Looking at a Rite Aid in a low income area. Asking price $1,904,762
Cap Rate 7.35%
Annual rent $140,000
Triple net lease
5 year lease options, current lease ends 8/31/24
Rent started in 1995.. so lengthy background, but the current state of Rite Aid drug stores scares me for longevity of the lease, and as mentioned being in a low income area, it would be difficult to fill the building if Rite Aid went under. Doesn’t say exactly but seems like the listing has been on the market for a few years.
My question.. I think $1.9 million is too much to ask for this given the location and current state of the building. Can anyone give insight on what they think would be a good deal or fair price?
A years old listing and sky high asking price are common signs of an unmotivated seller. I wouldn’t be surprised if the seller didn’t accept any offer that wasn’t full price. I would call the listing agent and ask what the situation is before running any numbers.
Seller’s motivation aside, there’s a reason it’s sat on the market so long.
Anything under 7 years left there is usually no good financing and terms for.
Rite Aid is basically junk status right now with a high degree of chance they go under or file BK in the future.
Walgreens and CVS is what investors and lenders want preferably with 10 years or more remaining on the primary lease term.
Likely the high cap rate drew your attention. That tends to be the case with people that might not have reviewed hundreds of thousands of these properties before and knows when they look at it if there is a problem.
The Rite Aid's that can have value are the ones Walgreens bought years back and Walgreens backs the lease with their credit now. Most pharmacy in good locations are 5 to 6.0 cap rates and debt at 3.5 to 4.0 or so depending on variables with LTV etc.
There is nothing out there right now investment grade with a 7 cap on it in lower price ranges. Properties at 5 to 6 caps are getting 5 offers within days on the market for good locations and investment grade tenants.
I agree with Joel. Hard pass unless their is a clear use and tenant to replace them with. 3.5 years left on a lease is rough.