Sale of Vacant Retail Center Turns Into $86k/Year NOI from Family Dollar

Oct 1, 2020

Family Dollar, Pensacola, FL
July 15, 2020
7.67% cap rate
$86,000 NOI

A St. Louis area investor sold an underperforming, vacant shopping center and contacted Mike Kocur at Westwood Net Lease Advisors to help him reinvest the profits from the sale using a 1031 exchange. The only caveat with finding this buyer a new CRE investment was that he had a specific cap rate range he wasn’t willing to fall below – 7.00 to 8.00% – which presented a challenge for Kocur. The majority of NNN lease investments fall between 5.00–7.00%.

Unphased by the challenge, Kocur utilized his industry network and came through fast with a lucrative Family Dollar investment in which he helped negotiate a lower than asking sale price, a higher than advertised cap rate, and a $5000 credit to the buyer at closing.

Learn more about how this buyer, who was earning nothing from and paying taxes on a vacant retail center in St. Louis, Missouri, secured the Family Dollar property within the IRS’s tight 1031 timeline, and now earns a guaranteed $86,000 annual net operating income (NOI) for the next 6.5 years, and benefits from five, 5-year lease extension options with rental increase opportunities at the time of each renewal.

group of business investors doing quarterly reviews

The Process

First, Kocur got to know his client, learned his goals, and evaluated a selection of asset types and locations that fell into the buyer’s cap rate requirements of 7.00–8.00%.

It was important to Kocur that his client choose a property with an investment-grade tenant. Typically, with a higher cap rate comes more risk and potentially more landlord responsibilities. However, with a corporate-guaranteed lease, there is less risk and 100% income stability for the lease term, which is what Kocur wanted for his client.

Next, Kocur located and recommended the Family Dollar property in Pensacola, Florida. He determined the property was in a prime location with 29,000 vehicles passing per day and performed due diligence on the remainder of the 6.5-year lease to ensure it was a sound investment with little to no landlord maintenance or responsibility, given that his client lives in St. Louis.

The double-net plus (NN+) lease called for the landlord responsibility of roof, structure, and parking lot. To make sure there would be no immediate landlord expenses, Kocur arranged for an inspection, which confirmed the building had a new roof. The inspection also noted a dent in the side of the building. This dent became a negotiating point, which returned $5,000 back to Kocur’s investor at closing so he could fix it without any capital expenditure.

Due to this Family Dollar being a double-net lease investment property with less than a full-term lease, Kocur also helped negotiate a higher cap rate (from 7.50 to 7.67%) and secured the property for his client at lower than list price ($1,146,667 to $1,120,000).

About Family Dollar

As of February 2020, Dollar Tree, which owns Family Dollar, operates 15,288 retail stores in 48 states. Family Dollar stores number 7,783 with eleven distribution centers. Dollar Tree is ranked 135th on the Fortune 500 and holds an S&P rating of BBB- with a market cap of $23.6 billion.

For the commercial real estate investor, stores typically sell in the 1.5–2 million dollar range with either NN+ or NNN corporate-guaranteed leases, which makes them ideal for a first-time investor or as a complement to an already robust CRE portfolio. Family Dollar falls into the consumer “essential needs” category, so these stores offer investment stability and guaranteed income in any economy.

The Result

This seasoned commercial real estate investor engaged Kocur to assist with the 1031 exchange process and couldn’t be happier with the results. On his own, he never would’ve considered a property in another state, nor would he have had the experience and reputation to dig deep into the due diligence process and negotiate a lower sale price and cap rate.

Even though this Family Dollar 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 will be an easy endeavor.

In the end, Kocur’s client benefitted from deferring all capital gains tax on the sale of a property that was losing money to one in which he makes $86,000 per year, guaranteed for the next 6.5 years, and potentially thereafter up to another 20 years.

Businessman drawing an exponential curve of a progress in business performance, return on investment - ROI, on a virtual screen presentation.

To Wrap it Up – Seasoned Investor Earns $86K from Worry-free Family Dollar Property

Utilizing Kocur’s 1031 exchange and net-lease investment expertise, this investor was able to close on a reliable, worry-free Family Dollar property and meet his financial goals with a corporate-guaranteed lease and few, if any, 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.

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