Dollar General for Sale

[Kris Gupta]

I have been looking for Dollar General/Dollar Tree/Family Dollar deals. There are some deals where the builder has constructed new building and leased to Dollar General. These have 15 year lease term remaining and after that 4x5 renewal options with 10% increase. Cap rate is around 6.5%

How are these deals? During the 15 year lease terms, any possibility they will not pay rent? What other things I should be looking for?

Thanks

[Joel Owens]

Dollar General and Dollar Tree better credit than Family Dollar.

I like upgraded construction stores in suburban core areas. Only about 10 to 15% of dollar stores are like that. Most are cheap sheet metal sides and back in rural type area or remote towns and have limited growth in dirt value long term and if dollar store ever leaves almost no tenant wants the building because of the poor construction.

People buy them because investment grade tenant and it's about the only thing sub 2 million in price in the 6 plus cap rate range. I like auto stores and Davita type medical also in this price range.

The Davita's can get 6 plus cap rate but get 2% annual increase in primary lease term so I like better from a yield perspective plus build out quality is usually a lot higher. DG is considered an essential business type and those are doing really well mid COVID virus. 

I look at about 1,000 STNL properties a week nationally.

If you have questions and need help find a great commercial STNL broker or at a minimum a commercial retail attorney to help you with your buying process. 6.5% cap is typical for Dollar Generals. The more rural ones closer to 7 cap with new lease and then the upgraded brick in suburban area closer to 6.0 to 6.25 cap.

Sweet spot I target with my clients sometimes is 7 to 11 years remaining on primary lease term. We cans till get great financing similar to a new 15 year lease for  interest rate and amortization but cap rate we might get 30 to 50 basis points or more for yield.