Posted by Nate(DC) on July 20, 2009 at 23:33:01:
it’s not “better” or “worse”, just different. it has a different risk profile than a true NNN, with more similarity to other types of real estate investments (i.e. at some point in the future, your capital needs will exceed a flat capital budget)
NN Deal - Posted by Sammy
Posted by Sammy on July 09, 2009 at 20:44:26:
Hi…I know Ray has info on NN/NNN deals - and singles out Dollar General, though that was 4 years ago…I’d like advice on this deal:
$695,000 at 9.33 Cap rate. = $64,860 annual rent and another $3,185 annual CAM reimbursement. Current seller says CAM is around $800-$900 per year.
Just starting year 6 of 1-10 year lease, then 2, 5 year options with 12% increase options, plus increases in the CAM too.
This seems pretty good to me and the store sales look good, at least from my understanding (they are around $1.1mil for 2008) and the manager told me that they are looking at another 10% increase this year in 2009.
I also talked to a DG real estate developer, asking him “what if they leave in 5 years and do not exercise any options”…though he of course can’t guarantee anything, he says the stores are doing very well in the recession and the stores closing are the “older ones in places like Winn Dixie shopping centers”.
Does this look good? I like the 12% increases, and although new stores can be found for the same CAP, or close to it, they have no rent bumps for 10-15 yrs.
My bank will give me a 6.25% interest rate…for 20years, due in 5.
Thanks.
Re: NN Deal - Posted by PeterN
Posted by PeterN on August 17, 2009 at 21:38:15:
Be careful as Dollar General is going around trying to wring rent concessions from the existing landlords, especially those with percentage of rent clauses. They hired an outside firm to make a concerted effort to lower their rental costs. When buying a Dollar General, inquire if the current owner has received a letter offering a significant rental reduction in exchange for an extended lease term.
Re: NN Deal - Posted by john
Posted by john on July 28, 2009 at 21:19:17:
The cap rate is good, but for my money I would like some reassurances that the land is worth something if the tenant goes dark.
Re: NN Deal - Posted by ray@lcorn
Posted by ray@lcorn on July 15, 2009 at 11:21:31:
Sammy,
Everything I wrote in that article still holds. DG is doing okay, but they’re still a second-tier credit. The cap you quote is reflective of the short fuse on the lease. As you noted the new stores are trading at 8.5%-8.75, so I’d think that this one is a bit over-priced. The rent bumps are irrelavant if they don’t renew.
Which brings up the issues in the article regarding neighborhood character (growth, demographics, etc.), residual value (as-vacant), and value in relation to replacement cost, etc.
In general retail is going to be under significant pressure for the next few years, so be careful in projecting rents for a new tenant.
ray
Re: NN Deal - Posted by Richard [NJ]
Posted by Richard [NJ] on July 11, 2009 at 23:23:15:
>> I like the 12% increases…
Be aware that 12% every five years is equivalent to 2.29246% per year compounded annually. If the property is true triple net, you can figure it will appreciate at that rate, barring changes in market cap rates.
Re: NN Deal - Posted by Sammy
Posted by Sammy on July 12, 2009 at 09:32:20:
thanks…it is not a true NNN (you can see the CAM charges there), though I understand that I am responsible for the outside area and HVAC, everything is still under a long warranty (other than the parking lot surface), and as you can see, I net another $200/month from what they pay for the CAM and what it actually costs me. So in that respect, isn’t it better than a NNN?