CHICAGO—Chicago-based Baum Realty Group, LLC has just completed the sale of a single tenant net leased Walgreens located in Maryville, MO for $5,300,000. Walgreens has 20 years remaining left on the absolute triple-net lease. Baum vice presidents Patrick Forkin and Brad Teitelbaum represented the seller, a Missouri-based private developer. The purchaser was a private investor on the West Coast who entered into the transaction as part of a 1031 exchange.
The transaction, however, came with a set of challenges. The property was encumbered by a fully-amortizing loan, sometimes referred to as a self-liquidating loan. Unlike traditional mortgage loans, fully-amortizing loans match the amortization period of the loan to the primary term of the lease. Put more simply, a borrower's loan payoff coincides with the expiration of the initial term of the lease.
“A substantial number of Walgreens properties are encumbered by these self-liquidating loans,” says Forkin, and often require a significant prepayment penalty. “Typically, the owners of these Walgreens properties do not consider the possibility of selling due to the penalties that associated with paying off the loan early.”
“Single tenant net lease properties that are free-and-clear of existing debt usually command higher prices given the favorable financing options in the market today,” adds Teitelbaum. “But given today's low cap rate environment, sellers can realize prices that equate to substantial returns even after paying off their loan.”
Investors have found properties occupied by the nation's top drug store brands one of the most appealing net-lease sectors. As reported in GlobeSt.com, cap rates for Walgreens rate now stands at 5.6%, with CVS at 5.75% and Rite Aid at 7.4%, according to a recent report by the Boulder Group, a commercial real estate services firm located in suburban Northbrook, IL. 1031 exchange buyers and private investors remain the primary buyers.
In fact, this deal illustrated the tremendous desire for these properties among investors. Forkin and Teitelbaum generated multiple offers and the property traded at 99% of asking price. Baum's investment sales team worked with the lender to provide a smooth pay-off of the loan at closing. “We continue to see strong interest for long-term triple net leased Walgreens, including within secondary and tertiary markets like Maryville,” says Forkin.
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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.
