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Rite Aid Commercial Property

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MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
Hello everybody and I hope you’re having a great week!

—This is my first post on here—

I’m 35 years old with on and off experience in real estate mostly as a broker. I’ve rented apartments and I did some sales but nothing major under my belt. I know the business but mostly in theory as I have friends who did deals, flips, buy and hold etc. Also, I’m constantly reading about real estate and I’m always looking for deals. In addition I’ve read Unscripted and loved it.


To get to the point, I’m trying to buy my first property (or at least my first involvement in a property since I’m not in possession of this kinda money)

It’s a commercial property. A Rite Aid pharmacy. They recently signed a 5 year lease and have 4 five year options (total 20). It’s backed by a corporate guarantee and the numbers are good ($5.2mm annual revenue for this store). It’s a fee simple deal and I’m trying to get it for cap 10 and sell it for cap 7 or just refinance and hold. All in all it looks like a solid deal and it’s still available only because 2 buyers fell through due to a lengthy 1031 transaction.


I did some research on the financial health of Rite Aid and they seem to be in good shape but they also show a few weaknesses.


-Walgreens bought a huge chunk of their stores and closed 600 of them.

-Their net income is negative.

-There’s a stiff competition in that market and Amazon, Walmart and other online retailers are a constant lurking threat.


Can anyone with experience in commercial real estate help me assess this deal further?


I want to buy it all cash and refinance in three months or so.


-Can I get refinance at cap 7?
-Will I be able to get it refinanced in three months?
-Do you recognize any risks in such deal?

What questions would you ask before entering a multimillion commercial property deal?

In addition I’d appreciate any help or input!

Thank you!


Moe
 

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SteveO

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Hello everybody and I hope you’re having a great week!

—This is my first post on here—

I’m 35 years old with on and off experience in real estate mostly as a broker. I’ve rented apartments and I did some sales but nothing major under my belt. I know the business but mostly in theory as I have friends who did deals, flips, buy and hold etc. Also, I’m constantly reading about real estate and I’m always looking for deals. In addition I’ve read Unscripted and loved it.


To get to the point, I’m trying to buy my first property (or at least my first involvement in a property since I’m not in possession of this kinda money)

It’s a commercial property. A Rite Aid pharmacy. They recently signed a 5 year lease and have 4 five year options (total 20). It’s backed by a corporate guarantee and the numbers are good ($5.2mm annual revenue for this store). It’s a fee simple deal and I’m trying to get it for cap 10 and sell it for cap 7 or just refinance and hold. All in all it looks like a solid deal and it’s still available only because 2 buyers fell through due to a lengthy 1031 transaction.


I did some research on the financial health of Rite Aid and they seem to be in good shape but they also show a few weaknesses.


-Walgreens bought a huge chunk of their stores and closed 600 of them.

-Their net income is negative.

-There’s a stiff competition in that market and Amazon, Walmart and other online retailers are a constant lurking threat.


Can anyone with experience in commercial real estate help me assess this deal further?


I want to buy it all cash and refinance in three months or so.


-Can I get refinance at cap 7?
-Will I be able to get it refinanced in three months?
-Do you recognize any risks in such deal?

What questions would you ask before entering a multimillion commercial property deal?

In addition I’d appreciate any help or input!

Thank you!


Moe
Sounds like you have some capital to work with. Awesome!

Most of my years of experience have come with apartments. But, I have done a couple of commercial. One was a retail strip center. So, I have some relevant experience but not direct single tenant.

A ten cap would be amazing for a deal like that. They are usually 5 or so. But you outlined some of the weaknesses already. They used to do a lot longer lease terms... like 20 years. I guess they got stung a few times. 5 years is not that strong. It might not be to a buyer.

I would suggest that you lock it up in contract and then find an agent that specializes in this type of single tenant property. See what they think it is worth on the market.

I love the idea of buying distressed commercial. Seems to me like the market is too strong right now though.

If you have capital to spend, why not wait until some of the buyers go away. Much easier to find a deal that way.
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
Sounds like you have some capital to work with. Awesome!

Most of my years of experience have come with apartments. But, I have done a couple of commercial. One was a retail strip center. So, I have some relevant experience but not direct single tenant.

A ten cap would be amazing for a deal like that. They are usually 5 or so. But you outlined some of the weaknesses already. They used to do a lot longer lease terms... like 20 years. I guess they got stung a few times. 5 years is not that strong. It might not be to a buyer.

I would suggest that you lock it up in contract and then find an agent that specializes in this type of single tenant property. See what they think it is worth on the market.

I love the idea of buying distressed commercial. Seems to me like the market is too strong right now though.

If you have capital to spend, why not wait until some of the buyers go away. Much easier to find a deal that way.
Thank you @SteveO
It’s actually the first time I’m able to find a foreclosure on such good commercial property. My only worry is how well the company is doing.
I like triple net because there’s no headache dealing with multiple tenants.

I honestly wanna flip it. So hopefully if I can get it for cap 10 I’ll put in on the market for cap 7 which is a great deal in itself.
 

SteveO

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Foreclosure!!! How? How could someone miss payments on a single tenant deal? This does not make sense.

Great for you though.

I must have missed the part where you don't have the cash to buy this. How do you plan on taking it down?

Lenders are strange creatures. What they require and when seems to be on a whim. Three months is aggressive without issues. There are many commercial lending avenues though. So you might be able to find someone.

When all is said and done, they almost always want you to have skin in the game.
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
Foreclosure!!! How? How could someone miss payments on a single tenant deal? This does not make sense.

Great for you though.

I must have missed the part where you don't have the cash to buy this. How do you plan on taking it down?

Lenders are strange creatures. What they require and when seems to be on a whim. Three months is aggressive without issues. There are many commercial lending avenues though. So you might be able to find someone.

When all is said and done, they almost always want you to have skin in the game.
Yea so the thing is someone close to me got the cash to buy it outright. We want to later refi And place on market immediately.

And I know! I was surprised myself. Cause usually at this caps you can only get a leasehold property. Secondly savvy RE investors own commercial properties and they rarely go bankrupt. I believe that in this situation the owner wasn’t able to handle the balloon payment. It was financed before the big depression of 2007-8. I’ve sent the offer today. Let’s see if they accept it. Otherwise I’ve been told - it’s going to auction.
 

JScott

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I'm confused about a couple things...
- Is this is a publicly listed deal? In other words, could I find this property and buy it myself? Or is this off-market and you're using a personal relationship to get access to the deal?
- What is the going cap rate for these types of properties in your area right now?
- If it's publicly listed at a 10 cap, what makes you think you can turn around and sell it for a 7 cap?
- Why is the current owner unable to refi? If it's been cash-flow positive for 10+ years, it's weird that the current owner is unable to get new financing.
- If your goal is to buy at a 10 cap and immediately resell at a 7 cap, why do you need to refi in 3 months?
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
I'm confused about a couple things...
- Is this is a publicly listed deal? In other words, could I find this property and buy it myself? Or is this off-market and you're using a personal relationship to get access to the deal?
- What is the going cap rate for these types of properties in your area right now?
- If it's publicly listed at a 10 cap, what makes you think you can turn around and sell it for a 7 cap?
- Why is the current owner unable to refi? If it's been cash-flow positive for 10+ years, it's weird that the current owner is unable to get new financing.
- If your goal is to buy at a 10 cap and immediately resell at a 7 cap, why do you need to refi in 3 months?
-Update: They didn’t take my offer and the owner decided to go to an online auction. They want to know what the market can get them for it. Also, the lease is only 5 years and it’s somewhat a deterant as national pharmacies usually sign 10-20 years lease.

To your questions:

-Yes it’s a publicity listed deal.
-Usually a pharmacy in a few simple deal woild sell for cap 5-7 depends where it is.
-it’s not listed at cap 10 I was making an offer that reflected a cap 10 deal.
-idk what’s the story with the current owner. I believe he wasn’t able to pay his finance on this property and now the bank took over it through a servicer.
-well I didn’t know how long it would take to sell so I thought that in the meantime I could refinance and get the money back while getting a positive cash flow.
 

JScott

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-Update: They didn’t take my offer and the owner decided to go to an online auction. They want to know what the market can get them for it. Also, the lease is only 5 years and it’s somewhat a deterant as national pharmacies usually sign 10-20 years lease.

To your questions:

-Yes it’s a publicity listed deal.
-Usually a pharmacy in a few simple deal woild sell for cap 5-7 depends where it is.
-it’s not listed at cap 10 I was making an offer that reflected a cap 10 deal.
-idk what’s the story with the current owner. I believe he wasn’t able to pay his finance on this property and now the bank took over it through a servicer.
-well I didn’t know how long it would take to sell so I thought that in the meantime I could refinance and get the money back while getting a positive cash flow.
The most obvious thing here is that you thought you could take a publicly listed deal, by it at a 10 cap and then quickly turn around and sell it at a 7 cap... Why would someone buy it from you at 7 cap if it's publicly listed and they could buy it from this guy at a 10 cap (or maybe a 9 cap to beat your price)?

Commercial real estate markets are pretty efficient. You're not going to get a 30% spread simply because you can market a little better than the next guy. Long story short, I think your business model here is flawed...
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
The most obvious thing here is that you thought you could take a publicly listed deal, by it at a 10 cap and then quickly turn around and sell it at a 7 cap... Why would someone buy it from you at 7 cap if it's publicly listed and they could buy it from this guy at a 10 cap (or maybe a 9 cap to beat your price)?

Commercial real estate markets are pretty efficient. You're not going to get a 30% spread simply because you can market a little better than the next guy. Long story short, I think your business model here is flawed...
I totally see why you’d think that. It’s not exactly the case. It wasn’t listed for cap 10 it was listed for cap 7 but the owner wanted a fast sale and was willing to take way less than listing price. It was a foreclosure and the owner defaulted on the loan. I had better offers ahead of me but they wanted to do a 1031 and owner didn’t want to go with it from some reason as it’s time consuming. I was sending a cash offer that reflects cap 11 with the hipesntheyd come back with cap 10 or 9 but they decided to go to an auction and see what the market can really bring them. I know not all deals in real estate make sense.

Do you mostly buy residential or commercial?
What’s your game plan for $600k-2mm in cash.

M
 

JScott

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Do you mostly buy residential or commercial?
What’s your game plan for $600k-2mm in cash.
I invest in residential and multi-family (and then other non-real estate investments).

As for $600K - $2M, I typically try to limit my investments to a few hundred thousand each (for diversification). Unless I had at least $20M, I wouldn't invest that much into a single deal.

For example, I'm getting ready to purchase a poorly managed apartment complex for $7.7M, with $3M down. It's syndicated (my partner and I have passive investors), and I'm putting in a few hundred thousand of my own cash into the deal. That way, I get into a bigger deal, my investors see that I have a financial stake in the investment, but don't have to put too many eggs in one basket.

I don't like to put too much of my net worth into any one project or asset class, so I'm always looking for new investments and new areas of investment.

If you only have $600K - $2M, I would recommend against putting it all into one place, especially at this point in the market cycle. If that's just a portion of your net worth and you're looking to invest it all in one place, I would either find a value-add commercial/multi-family play, or find a good recession proof commercial asset that cash flows (like mobile home parks, self storage, grocery anchored strip, medical center, etc.).
 

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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
I invest in residential and multi-family (and then other non-real estate investments).

As for $600K - $2M, I typically try to limit my investments to a few hundred thousand each (for diversification). Unless I had at least $20M, I wouldn't invest that much into a single deal.

For example, I'm getting ready to purchase a poorly managed apartment complex for $7.7M, with $3M down. It's syndicated (my partner and I have passive investors), and I'm putting in a few hundred thousand of my own cash into the deal. That way, I get into a bigger deal, my investors see that I have a financial stake in the investment, but don't have to put too many eggs in one basket.

I don't like to put too much of my net worth into any one project or asset class, so I'm always looking for new investments and new areas of investment.

If you only have $600K - $2M, I would recommend against putting it all into one place, especially at this point in the market cycle. If that's just a portion of your net worth and you're looking to invest it all in one place, I would either find a value-add commercial/multi-family play, or find a good recession proof commercial asset that cash flows (like mobile home parks, self storage, grocery anchored strip, medical center, etc.).
My net worth is close to 0. I just have access to cash (not mine) and I’m trying to use it wisely. I’m usually not into NNN peoperties as I believe that I’m not at that stage to invest in them yet but I saw an opportunity and I went for it.

At this point I think I’m going to just go to auctions and start an office by nyc area where I live and see if I can source small deals and accumulate some cash to get into bigger deals and possibly developing vacant lands.


I like your model. Kinda like Cardone. I wanna later on get on that as well but I feel that first I’d have to execute a few good deals on my own to be able to go to people and ask for big bucks and get a sidicayion going.

I wanted to ask where do you source your deals but I feel like I’ll get the same answer as I got from this veteran investor at this high end event I went to. He was like “well I’m in this business 30 years” and that’s how he concluded his answer.

I assume if you don’t have contacts then all you have is the street and possibly Loopnet and other online resources. Especially for 10-1000 unit peoperties and commercial peoperties.

As for the cycle I agree. Even though I’m eager to find a deal I don’t stress myself because I know that in the near furure it’s going to be a very defined buyer’s market and that cash could get a profitable deal.
 

JScott

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My net worth is close to 0. I just have access to cash (not mine) and I’m trying to use it wisely. I’m usually not into NNN peoperties as I believe that I’m not at that stage to invest in them yet but I saw an opportunity and I went for it.
Everyone is different, but I'm pretty conservative, and would never invest any major sum of money from someone else unless I had a good bit of experience in that that investment class. To each his own though...

I like your model. Kinda like Cardone. I wanna later on get on that as well but I feel that first I’d have to execute a few good deals on my own to be able to go to people and ask for big bucks and get a sidicayion going.

I wanted to ask where do you source your deals but I feel like I’ll get the same answer as I got from this veteran investor at this high end event I went to. He was like “well I’m in this business 30 years” and that’s how he concluded his answer.
It's a common model in the multi-family space. This is actually my first deal over 100 units (I've done a few between 20-60 units), so I'm not an expert. But, after 10 years of smaller stuff, I've decided to team up with someone who *is* an expert, to avoid any major mistakes on my part.

@SteveO is probably the expert here on TFM for this model -- he was doing these deals over a decade ago before lots of other investors started. In fact, I credit him for teaching me how these deals work 10 years ago when I was first starting out and didn't even know what questions to ask.

And yes, these deals are tough to find. I've been looking for 2+ years now, and even though I have a ton of connections in the real estate space, I still had lots of problems finding good off-market opportunities. You need some very specific connections for deals like this (as I've learned the hard way). When you get into larger real estate projects, it's all about who you know.

As for the cycle I agree. Even though I’m eager to find a deal I don’t stress myself because I know that in the near furure it’s going to be a very defined buyer’s market and that cash could get a profitable deal.
Yup, things will get better for buyers...
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
Everyone is different, but I'm pretty conservative, and would never invest any major sum of money from someone else unless I had a good bit of experience in that that investment class. To each his own though...



It's a common model in the multi-family space. This is actually my first deal over 100 units (I've done a few between 20-60 units), so I'm not an expert. But, after 10 years of smaller stuff, I've decided to team up with someone who *is* an expert, to avoid any major mistakes on my part.

@SteveO is probably the expert here on TFM for this model -- he was doing these deals over a decade ago before lots of other investors started. In fact, I credit him for teaching me how these deals work 10 years ago when I was first starting out and didn't even know what questions to ask.

And yes, these deals are tough to find. I've been looking for 2+ years now, and even though I have a ton of connections in the real estate space, I still had lots of problems finding good off-market opportunities. You need some very specific connections for deals like this (as I've learned the hard way). When you get into larger real estate projects, it's all about who you know.



Yup, things will get better for buyers...
Same here the people I work with have their own real estate experience and between us we have some years of experience. We assess every deal carefully before we make a decision to make an offer.

I also believe in starting with small deals but if I see a good deal I won’t be deterred buy it’s large scale or price.
 

NC Bidniss

Bronze Contributor
Read Millionaire Fastlane
Mar 5, 2019
63
121
129
Hello everybody and I hope you’re having a great week!

—This is my first post on here—

I’m 35 years old with on and off experience in real estate mostly as a broker. I’ve rented apartments and I did some sales but nothing major under my belt. I know the business but mostly in theory as I have friends who did deals, flips, buy and hold etc. Also, I’m constantly reading about real estate and I’m always looking for deals. In addition I’ve read Unscripted and loved it.


To get to the point, I’m trying to buy my first property (or at least my first involvement in a property since I’m not in possession of this kinda money)

It’s a commercial property. A Rite Aid pharmacy. They recently signed a 5 year lease and have 4 five year options (total 20). It’s backed by a corporate guarantee and the numbers are good ($5.2mm annual revenue for this store). It’s a fee simple deal and I’m trying to get it for cap 10 and sell it for cap 7 or just refinance and hold. All in all it looks like a solid deal and it’s still available only because 2 buyers fell through due to a lengthy 1031 transaction.


I did some research on the financial health of Rite Aid and they seem to be in good shape but they also show a few weaknesses.


-Walgreens bought a huge chunk of their stores and closed 600 of them.

-Their net income is negative.

-There’s a stiff competition in that market and Amazon, Walmart and other online retailers are a constant lurking threat.


Can anyone with experience in commercial real estate help me assess this deal further?


I want to buy it all cash and refinance in three months or so.


-Can I get refinance at cap 7?
-Will I be able to get it refinanced in three months?
-Do you recognize any risks in such deal?

What questions would you ask before entering a multimillion commercial property deal?

In addition I’d appreciate any help or input!

Thank you!


Moe
Buy it. While I can't answer your questions, I can say that I own a Ride Aid, and it is a great little cash cow. They pay a monthly rent and an annual 3% of sales to me. The place makes me about $120k annually, and it was purchased by my grandfather (family business holding) in the early 90s for about 250k. Don't fret too much about the Walgreens acquisition, but make sure your Rite Aid isn't on the chopping block. Like most Rite Aids, they will eventually convert to Walgreens. At the beginning of this year, I stopped getting rent checks from Ride Aid and started getting them from Walgreens. Your situation may be different, but anecdotally, Rite Aid is a good investment.
 
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MoJoe

MoJoe

New Contributor
Jan 8, 2019
10
10
16
New York
Buy it. While I can't answer your questions, I can say that I own a Ride Aid, and it is a great little cash cow. They pay a monthly rent and an annual 3% of sales to me. The place makes me about $120k annually, and it was purchased by my grandfather (family business holding) in the early 90s for about 250k. Don't fret too much about the Walgreens acquisition, but make sure your Rite Aid isn't on the chopping block. Like most Rite Aids, they will eventually convert to Walgreens. At the beginning of this year, I stopped getting rent checks from Ride Aid and started getting them from Walgreens. Your situation may be different, but anecdotally, Rite Aid is a good investment.
It’s going to auction next week and if they won’t take our offer than we’ll be looking at different routs.
It’s hard to ignore rite aid’s financial statements and negative growth. Also, the retail market is going crazy as 400 dollar general stores are closing down and Payless shoes are filing for bankruptcy. Maybe multi family is the best route after all.
 

NC Bidniss

Bronze Contributor
Read Millionaire Fastlane
Mar 5, 2019
63
121
129
It’s going to auction next week and if they won’t take our offer than we’ll be looking at different routs.
It’s hard to ignore rite aid’s financial statements and negative growth. Also, the retail market is going crazy as 400 dollar general stores are closing down and Payless shoes are filing for bankruptcy. Maybe multi family is the best route after all.
Don't look at Rite Aid's financials, look at Walgreens'. If the Rite Aid in question is slated to become a Walgreens (or remain in operation under the Walgreens umbrella), then you should focus on what that business is doing. If it is slated to close, then of course, you want nothing to do with it.
 

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