CORONA DEL MAR, CA—With the increased volatility of the stock market and the desire to "simplify" their lives, investors are trading out of apartment buildings, shopping centers and the stock market and buying single-tenant net-leased investments that offer a secure, passive income stream. Hanley Investment Group's SVP Jeremy McChesney tells GlobeSt.com exclusively that 7-Eleven stores backed by a corporate lease can offer an attractive alternative to fast food, drug store, auto parts and bank single-tenant net-lease investments.

McChesney knows what he is talking about. He has closed twelve 7-Eleven transactions in the last twelve months and currently has an additional three properties that are either listed for sale or in escrow. McChesney said he has been averaging a cap rate of 5.3% on his most recent 7-Eleven deals and has been able to outperform the market for the sale of single-tenant net-leased 7-Eleven stores by nearly 40 basis points. According to CoStar, 7-Eleven properties in California are trading in the mid to low 4% cap range and properties outside of California are trading between 5.25% and 6% depending on the lease term, McChesney reported.

In Buena Park, CA, McChesney recently sold a 7-Eleven net-lease investment for $3.96 million, which represented more than $1,547 per square foot and a 3.96% cap rate, one of the lowest cap rates in the country for a 7-Eleven. It was a brand new location with a new 15-year corporate-backed lease with increases. The store, which also had four gas pumps, was located directly across the street from Knott's Berry Farm, the second largest theme park in Southern California, McChesney said.

McChesney currently has a 7-Eleven ground lease listed for sale for around a 3.5% cap rate. "The building, which was built by 7-Eleven corporate, is located in the highly desirable Western Los Angeles County in Culver City at the corner of Sepulveda Boulevard and Braddock Drive," said McChesney.

Earlier in the year, McChesney negotiated the sale of six 7-Eleven stores in separate transactions located on the East Coast. "These deals were representative of West Coast capital moving east in search of a better return, which has occurred across the board in multi-tenant and single-tenant retail," McChesney noted.

"Typically the buyers we are working with have either cashed out of the stock market or sold apartment buildings or shopping centers, and are seeking a retail net-lease investment that offers low to no maintenance and can still perform well during an economic down turn," McChesney said. "And, certainly, 7-Eleven fits the criteria. People still impulse buy whether there is an economic crisis or not."

Additionally, 7-Eleven locations have a strong real estate residual value. "Most 7-Elevens are situated in high profile, high traffic locations, at the corner of Main and Main, so the real estate alone offers investors a great value," McChesney said.

McChesney recently sold a 7-Eleven in the Phoenix market with only six years remaining, but a strong location. The property generated 14 offers in the first week and half of marketing and was ultimately bid up over list price. "Demand is strong for well-located real estate," said McChesney.

With such a strong credit and brand recognition, many of McChesney's clients are repeat purchasers of 7-Elevens, he said. "I have one client that has been buying one 7-Eleven store per year and this year marks his third acquisition. He refinanced his apartment building portfolio and used the proceeds to purchase his most recent 7-Eleven," McChesney said.

“Like many investors in this market, simplicity and ease of management is the name of the game. With an AA- credit rating and zero land responsibilities, single-tenant 7-Eleven stores will continue to be one of the most highly sought-after retail investments in today's market," said McChesney.

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Geoffery Metz

Geoffery Metz is the content manager for ALM's GlobeSt.com, Credit Union Times and Treasury & Risk. Before joining ALM, he spent several years overseeing the newsroom at the financial wire service Business Wire, with special focus on multimedia presentation for the web.