Dollar Store Case Study: Going Vintage for Value
The popularity of net lease investment product has led to scarcity in finding new construction properties. As a result of longer leases and a desire for stable returns, new store cap rates have compressed significantly. Investors seeking higher yields who don’t want to miss opportunities in the net lease sector have other acquisition options while extending their buying power.
Meet David from Memphis, an investor who contacted Bull Realty’s National Net Lease Investment Group last December, looking for “vintage” dollar stores. (According to Merriam-Webster, the adjective “vintage” refers or relates to 1) wine or 2) old, recognized and enduring interest, importance or quality. Our reference herein is to the second definition or a seasoned dollar store!)
David from Memphis knew exactly what he wanted AND he came to the right brokers! His acquisition criteria:
- a) existing, vintage dollar stores
- b) that were within 100 miles of Memphis
- c) with at least 4 years remaining on the lease
- d) in overall good condition with minimal or no deferred maintenance
- e) priced at NO more than a 9 cap rate.
Small towns were not a concern, but he did want to see if there was any documented store sales history. Bull Realty’s National Net Lease Investment Group identified several properties that met these criteria. Offers were negotiated on three locations, and site visits were conducted. David from Memphis closed on two of the three stores, paying all cash in March 2012.
Fast forward to May 2012: Knowing the Memphis mover and shaker’s penchant for vintage stores, the Bull brokers identified another store, which was closed in a little more than three weeks. Two more vintage dollar stores are under contract with David and should close by the end of July. “Vintage” wine is mighty fine, but, for David from Memphis, having purchased five vintage dollar stores, yielding a 9% cap rate, is plenty of reason to toast a smart and solid acquisition strategy!
The moral(s) of the story:
- Vintage stores offer investors a good alternative to hard-to-find new construction dollar stores.
- With existing vs. new net lease stores, investors benefit from higher cap rates and lower prices.
- Broker communication and market knowledge are critical to ensure that buyer requirements are met.