The recent announcement that Fred's would purchase upwards of 600 locations from Walgreens/Rite Aid to help ensure approval of their merger, highlights an issue facing some owners of these properties. What happens if my property is slated to be closed?

Despite the 600 locations that Fred's is going to take over, there will still likely be many other Walgreens and Rite Aid locations that will be in close proximity to each other, that one or the other will be shuttered. Landlords of these properties will of course, still be paid their contractual rents; however, the value of the property will decline substantially.

Adaptive reuse of a property like a pharmacy has also proved difficult in the past. Traditionally their footprints have been unique to the pharmacy business model and not very amenable to transitioning them to another use.

Thankfully, previous mergers, such as the Rite Aid and Eckerd merger in 2006, may give owners of these soon to be vacant properties some ideas. The Rite Aid merger with Eckerd resulted in a number of overlapping stores closing. While the owners of these properties were still receiving their guaranteed rents, Rite Aid was faced with paying rent on stores that were no longer were operating. Subleasing these vacant stores could soften the hit, but how do you find a willing tenant?

The most common outcome was for the properties to sit vacant and Rite Aid would be writing checks. However, many of the stores were subleased to the likes of Aarons, Dollar General, Family Dollar or in some cases auto parts stores or “doc-in-the-box” operators.

In the end, the unique footprint and size of the properties was largely overcome by the quality of the real estate. Thus, proving the adage, “location, location, location.” It's worth remembering the one thing tenants like Rite Aid, Walgreens or McDonalds do well is site selection.

This is worth remembering when buying a NNN leased property. All too often they're seen by buyers as financial instruments and not pieces of real estate. No matter how credit worthy a tenant you've lease to, location always matters.

The recent announcement that Fred's would purchase upwards of 600 locations from Walgreens/Rite Aid to help ensure approval of their merger, highlights an issue facing some owners of these properties. What happens if my property is slated to be closed?

Despite the 600 locations that Fred's is going to take over, there will still likely be many other Walgreens and Rite Aid locations that will be in close proximity to each other, that one or the other will be shuttered. Landlords of these properties will of course, still be paid their contractual rents; however, the value of the property will decline substantially.

Adaptive reuse of a property like a pharmacy has also proved difficult in the past. Traditionally their footprints have been unique to the pharmacy business model and not very amenable to transitioning them to another use.

Thankfully, previous mergers, such as the Rite Aid and Eckerd merger in 2006, may give owners of these soon to be vacant properties some ideas. The Rite Aid merger with Eckerd resulted in a number of overlapping stores closing. While the owners of these properties were still receiving their guaranteed rents, Rite Aid was faced with paying rent on stores that were no longer were operating. Subleasing these vacant stores could soften the hit, but how do you find a willing tenant?

The most common outcome was for the properties to sit vacant and Rite Aid would be writing checks. However, many of the stores were subleased to the likes of Aarons, Dollar General, Family Dollar or in some cases auto parts stores or “doc-in-the-box” operators.

In the end, the unique footprint and size of the properties was largely overcome by the quality of the real estate. Thus, proving the adage, “location, location, location.” It's worth remembering the one thing tenants like Rite Aid, Walgreens or McDonalds do well is site selection.

This is worth remembering when buying a NNN leased property. All too often they're seen by buyers as financial instruments and not pieces of real estate. No matter how credit worthy a tenant you've lease to, location always matters.

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Jonathan Hipp

Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.

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