Partnership Buys Pre-Construction AutoZone Ground Lease

May 21, 2020

AutoZone, Richmond, VA

Closing date: March 31, 2020

Price: 1,102,363

Cap rate: 4.40%

In late 2019, a two-person partnership was looking to diversify their real estate portfolio with properties that carried longer leases than the ten years left on their current Walgreens. Their plan was to sell the Walgreens and purchase two NNN properties with 15- to 20-year leases in a $4.5M 1031 exchange.

Having previously worked with Westwood Net Lease Advisors’ President and Buyer’s Advisor, Chris Schellin, the partnership contacted him to assist with both the selling and buying processes. The partnership recently closed on the first of two properties, an AutoZone in Richmond, Virginia.

The Process

Westwood received the exclusive right to list and sell the clients’ Walgreens, which sold quickly, despite having only 10+ years left on the lease. Simultaneously, while the Walgreens was on the market, Schellin and the buyers began the property search for their new investments. This eliminated the typical 45-day, 1031-exchange rush to identify the intended property for purchase once the Walgreens sold.

Schellin worked to find properties that met the partners’ financial goals, analyzed the different lease details for a variety of potential properties, and after thorough evaluation of many available fast food, auto parts, medical, and retail properties, this pre-construction AutoZone with a 15-year NNN ground lease became available.

What made this AutoZone unique was the lower than normal base rent and listing price coupled with the fact that it was a ground lease. The opportunity to purchase new construction with a full-term, 15-year corporate-guaranteed lease under $1.5 million created heavy national interest and generated multiple offers. Schellin’s persistence, reputation, and negotiation skills won out in the end, and the partners’ offer was accepted.

AutoZone NNN Properties Offer Growth in Any Economy

AutoZone, an investment-grade company that began in 1979, is the largest international auto parts retailer with over $11.8 billion in 2019 annual sales. All AutoZone properties are company-owned, range between 6500-8000 sq. ft., and typically sell between $1.5-2 million.

Stores operate under 15-year absolute NNN ground leases or double-net (NN) fee-simple leases, where the landlord is responsible for roof and structure. The essential nature of auto parts, AutoZone’s long-term, corporate-guaranteed lease structure, and the company’s consistent growth present a stable investment opportunity with a lower than average financial risk.

“Fiscal 2020 is going to be a year of laser focus on growing both our U.S. Retail and Commercial business. Through our Omni-channel efforts, we will continue to invest in our strategy to enhance the customers’ shopping experience by meeting them when, where, and how they want to shop.” – Bill Rhodes, Chairman, President, and CEO Customer Satisfaction

business deal

The Result

When this investment-savvy partnership engaged Schellin to assist with the sale of their Walgreens and $4.5 million 1031 exchange, little did they know this Westwood Advisor’s negotiations would carry such weight and help them compete for and win the bid on this unique, pre-construction AutoZone NNN ground lease investment.

The partnership now benefits from a management-free property with a stable monthly income for the next fifteen years, plus lease extension options and rent increases built in every 5 years.

To Wrap it Up – Longer-Term AutoZone Property for Partnership

Thanks to this recurring buyer-advisor alliance, this partnership successfully traded their Walgreens for a longer-term AutoZone NNN ground lease investment. Stay tuned for the next case study on this partnership’s second 1031 pre-construction property purchase coming in July.

For more information and a free, no-obligation consultation, call or email Chris Schellin, President of Westwood Net Lease Advisors, at 314-563-2208.

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