NNN Buyers Take a 1031 Exchange Risk: Purchasing a Pre-Construction Firestone

Sep 17, 2020

Firestone Complete Auto Care, Huntersville, NC
Closing date: July 13, 2020
Price: $3.663 million
Cap rate: 4.96%

Partner-owners of an Atlanta-area Walgreens property with ten years left on the triple-net (NNN) lease decided to sell it to diversify their real estate portfolio with longer-lease, NNN properties. They contacted Westwood Net Lease Advisor and President, Chris Schellin, for assistance as they had previously worked with him. He was to list and sell the Walgreens (see success story here) and help them find suitable property investments in a $4.5 million, 1031 exchange.

During their search, a superior opportunity to purchase a pre-construction Firestone Complete Auto Care™ became available but posed a slight 1031-risk. It had not begun being built, which meant the buyers could potentially miss the 1031 exchange, 180-day IRS deadline if there were any delays, leaving them to pay significant capital gains tax on the profit from the Walgreens sale.

Find out how the duo secured the popular property in the face of a bidding situation and weather delays and closed the 1031 exchange on the 180th day. This partnership now owns a brand-new, maintenance-free Firestone near busy Charlotte, North Carolina, to go along with their previously purchased, pre-construction AutoZone (see that success story here).

The Process – Sell Walgreens, Purchase Two Pre-Construction NNN Properties

First, Westwood received the exclusive right to list and sell the clients’ Walgreens, which Schellin sold quickly, despite having only ten years left on the lease. Before the Walgreens was listed, Schellin began the property search for the buyers’ new investments. Starting the process early eliminated the typical 45-day, 1031-exchange scramble to identify the intended properties for purchase once it sold.

Schellin used his network connections and proprietary database to find properties that met his clients’ financial goals, analyzed the different lease details for a variety of potential properties, and evaluated many available fast food, auto parts, medical, and retail properties to find the best combination.

He located two great properties that fit their goals – the first was a pre-construction AutoZone with a 15-year NNN ground lease, which they purchased March 31. The second was the pre-construction, fee-simple Firestone Complete Auto Care store – the last in the country to offer a 20-year lease.

Based on professional experience and his familiarity with the area since he has his own investment property there, Schellin was able to offer assurance that this Firestone was a tremendous value and opportunity for several reasons – maintenance-free, brand-new construction in a prime location and a 20-year, NNN lease with rent increases throughout the base term.

Due to the fact that the property carried a 20-year, corporate-guaranteed lease, there was heavy national interest and multiple offers. Thanks to Schellin’s persistence, reputation, and negotiation skills, his clients’ offer was accepted. Once the transaction and construction were underway, Schellin’s experience would once again be of great value in meeting the 1031 timeline.

Firestone NNN Properties – Recession-Resistant

Firestone, owned by Bridgestone Retail Operations, is an investment-grade company (A rating) that dates back to 1900. Today, it is the largest network of company-owned automotive service providers in the world with 2,200 tire and vehicle service centers across the United States.

For the net-lease investor, the essential nature of tires and auto services, coupled with the long-term, corporate-guaranteed lease structure and the company’s consistent growth present a stable investment opportunity with a lower-than-average financial risk.

Firestone Complete Auto Care stores range between 7000 and 8000 sq. ft., and typically sell between $2-4 million, with various lease terms and escalations. Most Bridgestone leases include rental increases during the primary term, providing investors with a growing return throughout the lease and a hedge against inflation. They are also built-out to industry specifications, so the likelihood of extending the lease at the end of the base term is high.

To Wrap it Up – Buyers Meet the 1031 Exchange Timeline & Defer Capital Gains Tax

Due to this recurrent buyer-advisor relationship and Schellin’s expertise, this partnership successfully traded their 10-year Walgreens in a 1031 exchange for a 15-year AutoZone NNN ground lease investment and the last 20-year, NNN lease Firestone Complete Auto Care property in the country, while deferring all capital gains tax.

If you’d like to learn more about the 1031 exchange and all the benefits of NNN investing, call or email Chris Schellin, President of Westwood Net Lease Advisors, a free, no-obligation consultation, 314-563-2208

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