Exit Strategy on NNN under 7 years left on lease

[Hai Loc]

I always see these NNN properties on loopnet that have 6-7 years left on the lease.

You would think Walgreens, CVS or Dollar General to be pretty established especially with territorial restrictions 

The cap rate seems juicy but I am sure it is set at where it is based on the risk. 

The building is almost reaching 20 years old so I guess my ultimate question is 

Do these sell? If someone was to buy I would assume there initial strategy would be to try and renew the lease options but what would be a plan B exit strategy? I am thinking redevelop? 

I would like to hear from the experts

[Don Konipol]

@Hai Loc

Dollar General almost never exercises lease option renewal. If the store does not meet minimum return numbers they cease to operate in that area. If it does meet the criteria they build the “next generation” store, larger, newer, more attractive, nearby. Either way the owner is left with an empty big box.

While Walgreens, CVS, etc stores look beautiful right now, who know how worn they’ll appear in 20 years, or even 7?

The bottom line is location. A store in a major metropolitan area where there is heavy traffic and little developable land is likely to either get a lease renewal or find a new tenant. In less desirable areas more creativity is needed at lower price points.