CHICAGO—In March, The Boulder Group, an investment brokerage firm located in suburban Northbrook, completed the sale of a single-tenant net-leased Walgreens property at 9290 Wicker Ave. in St. John, Indiana, about 24 miles southeast of Chicago, for $3,530,864. And yesterday, the buyer put the same property back on the market with an asking price of $4,727,272 and a cap rate of only 6.05%.
The change? Since the initial purchase, the buyer, a private investment fund, agreed to renegotiate the lease with Walgreens and got a ten-year extension in exchange for a rent reduction. Instead of a lease with seven years, Walgreens now has seventeen years remaining.
“That makes it a different investment,” says Randy Blankstein, president of Boulder. “It becomes much more secure investment,” and very attractive to anyone looking to hold a property long-term. Getting a ten-year lease extension can drop the cap rates by 150 bps, he adds.
The 13,905-square-foot Walgreens was built in 1997 and abuts a heavily-trafficked thoroughfare and the hard corner of a signalized intersection. Boulder estimates that more than 31,000 vehicles per day drive through this section of Wicker Ave. A Target store, the primary regional retailer in the area, sits just south of the Walgreens. Other nearby retailers include Tractor Supply, Aldi, Strack & Van Til Food Market, Starbucks, Chase Bank and Fifth Third Bank.
But supply has not kept up with the demand for similar single-tenant net-leased properties. "Overall property supply across the entire net lease sector decreased by more than 17% from the fourth quarter of 2012 to the first quarter of 2013," according to an April research report published by Boulder. And although the firm's second quarter report showed that this trend reversed, with the overall supply increasing 14%, much of that was not due to new construction, but from owners adding vintage buildings to the market or cutting shopping centers into single-tenant parcels.
Boulder also found that the cap rates for retail and office properties have gone down to levels not seen since 2006, with retail properties remaining the most sought after sector. Their average rates hit 7%, a decline of 25 basis points since the first quarter.
“A lot of people are figuring out creative ways to deliver product to fill that demand,” Blankstein says.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
