Dollar Store Demand Takes Off As Investors Seek Safe Havens

Dollar stores have become an investor favorite during the pandemic. These discount chains have historically performed well during economic uncertainty and economic downturns, and as a result, private investors are flocking to opportunities. Dollar store and net lease investment experts Tony Anderson and Richard Brehaut of James Capital Advisors have sold five of these assets during the pandemic.

“You don’t find a lot of corporate tenants that are investment grade with 15-year triple net leases that you can purchase at a strong yield,” Anderson, director of net lease at James Capital Advisors, tells GlobeSt.com about why dollar store assets have surged in popularity. “When you have these characteristics in place, it becomes an attractive property for a lot of investors. Dollar General is typically recession proof. If the market is doing well, dollar stores in general are going to do well. If the market isn’t doing well, then they are definitely going to do well. They can weather any environment.”

The duo represented the seller in five Dollar General deals located in Texas and Ohio, and they sourced the buyers—mostly exchange buyers trading out of multifamily. The properties traded hands within 15 basis points of the asking price—an impressive achievement for a retail deal in the middle of a pandemic. “We are seeing significantly more demand for the dollar stores,” Brehaut, a net lease director at James Capital Advisors, tells GlobeSt.com. “That has allowed us to achieve the pricing that we have. Almost every property that we have sold has traded within 15 basis points of our list price. We are seeing a flight to safety with investors focusing on safer investment-grade deals. For that reason, we are still able to achieve our original pricing for our investors.”

Grocery and other daily-needs retailers have been popular throughout the cycle for their recession resiliency, but dollar stores offer another incentive: price. Generally, dollar stores trade at a lower price point than grocery, casting a wider net and attracting more investors. During a dislocation, attractively priced assets only fuel demand more. “Even the smaller grocery store brands are $2.5 million to $15 million,” says Anderson. “Dollar General’s are priced between $1.1 million and $2 million. Logistically, there are more people there to buy.” Brehaut adds, “There is a lack of quality inventory under $2 million. When you have investors with $500,000 in equity coming out of a trade, they are limited as to what they can buy.”

While demand for these assets has propped up pricing, it has also convinced sellers to bring assets to market. In most asset classes, opportunities are scarce, but Anderson and Brehaut have not only closed on five Dollar General deals since Mid-March, they have another six under contract and nine that they are actively marketing. “We have been working with our clients for some time, and we are giving them a lot of feedback as to what we are seeing in the market,” says Anderson.

So far, they have been able to meet pricing goals for their clients, despite the market uncertainty. With the last three months as an indicator, they are confident that the demand will hold up. “There are investors that need to place capital and people that have trades to complete, and that doesn’t just stop,” says Anderson. “Those investors want to make purchases where they are going to get their rent.”