NNN Walmart with 8.5 cap rate - Posted by Prashant

Real Estate Investing Triple Net Leases
#1

Posted by brandoncbsre on November 24, 2008 at 04:15:32:

Location among other factors. Walgreens and CVS are absosultely adamant about being a corner with a traffic light. They dont care what they have to tear down to get there either. In my town the rumor is they are tearing down a 3 year old retail strip center to pick a corner 1 block from the new Walgreens that is still under construction.

Another thing to consider is the length of the lease on these 2 properties. A newly constructed Walgreens or CVS will have at least a 25 year NNN lease. The Wallly world building in this post may not have enough lease left to fully pay for the building, thus raising the risk level and resulting in the higher CAP.

#2

NNN Walmart with 8.5 cap rate - Posted by Prashant

Posted by Prashant on November 19, 2008 at 23:48:46:

I got an email for a deal which is NNN with 8.5 cap rate. The tenant is Walmart. See the first listing here http://cbremarketing.com/ve/ZZq907861718199BCj27f1

20 Years
Interest rate: 6.000%
Loan amount: $ 3,343,800.00
Yearly debt service: $23,956.02 * 12 = $287,472.24
Annaul cash flow: %3246

Does does not look like a good deal. Am I missing something?

If I were to assume 20% down, the the annual cashflow will be $54,248. That means a cash on cash return of 8.11%. Even that is not good. Why would someone do this deal? Thanks.

#3

Re: NNN Walmart with 8.5 cap rate - Posted by Tim

Posted by Tim on November 20, 2008 at 20:51:38:

This is a good deal for institutional investors and REITs, seeing as this is a pretty high cap rate for Walmart to pay and being probably the best credit tenant around. I would refer it out to a company with deep pockets for a transaction (finder’s)fee.

#4

Re: NNN Walmart with 8.5 cap rate - Posted by Steve

Posted by Steve on November 20, 2008 at 18:13:07:

8.11% Cash on cash for a NNN lease is nothing to sneaze at. Put a
little more down like the institutional investors do and see more cash
flow. Or if you could manage to get a 30 year loan(unlikely), that
would make the numbers a lot more interesting.

On the upside, with the 20 year loan you will be paying down the
mortgage faster and end up with substantial long term gains.

Its unlikely that Walmart will go out of business anytime soon. If you
have a long term lease with them, then you will be golden. If Walmart
ever decides to close that facility, you will be stuck with a building and
losing your shirt unless you have lots of cash reserves to weather the
storm and do whatever creative thing needs to be done to sell the
property or find another tennant. Often times Walmarts are located in
small towns where if the Walmart were to go away, you’d be left with a
building of little use for anything other than perhaps a shooting range.

There are pros and cons to NNN leases.

#5

Re: NNN Walmart with 8.5 cap rate - Posted by john

Posted by john on November 20, 2008 at 17:04:05:

You should only do the deal if you can make it cash flow…I.E. Lot’s of money down!! Lot’s of rich people would do these deals to keep their money safe or to do a 1031 exchange.

#6

Re: NNN Walmart with 8.5 cap rate - Posted by Grilly

Posted by Grilly on November 20, 2008 at 06:43:45:

I would imagine this is an older store with a lease that might not be renewed when it expires. Good thing about a company like Wal-Mart is that they will continue to pay on a lease even if they move out. A local investor in my area converted an old Wal-Mart to an expo center and it has been very successful. Sometimes other big-box retailers move into vacant former Wal-Mart locations. I’ve seen an old location split into two units with each unit occupied by a big box retailer. If you know what you’re doing, you can make money with vacant Wal-Marts.

You compare the deal you have listed above to buying a Walgreen’s at a 6% or 7% cap and it doesn’t seem to bad. I wouldn’t purchase an old Wal-Mart unless I had deep pockets though.

#7

Re: NNN Walmart with 8.5 cap rate - Posted by Simon Shekerjian

Posted by Simon Shekerjian on December 21, 2010 at 02:18:33:

Hi,
I got a request from a client looking for NNN Walmarts
10+ Capital rate. If you have such product, please email me with all the details. Thank you.

#8

Im confused! - Posted by Mike

Posted by Mike on November 22, 2008 at 06:26:12:

Why would Walmarts be in the $3 million range and Walgreens are in the $6 million range? Walmarts are HUGE compared to Walgreens?

#9

Re: Im confused! - Posted by Grilly

Posted by Grilly on November 24, 2008 at 10:09:16:

Ultimately, both tenants are perceived to have the same financial strength. It’s not so much the location of the building, but the fact that a typical 15,000 S.F. Walgreens rents for around $25-$35/S.F. and a typical 85,000 S.F. Wal-Mart rents for around $3-$5/S.F. Also, if a Wal-Mart might be going dark or has a lease that will soon expire, the buyer is going to want a good deal.