DETROIT—The market for net-lease properties has been hot the past few years, but few sectors are as desired as dollar stores. CBRE's Bill O'Connor and David Hesano, of the company's investment properties team in suburban Southfield, for example recently closed a portfolio sale of triple-net Dollar General properties in four Michigan locations. The four locations are in Vestaburg, Stanton, Kingsley and Allegan.
And although the price was not disclosed, they say the portfolio sold for 95.5% of the target selling price and closed at a 7.85% cap rate, just above the projected cap rate. This transaction was off market and part of a 1031 exchange.
The top dollar store operators have investment grade credit, another attraction for potential buyers. Dollar General, for example, holds an investment grade credit rating from S&P (BBB-) and Moody's (Baa3). And the average cap rate of all dollar store transactions in 2014 is 7.81%, according to Jonathan W. Hipp, founding president and chief executive officer of Calkain Companies, a national, commercial real estate firm which provides brokerage and consulting services for net lease investment properties.
“This popular segment is almost single-handedly changing the net lease investment market that has traditionally been dominated by drug store, fast food and automotive retail concepts,” Hipp said. “It is the only net lease sector that maintains an adequate supply due primarily to the large increase in the number of new stores developed over the last several years. Investors are attracted to them for their attractive price points and higher yields.”
But the dollar store market is still a bit unsettled after several months of attempts by the three big players, including Dollar General, to complete mergers. In July, Dollar Tree gave Family Dollar a merger offer worth $8.5 Billion. Dollar General then offered a competing bid of $9.1 Billion, but also said it would divest up to 1,500 stores to clear antitrust concerns. The Family Dollar shareholders are slated to vote on December 23, 2014 on the Dollar Tree merger.
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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.
