Dollar General, Chilhowie, VA
November 24, 2021
5.50% cap rate
Most triple net (NNN) lease investment transactions are straightforward. Triple net properties are typically developed and tenanted by major corporations, such as Dollar General, Taco Bell, and Walgreens, who ensure there are no legal issues with the properties on which they sit.
That being said, during due diligence an unexpected issue can arise that must be resolved before closing, just as it did for this Northeast-based PE group as they were purchasing their fourth Dollar General in 2021.
Represented by Westwood Net Lease Advisor, Phil Bundren, the group moved forward with the seemingly-simple, all-cash purchase until the transaction neared closing and an unusual easement issue stopped the deal in its tracks. This problem had to be overcome quickly as the PE group’s attorney was leaving the country the morning of the scheduled closing and wouldn’t return for nearly a month.
Find out what happens when an easement issue arises, how this one was solved, and if the PE group got to the closing table on time.
The Challenge – Settle Easement Issue
The developer of a brand new Dollar General in Chilhowie, Virginia, reached out to Bundren shortly after Bundren’s client, the PE group, contracted to buy one of the developer’s other properties in Radford, Virginia. The developer wanted Bundren to present the newest property to the client prior to being listed. This would give Bundren’s buyers the first right of refusal and the ability to freely negotiate the price and cap rate. They responded with an offer, which was accepted.
However, unbeknownst to the developer, there was an easement issue. The title company discovered that the new Dollar General was using the easement of someone else’s property – someone they could not name or find. Curiously, there was no proof of abandonment nor did the issue arise when the developer bought the land.
When any type of easement or encroachment violation becomes known during the purchase of a commercial to residential property, it must be remedied before the sale can close or there’s no deal. The owner of the property that’s in violation could also face legal action.
Therefore, Bundren and his team had to find proof of abandonment or a previous owner who could sign off on the easement to get the deal closed at all, let alone on time.
The Process – Perform Due Diligence & Work as a Team to Get ALTA Endorsement From the Underwriter
This PE group, who at the time already owned over 50 absolute triple net Dollar General properties, was looking forward to another straightforward transaction. They scheduled a closing date and Bundren moved forward with due diligence. All the details were predictably coming together when the title company discovered the easement issue within days of the scheduled closing date.
Bundren explains, “Myself, the seller, the title company, and the surveyor all worked together to find a resolution. We had to contact multiple attorneys related to the chain of title. Eventually, the correct documentation was compiled. The surveyor then revised the survey and confirmed in writing that the easement no longer affected the subject property. This new survey received an ALTA endorsement from the title company underwriter the morning of closing.”
Since the evidence wasn’t complete until the last minute, the title company moved the closing date, which wasn’t acceptable to the client. Bundren stepped in and negotiated, and thanks to his long-term relationship with the title company, they were able to keep the same closing day and time.
Had the buyers worked with the developer directly without an advisor’s representation, this hurdle would’ve been a potential deal-breaker. Bundren’s vast network and reputation helped overcome the easement issue and get to the closing table on time.
The Result: Ownership of a New Dollar General, Radford, VA – 5.50% cap rate
By engaging Bundren to represent their best interests and manage their Dollar General transactions, this PE group bypassed all the 2021 triple net market challenges of high demand/low supply, bidding wars, and sightly compressed cap rates, and added four more profitable Dollar General NNNs to their growing investment portfolio with ease.
For the purchase price of $1,759,000 at a 5.50% cap rate, this brand-new NNN Dollar General investment provides a long list of benefits, including $97,642 of responsibility-free net operating income (NOI), annually.
Radford, Virginia, Dollar General NNN Lease Property Benefits
- Absolute triple net lease – zero landlord responsibilities.
- New 15-year lease with 5, five-year renewal options, offering cash flow through 2060.
- 10% rent increases every five years in the option periods to cover inflation.
- No rent payment concerns – investment-grade tenant with corporate-guaranteed lease.
- More valuable, larger prototype store, 10,556 SF on a .667-acre parcel.
- Strong demographics that lead to property success:
- Just Off I-81 with 32,000 cars/day, direct access to Roanoke and Knoxville.
- Highly visible at busy, signaled intersection, near other major retailers and a high school.
- Close to Cherokee National Forest, New River Gorge National Park, and Monongahela National Forest with millions of visitors annually.
To Wrap it Up – Overcoming an Easement Issue for a Successful NNN Dollar General Purchase
Though easement issues are not common among investment-grade NNN properties, they can arise, as can other types of title inconsistencies or Phase 1 environmental issues. That’s when you need an expert who can solve the problem in a timely manner. In this case, the easement problem was settled by a hard-working team led by Westwood Advisor Phil Bundren, and the PE group purchased the NNN Dollar General property before their attorney left the country for the remainder of the year.
This is a prime example of why even the savviest commercial real estate investors benefit from engaging a buyer’s adviser with expertise and a national reputation for closing even the most difficult transactions.
If you are interested in learning more about triple net lease investing or would like to use the 1031 exchange to trade an underperforming property for one that offers nothing but benefits, contact Phil Bundren today, 314.363.5780, for a no-obligation conversation and free buyer representation.