Dollar General, Greenville, KY
September 8, 2020
8.00% cap rate
In 2020, a St. Louis-based investor purchased his first maintenance-free Family Dollar property by working with Mike Kocur at Westwood Net Lease Advisors. He likes the time freedom and income from the property so much, he’s decided to forgo ownership of his multi-family rental properties and focus on building his low-maintenance, triple-net (NNN) and NN (double-net-plus) investment portfolio.
To that end, he engaged Kocur again to help him find his next NNN investment, one that would provide a 7.00–8.00% cap rate, just as before. He was also planning to finance the property. Typcially, it is difficult to finance a high-cap-rate property due to the associated risk.
However, Kocur was up for the challenge and located a promising Dollar General investment opportunity. The only caveat was the remaining 6.5 years left on the lease. This made it less than ideal for a low interest rate commercial mortgage.
Find out how Kocur helped his client negotiate a lower sale price (from $778,052 to $750,000) and a higher than advertised cap rate of 8.00% (up from 7.75%), and secure a commercial mortgage with a low interest rate despite the short-term, double-net-plus lease.
The Challenge – Find a High Cap Rate Property that Would Qualify for Financing
As before with the Family Dollar property, Kocur encouraged his client to choose a property with an investment-grade tenant to reduce the risk inherent with a higher cap rate. Additionally, to lower his risk and be a candidate for financing, Kocur advised he select a corporate-guaranteed lease on an already successful store.
Kocur soon located this existing Dollar General, which would provide 100% income stability for the lease term of 6.5 years, plus four 5-year lease extension options and rental increases of ten percent at each five-year increment. This property could potentially give his client 26.5 years of escalating, guaranteed income.
- 5 years left on original lease
- Four 5-year lease extension options
- Ten percent rental increases per 5-year increment
- Potential 26.5 years of escalating, guaranteed income
The property also has many positive attributes that make up for the short-term lease. It has been a thriving business since early 2007 and is positioned in a prime location on a main thoroughfare between two busy roads, with 23,575 passing vehicles per day.
Moreover, since Dollar General is a high-credit tenant and an essential business that performs well in any economy, Kocur felt financing would be attainable.
To be sure there were no surprises, Kocur performed due diligence on the property and the remainder of the 6.5-year, double-net plus (NN+) lease, which called for the landlord responsibility of roof, structure, and parking lot. Kocur explained to the client, that just like his Family Dollar in Florida, even though this Dollar General operates with a NN+ lease, it has the characteristics of a triple-net (NNN) lease due to the near-zero landlord expenses and responsibilities, which means owning it while residing in Missouri would be an easy endeavor.
As this buyer relinquishes nuisance properties for hassle-free net-lease investments, he frees up capital and earns time-freedom to spend however he chooses. He also earns a guaranteed monthly income and may utilize tax opportunities that could provide an overall 10–12% internal rate of return (IRR).
The Result: Purchase of Dollar General Provides $60K in Annual NOI
Kocur used his experience and network to find this Dollar General at the top of his client’s cap rate range, and due to the reliability of the corporate lease and prime location, it financed at a 3.5% interest rate, which was lower than expected.
The result: this CRE investor has added another stress-free property to his portfolio with a healthy cap rate to interest rate spread, $60,000 in annual NOI, and the potential for 20 more years of guaranteed income with 10% rent escalations.
To Wrap it Up – Seasoned Investor Engages Kocur at Westwood to Find a High-Cap-Rate Property with Lower Risk
Utilizing Kocur’s net-lease investment expertise, this seasoned investor was able to close on a reliable Dollar General property and meet his financial goals with a corporate-guaranteed lease and no landlord responsibilities. He now has a stable addition to his CRE portfolio and reaps the rewards of passive monthly income for years to come.
If you are interested in learning more about NNN lease investments or would like to use the 1031 exchange to trade an underperforming property for one that offers nothing but benefits, contact Mike Kocur today, 314.266.2654. He offers a free, no-obligation consultation and no-cost buyer representation.