Due Diligence = Guaranteed Success
Case Study 1 – RITE AID | GEORGIA
Progress Capital identified a net-lease property currently with a 12+ year lease with Rite-Aid. Recently it was 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.
1. Progress Capital arranged a site visit, including a professional commercial inspection to uncover any possible issues. None were found!
2. The team focused on researching the local market, demographics, proximity of competitors and existing presence of national STNL assets. Due Diligence!
3. Then attention was turned 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, Progress Capital advised the client to make the acquisition.
Great news for the client, due to Progress’ research, due diligence and locale selection. Here’s why:
· Walgreens as a tenant versus Rite-Aid will considerably increase the valuation of his property.
· 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.
· Likely armed with a newly signed 10 year lease, the 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 PART | GEORGIA
Progress Capital became aware of an Advanced Auto Parts with 6.5 years remaining on their lease term – something that is usually a red flag for Howard.
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.
In researching local demographics, it was uncovered that approx.. 13 miles away, store competition existed primarily on the other side of town. Although the initial lease term was 6.5 years – shorter than typically sought, after reviewing the stores sales history, a solid trend of performing above the AAP national average was found.
Armed with research and supporting historical sales data, Progress advised the 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, the 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 complete their Due Diligence – site visits and educate themselves and their clients on the local economy and demographics before making long term acquisition decisions.
Isn’t it time to start building your own STNL portfolio?