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Home » Blog » Case Study: $3.1M 1031 Exchange for World’s Largest Convenience Store Retailer

Case Study: $3.1M 1031 Exchange for World’s Largest Convenience Store Retailer

7-Eleven, Aurora, Illinois

December 23, 2019

$3,105,000

5.25% Cap Rate

NOI: $163,000/year

A Rare Find: A 7-Eleven for Under $4M

An experienced commercial real estate investor continues to trade high-maintenance properties for one of the top net-lease investments on the market and the world’s largest convenience retailer – 7-Eleven. This investor, who already owns seven other 7-Eleven properties, contacted Mike Kocur at Westwood Net Lease Advisors, to start the 1031-exchange process for her 4-family residential property.

Kocur’s challenge was to locate a 7-Eleven in a prime location that fulfilled her financial and lifestyle goals and met the 1031-exchange criteria – for under $4 million. Because 7-Eleven properties are such a lucrative, low-maintenance investment, they are highly sought after and don’t stay on the market long. Using his market knowledge and industry network, Kocur located exactly what the buyer wanted – and it was better than expected.

Look no further than the Internal Revenue Code (IRC) §1031 to find a golden opportunity to sell certain real estate assets without paying capital gains taxes. A 1031 exchange allows you to invest the profits from the sale of one commercial property into a similar or “like-kind” and often more valuable property within 180-days and possibly defer the taxes indefinitely.

Brand-New 7-Eleven in Chicago Suburb

Kocur located a brand new 7-Eleven in Aurora, IL, that met all the benchmarks for a profitable property, including great demographics and a corporate, full-term 15-year modified NNN lease. Just as important, the transaction was able to close within the tight 1031-exchange timeline. This 7-Eleven had all the attributes for an ideal net-lease investment.

  • Prime location: a main commercial-district intersection with a Wendy’s and Great Clips; close to a large shopping mall, huge medical center, and 7 schools with 6,500+ students.
  • Corporate-guaranteed long-term lease: 15-year modified NNN lease.
  • Investment-grade tenant: AA- Standard and Poor’s bond rating, Baa1 Moody’s long-term rating.
  • Low Maintenance: new build; Landlord only responsible for the foundation and structure.

“What started in an icehouse in Dallas, Texas, in 1927, 7-Eleven has evolved into the world’s largest convenience store retailer. Today, 7‑Eleven operates, franchises and licenses close to 10,000 locations in the U.S. and Canada and has 67,000 stores in 17 other countries.” –7-Eleven Corporate

A Higher Cap Rate & Lower Price

This 7-Eleven was a rare find – not because of the investment qualities, but because of the modified NNN lease and the price. Most 7-Elevens are absolute NNN lease properties with existing sales and financial proof of their stability and longevity, which makes their price point much higher than $3M. Because this was a modified NNN, or what we call a double-net (NN) lease, and a completely new business, Kocur helped his client negotiate a higher cap rate – from 5.15% to 5.25% – and a lower price by $60k. Once the buyer factors in her mortgage interest, tax advantages, including the deferred capital gains taxes, and positive leverage, the advertised cap rate could amount to a 7-9% total return.

To Wrap It Up – 1031-Exchange for a New 7-Eleven

Kocur’s industry knowledge, due diligence, and 1031-exchange expertise, and the buyer’s confidence that this 7-Eleven would be profitable based on the calculated annual net operating income (NOI) of $163k, helped her go into the sale with assuredness and close the transaction well under the 180-day 1031-exchange regulation.

If you are considering trading up to a low- or no-maintenance property with a 1031 exchange, there’s no time to waste. Start the process as soon as you can and take advantage of the many financial, tax, and time benefits that come with NNN lease investments. Contact Mike Kocur today, 314.266.2654, for a free, no-obligation consultation and learn how a buyer’s advisor can help you make the most of your CRE investments.

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Tags: 1031 exchange, nnn lease property