Pawn Shop STNL Assets Are a Pleasant Surprise for Investors

The years following the Great Financial Crisis saw a dramatic increase in STNL property investment. Spurred by the pandemic, these essential properties continue to experience a heightened demand from investors seeking stabilized, cash-flowing, and low maintenance assets. While sellers enjoy strong returns, buyers are facing increased competition, elevated pricing and shrinking cap rates. STNL assets that were a 6 percent cap rate 18 months ago, are at least 100 basis points less now in many cases. This is especially true in certain “hot” sectors like drive-thru restaurants, dollar stores, and other essential retailers. 

Buyers are now looking to other STNL opportunities that will create better returns. The pawn shop sector is one of them. Over the past 36 months, pawn shop-occupied assets have been quietly traded, experiencing a national cap rate compression of 300 bps, yet this sector is still providing 6%-plus returns.

The stereotype people have when it comes to pawn shops is often associated with a property located in an undesirable part of town in a less-than-attractive building. However, what is often overlooked is the fact that there are so many factors surrounding the pawn industry that make it one of the most stable, secure, and lucrative options for investors. These properties offer what most investors are seeking right now, which is credit-worthy, recession-proof, and ecommerce-proof assets.

Below are a few key points many investors don’t know about pawn shop-occupied assets:

• The two largest pawn shop companies are First Cash and EZ Pawn. These brands are publicly traded (FCFS and EZPW), have been in business for decades. They operate in thousands of locations in several countries making them as creditworthy – if not more so – than many of the mainstream STNL brands. Years of mergers and acquisitions have made these brands behemoths, and most locations carry a corporate guarantee.

• In times of economic turmoil, the pawn industry flourishes. When times get tough, many traditional retailers feel it. The pawn world reacts as well, but it’s usually in a positive way as pawn or payday loans become a critical source of money for individuals between jobs or affected by an economic downfall.

• There are legislative factors that make pawn shops in certain markets VERY desirable. For example, states like Texas, Florida and Tennessee have moratoriums in place that prevent new pawn licenses from being purchased. Therefore, pawn shops in many markets are not eligible for relocation to a new site, giving the landlord strong lease negotiation power come renewal time. 

To conclude, over the past couple of years I have personally helped investors sell dozens of pawn shop-occupied properties with several in escrow in Texas currently. With each successive sale, I’m surprised at not only the final pricing, but also the growing amount of interest from private and professional investors for these properties. There’s no doubt that the cat is now out of the bag with how attractive these properties can be for the right buyer profile.

Landan Dory is vice president of US Capital Markets Net Lease Group for Avison Young.