Have any experience in buying a Walgreens?

Question

I’ve made an account on Loopnet and came across a series of Walgreens and other commercial property for sale. How would a person(or me specifically) go about marketing a potential deal to investors to getting a Walgreens with me? It’s instant net worth, equity, has a triple net lease for long term, and is a great place to go in the midst of COViD.

Steve Morris · Answer

If you're buying a STNL or NNN, YOU'RE BUYING A LEASE BASICALLY (ie the series of cash flows).  The buildings are pretty much single-purpose (if Walgreens leaves then what?)

Walgreens builds these (and sometimes surrounding retail) and does a sale-leaseback.

Walgreens writes its own lease - READ AND UNDERSTAND THE LEASE EXACTLY.  You're looking for the outs.  I've seen leases where the tenant gives itself rent holidays in later years of the lease.  You're looking for the tenant "outs".

Other issue is you're kinda walking a fine line if they have "outs":

1) They do lousy in that location, they'll want to leave

2) They do great, they may look for a bigger place (not so much Walgreens though).

If you're in a large market, there may be a broker that specializes in STNLs (in Portland there is one) and the national chains usually have some people (not in town) that focus on the same.

Joel Owens · Answer

Walgreens:

How many years left on primary term of the lease?

Look at lease in LOI stage to make sure no errors or omissions in flyer or OM before locking as a potential 1031 choice.

What is rent per sq ft? Often vintage leases are inflated when pharmacy would pay anything to expand. Now they are renegotiating some leases. Your equity could be wiped out if rent is lowered. Have to make sure rent is reasonable for that box size and location.

Years left on primary lease can determine if good financing is available or not. Often low remaining primary years with higher cap rates attract buyers until they find out those are mainly all cash purchases. Anything under 7 years left is very hard to finance as lenders do not see mortgage being paid down enough to be less than dark value if the tenant does not renew.

Even if absolute NNN you have to see how old roof and parking lot is with cost reserve stable report while in due diligence. Those costs can be hundreds of thousands to replace.

Some pharmacies have no rental increases even in option periods. So if a pharmacy is paying low rent per sq ft with no rental increases ever they have incentive to stay but year over year your investment dollar devalues with inflation. That 200k NOI in 10 years maybe worth 170k.

So you at least want increases in option periods as it's typical to have flat rent in the primary term of the lease.

Lot's of other items to consider. Make sure you have a good a commercial retail attorney and a great commercial retail broker. They should be telling you about these things to analyze. It blows me away people contact me on here asking me questions and I am wondering where is the attorney and the broker? They tell me they have someone. My thought is if they have someone and they are not telling them these things then likely they are working with the wrong people.

Hope it helps.

Ronald Rohde · Answer

They are more absolute NNN than many other offerings. Do you want to compare the credit ratings? Thats all public info and makes a ~25 basis spread...

Joel Owens · Answer

The KKR story is from 2019

Walgreens is currently a public company.

Flyers are often incorrect because they have grunts or virtual assistants prepare them. Qualify ( In the process of a 1031 )

What stage?

1. Property listed for sale

2. Taking Offers on property

3. Property under contract with buyer

4. Buyer has gone hard with earnest money passing contingency and ready to close soon

5. Property has closed and now in 45 day 1031 ID period

How we would approach things are where you are at in the process. I would also need to analyze the current rent per sq ft for the box size and a ton of other metrics. I have done lots of pharmacy deals. Walgreens bought out some Rite Aid locations. Rite Aid is not investment grade credit. Higher cap rates but much harder to get loan for than Walgreens.

I would have to talk to you on the phone and see the Flyer or OM you are looking at specifically to comment further.

Kevin D. · Answer

@Joel Owens @Trevor Turnbow @Ronald Rohde  I'm jumping in to this conversation bit late, but do you have any concerns specific to Walgreens?  With KKR taking them private and some consolidation in the industry (Rite Aid), etc.  I'm in the process of a 1031 and am looking at a Walgreens.  At face value, its being marketed as true "zero landlord responsibilities", which is appealing, and the remaining term on the lease is nearly 10 years.  I like the area/parcel, but curious to get everyone's input specific to Walgreens.  Thanks in advance.

Joel Owens · Answer

Yeah I have lots of experience with pharmacies. Even in remote location if you get property cheap enough then can make money with releasing if they vacate. It's all about what is there, is rent below market, and what can you backfill with if they leave?

That comes with experience and knowledge. If someone has little experience it puts the investors capital potentially more at risk.

Ronald Rohde · Answer

yes, we buy plenty of these for my clients. We spend a ton of time on the lease and amendments as it gets quite complicated in understanding responsibilities of "true NNN."

Steve Morris · Answer

"If they were to leave the ideal depth of retail is 40 to 60 feet. Depending on which direction and traffic’s coming that could be a good thing if they were to leave. You may be able to find people that will pay more"

I don't know, I've seen boxes like for dollar-type stores that do get filled, but can't believe they're getting the rates/terms the original franchise paid.

The one's that are really tough are the burger/fast-food places.  I actually live in a B neighborhood and have a McDs that closed.  I understand McD owns the store so not for sale, but it's sat for 3 years now.  Too bad since a block away a SBUX converted a bank six months earlier.

Trevor Turnbow · Answer

@Jasmine Poteat

I love them! We specialize in NNN deals. Send me any questions  you may have. Send me a copy of their lease.

Also get a survey of the building.

If they were to leave the ideal depth of retail is 40 to 60 feet. Depending on which direction and traffic’s coming that could be a good thing if they were to leave. You may be able to find people that will pay more

Jay Hinrichs · Answer

Kind of reminds me of the dollar generals you see stuck out in the middle of nowhere USA.. if they decide to close then what..  not saying Walgreens is dollar general.. but single purpose commercial i agree with you one needs to be pretty sure of the location.

Have any experience in buying a Walgreens?

Most Popular Reply