PE Group Buys 3 New Dollar General Triple Nets with 5.50% Cap Rates in Compressed Market, Earns $263,337/Year

Feb 17, 2022

Dollar General Portfolio
August – November 2021
$4,746,165
5.50–5.65% cap rates
$263,337 NOI

Savvy investors in a Northeast-based private equity (PE) group who understand the triple net (NNN) market well and own over 50 Dollar Generals, see the value in working with Phil Bundren, Buyer’s Advisor at Westwood Net Lease Advisors. He helps them locate NNN DG properties that fit their criteria while representing their best interests throughout each transaction at no charge.

In this case, due to one of the tightest markets in history (2021), Bundren was up against the odds to find as many new Dollar General triple net lease investments as possible and help this PE group secure a contract on each. It was especially challenging with their minimum cap rate request of 5.50%, as higher cap rates were becoming harder to obtain.

Find out how Bundren’s expertise, market knowledge, and broker and developer relationships gave this PE group a buying advantage they wouldn’t have had otherwise, and made it possible for them to contract on several Dollar General NNN properties within their cap rate specifications, for a total annual net operating income (NOI) of $263,337.

The Challenge – Minimum 5.50% Cap Rate in a Compressed NNN Market

“Throughout 2021, Dollar General Corporation was growing at a rate not seen by many other businesses. The company’s developers were building about 1000 nationwide locations. However, the increasing number of triple net lease investors like first-time buyers, 1031 exchange buyers rushing to close deals, and seasoned investors wanting more triple nets made it challenging to secure a purchase contract on a new or existing Dollar General,” said Bundren.

He added, “Since most triple nets were being sold off-market, through broker networks, no matter how experienced a buyer is at commercial real estate investing, he or she will most likely not have access to an available property on their own. The investors in this PE group realized that and trusted me to find what they were looking for and handle the transaction from start to close, freeing up their time.”

Since Dollar General demand was exceeding supply and cap rates began compressing, reducing average 6.00% cap rates to the 5.00% range, the PE group’s minimum cap rate request of 5.50% was the biggest challenge for Bundren.

The Process – Locate Dollar General Triple Nets for Sale & Secure Purchase Contracts

When Bundren and this PE group began working together, it was clear to Bundren that they knew the triple net lease market and were savvy absolute NNN Dollar General property investors. He got to know them and their preferences and goals and put the word out to his broker, seller, and developer network.

Right away, one listing broker representing a Dollar General developer and with whom Bundren already had a working relationship, contacted Bundren with two new available, unadvertised DG properties. Not being on the open market gave Bundren’s all-cash buyers the chance to have the first look at the properties and the opportunity to make offers before they hit the market, thus avoiding competition.

Dollar General, Ponca City, Oklahoma – 5.65% cap rate

Purchase price of $1,531,365.
Corporate-guaranteed, absolute NNN lease – zero landlord obligations.
New 15-year lease, with 5, five-year renewal options, offering the potential for investors to realize cash flow through the year 2060.
The lease features 10% rent increases every five years in the option periods.
Investment-grade tenant with a BBB/Stable S&P rating.
Strong demographics with a population of around 25,000 residents and a 2.60-acre location near several major retailers.
NOI: $86,522.

Dollar General, Miami, Oklahoma – 5.50% cap rate

Purchase price of $1,581,800.
Absolute triple net lease – no landlord responsibilities.
New 15-year lease, with 5, five-year renewal options, offering the potential for investors to realize cash flow through 2060.
10% rent increases every five years in the option periods.
Investment-grade corporation/tenant that guarantees the lease.
Strong demographics: population of 25,500 in a growing city with a regional airport.
Sits on a 2.57-acre parcel near other major retailers.
NOI: $87,000.

Not long after these two were under contract, another broker reached out to Bundren with a new Dollar General property in Radford, Virginia, prior to listing it on the open market.

Dollar General, Radford, VA – 5.50% cap rate

Purchase price of $1,633,000.
Absolute triple net lease.
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.
Investment-grade tenant with corporate-guaranteed lease.
Strong demographics: a population of 40,000 in a growing Roanoke suburb.
New larger prototype store, 10,640 SF, on a 1.667-acre parcel with 41k passing cars/day.
Highly visible near other major retailers, a medical campus, a university, and a national park with 1.4 million annual visitors.
NOI: $89,815.

The PE group didn’t waste any time making offers and got the ball rolling on the purchase of these highly desirable Dollar General properties.

Why does this investment group own over 50 triple net lease Dollar Generals? There is stability in leasing to an investment-grade tenant that continues to grow, along with easy, guaranteed income, zero landlord responsibility, and a potential 7–10% internal rate of return on each. They sit back and collect hundreds of thousands of dollars per year, worry-free.

The Result – PE Group Bypassed Market Challenges to Close on 3 Dollar General NNNs

By engaging Bundren to locate their ideal properties and manage the transactions from the letter of intent and due diligence to closing, this PE group got to bypass all the market challenges of high demand/low supply, bidding wars, and sightly compressed cap rates, and add three more profitable Dollar General NNNs to their growing investment portfolio with ease.

And not only did they add to their portfolio, but they also got the cap rates they wanted on all brand new properties with full-term leases, providing stable income until 2036, with the potential for cash flow until 2060.

All three transactions closed on time and without issue, thanks to Bundren’s attention to detail and diligence.

To Wrap it Up – A Growing Triple Net Dollar General Portfolio with 5.50% Cap Rate & $263,337 NOI

This Northeast-based private equity group has Bundren as a triple net advisor partner in growing its NNN portfolio. Aside from these three Dollar General properties at their requested 5.50% cap rate and another $263,337 in NOI, he continues to assist them in finding and purchasing DGs, as well as other triple net lease properties.

At the time of closing on the Radford Dollar General, November 10, 2021, Bundren was helping this client close on another Virginia-based DG from the same developer. However, the transaction had an unusual title issue at the last minute – find out in the next Success Story how Bundren solved the issue and if they were able to close on time.

Ready for a No-Obligation Conversation About Triple Net Lease Investing?

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.

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Westwood Net Lease Advisors has made every attempt to ensure the accuracy and reliability of the information provided. Westwood Net Lease Advisors does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained herein. We are not lawyers, accountants (CPAs), or certified financial planners, nor is the information herein considered legally-binding legal advice, tax guidance, or financial counsel.