchandised interior, including new facade and signage. This generated a yield upward of 7% ROI with additional applicable tax benefits.
1st – Bill arranged a site visit, including a professional commercial inspection to uncover any possible issues. None found!
2nd – He focused on researching the local market, demographics, proximity of competitors and existing presence of national STNL assets. Due Diligence!
3rd – Then he turned his attention to competing brands in the immediate market. For the next two years the client enjoyed a yield of over 7% ROI, then Walgreens announced its intentions to acquire Rite-Aid.
STILL, Bill advised his client to make the acquisition.
Great news for Bill’s client due to Bill’s research, due diligence and locale selection. Here’s why:
1st – Walgreens as a tenant versus Rite-Aid will considerably increase the valuation of his property.
2nd – Walgreens is executing new long term leases with existing Rite-Aid property owners, which will lead the client’s Rite-Aid facility to undergo renovations for conversion to a Walgreens.
3rd – Likely armed with a newly signed 10 year lease, Bill’s client would have the added option to sell the asset at a considerable profit in a 1031 exchange. Should the borrower choose a 1031 exchange option, they would pay no taxes on otherwise considerable gains.
Case Study 2
Advanced Auto Parts | Georgia
Bill identified an Advanced Auto Parts with 6.5 years remaining on their lease term – something that is usually a red flag for Howard.
1st – The site visit revealed the property’s recent construction of a $5M+ Gas/Convenience Store on an adjoining property, as well as proposed new developments including a number of national net-lease retailers in the immediate area.
2nd – In researching local demographics, Bill uncovered store competition existed primarily on the other side of town, approx. 13 miles away. Although the initial lease term was 6.5 years – shorter than Howard typically seeks, after reviewing the stores sales history, he found there was a solid trend of performing above the AAP national average.
Armed with his research and supporting historical sales data, Bill advised his client to make the acquisition with faith that Advanced Auto Parts would want to extend the lease on the subject property, most major retailers spend significant capital on demographics and usually want to be at a location for many years to come. A calculated conclusion.
With an already healthy performance of 10+% ROI in the first year, Bill’s client was then approached by Advanced Auto Parts seeking to negotiate terms of a new 10 year lease with renewal options and subsequent property renovation at the tenant’s expense.
With the new lease in place, the owner has seen a significant increase in property valuation and as such considering a 1031 exchange to recapture invested equity and cash-out with a considerable gain without any tax liability.
TWO SUCCESS STORIES
Two case studies, two clients, two significant success stories. Some might not take the time to due their Due Diligence – site visits and educate themselves and their clients on the local economy and demographics before making long term acquisition decisions.
With over 25 years of financial experience and over $200 Million in acquisitions, never a dark property, never a missed distribution of rent or lowered rent – NEVER!
STNL: SWAN allocation SWAN = Sleep Well At Night
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