Thoughts on Dollar General

[Shannon Kiefhaber]

I am analyzing a deal to buy a freestanding Dollar General with a 6.3% cap rate and triple net lease with ten years left. I was excited about the deal until I visited the property and saw that there was a Dollar General two miles north and south. This particular store is a "plus" selling beer and wine so there is a distinguishing factor plus this store is only a few years old and the building is over 12,000 SF. Anyone else out there own DG's and have any advise or thoughts about profitability over the next 10 years? Thanks BP community!

[Kody Foster]

@Shannon Kiefhaber Shannon, I grew up building DG’s for our family real estate development company. Dollar Generals are a national tenant and have proved to be good investments for our family. With that being said you would need to do some good evaluation before making a decision to buy this deal. We did buy the land, and built to suit for DG( my dad started building in 97, and we built our last one in 2010) Depending on when different investors got in the game would help you evaluate the the lease terms. We have some leases with built in percentages of sales. We happen to get into the earlier “growth” phase of DG when they still only have a couple thousand stores. At that time DG was easier to work with( they are still easy to work with in aspects, but once a company gets big some things change and more and more stuff gets larger especially the cost to build to suit. One of our first builds cost 250k to build, one of our last builds was over the million dollar mark) DG’s do well in areas of lower income. Not all DG’s you see on the market are good buys. We have bought some DG’s and built many. For most investments such as these that are high in price, it seems smarter to do 1031 exchange or pay cash. Just buying a DG the way most people buy houses, or duplexes( typical 20% down payment and 20-30yr note)is not necessarily the best approach. My Dad is much more knowledgeable about these deals than I. If you have any questions I’ll try to help anyway I can.