Dollar General - How to get a lease extension?

Question

I have four years left on my Dollar General lease with no remaining options

I want to get a lease extension on this property and consider refinancing it or possibly selling it. However Dollar General has indicated that they will not consider a lease extension until 2016 at the earliest. From everything I've heard from others who own Dollar Generals this is their strategy to string you out and then finally at the last minute they will not renew the lease and will have built the new store.

The store sales are very strong at 1.5 million in 2013 and waiting on 2014 numbers.

The property is just outside a major southern city.

So my questions are the following:

Does anyone have experience directly with this situation?

Is there any way to get them to sign a lease extension?

I know they are big on building new stores that fit their prototypes. Is there any way to connect with or do a joint venture with one of their builders or are they just going to ACE me out and end up with an empty store???

Any assistance is appreciated

WL

Joel Owens · Answer

To get average store sales for the brand they often put it in stock update reports from corporate.

Dicky Nealy · Answer

How can you get the information on sales of you DG store and comparison to good or bad sales volume.

Dicky Nealy · Answer

How do you find out the sales history, and value to that to DG?

Joel Owens · Answer

Hi Will,

1. Stores sales of 1.5 million are AVERAGE for their stores so your store is not tearing it up.

DG Store Info

2. Yes I deal in the triple net space everyday. DG was trying to buyout Family Dollar but currently has lost to Dollar Tree. One good thing about that is there will not be a closing of duplicate interest locations now that the purchase didn't go through.

You need to check your lease and see if it allows DG to sub-lease the property without your permission.

3. No way to get them to sign an extension. Look at it from there perspective. They have a locked in lease agreement. WHY would they agree to alter anything with it?? That would be detrimental to them.

You need to analyze your location. Is it defensible meaning there are not other locations close by they could move to that is more optimal?? If the answer is yes then simply you need to plan on them moving. If your location is one of the best in the area then you need to look at if your lease is triple net or a double net lease and if you have any rent bumps in the remaining 4 years of the lease.

From there you need to look at your construction. Is it an old building with a brick front and sheet metal on the sides and the back?? Is the roof old, the parking lot old, etc.?? If it is plan on them hitting you up for a re-facing of the building and upgrading of the parking lot to possibly stay. I generally do not like Dollar Stores because of the cheap construction and the locations are not usually on the corners so your second generation tenant you get reduced rent.

4. Yes you will end up with an empty store. Unless you buy the other more prominent dirt locations they could move to in advance then there is no reason for them to deal with you in the future. I would have to review your lease agreement. 4 years left is not really financeable on these so you would be looking at a cash buyer. The more the years go down the more the cap rate you have to sell for increases. The value of the property is tied to location and length of the lease term. I have seen sometimes where you can offer a flat rent or reduced rent if they renew early to see if they will bite but it's a long shot.

Now might be time to sell and get a strip center where your tenants are multiple and no rent income if one goes dark isn't an issue.

Rob Beland · Answer

There is not a way to force a tenant to sign a lease extension. You could make it very appealing to them financially but that means less money in your pocket. Fix their rent for a term or even consider reducing it. You should have a good handle on the market where  you are to know what the comps are to see if you are over or under priced. Clearly less money is better than more money. You should get in touch with their real estate management team first and foremost. Did you do this deal yourself or did you hire a broker to bring them to your site? You would be wise to research brokers that specialize in Dollar General leasing. Check out Loopnet.com or Costar.com and you can do a search and a list of brokers will come up that could advise you further who know how to deal with DG and also you want to make sure you have a complete understanding of alternatives in your market. Do some research online and find out where they are opening their newest locations. Call the city and snoop around and find out who is doing the project in terms of the developer. You have legwork to do.