All Forum Posts by: Chui Chan

If it's an independent pharmacy I don't have a lot of confidence in the future of the industry.  PBMs are squeezing retail pharmacies and it's hard for mom and pop pharmacies to stay open with declining reimbursments.   Independent pharmacy numbers have been declining.  They're also very localized businesses, especially in smaller towns.  The pharmacist there is tied to the community, knows everyone, etc.  Once that pharmcist dies or retires, there is a high chance the business also ends then and there.  I do not want to outlive the operation.  A chain will continue to operate that location forever if it's profitable.  Since they don't have a lifespan they might not care about a 40 or 50 yr lease.  As an individual I have a limited lifespan.  My behaviors would certainly be different though, depending on whether the goal is to maximize net worth upon death, or have a stable tax-free income to enjoy with minimal hassle until death.

If it's a larger chain with a 10 cap then there's a reason the cap is 10.  Maybe they've already given notice that they're not renewing, the property is already currently dark, or it's in the ghetto and it's a store where shoplifting is occuring rampantly on a daily basis and loss prevention has basically given up.  What are the chances that corporate's going to want to keep that store open in the long term?  My line of thought is there is no such thing as a free lunch, a 10 cap is there for a reason.  I am not looking to buy more trouble with the lure being a temporary 10 cap based on a snapshot of how things are at this very second.

 John, I could see store closings being an issue.  We had 2 Walgreens relatively close to each other and they consolidated.  The vacated one sat empty for about 2 years before becoming an auto parts store.  I don't really have a great answer for this.  I was thinking 1st one would be CVS or Walgreens, then the next would be the different company.  At least if one company went down it wouldn't be everything but it my exposure would still be to pharmacy, commercial real estate, and the local market in NY state since that's where I would want them to be.  So maybe not true diversification but some measures to mitigate the risk.  It also wouldn't be everything I had.  I would use the commercial real estate to provide tax free, true mailbox (hopefully), income to live on while my excess cash would remain in the stock market hopefully achieving higher returns.

I haven't heard of DSTs before but I will do some more research.  A quick google search shows that it's like buying shares of a fund but its shares of real estate and qualifies for 1031.  If these shares are liquid then it could be a game changer.  My residential portfolio consists of over a dozen properties and trying to time buying a commercial deal for the highest dollar residentials was going to be a potential nightmare.  Bundling the properties in packages would make it better but also harder to sell since it would price a lot of people out compared to selling individual duplexes.  I had kind of resigned myself to being able to roll over a few of the highest value ones into a commercial property and just eating the taxes on the rest of them.  If DSTs can function as a way to park the funds from individual sales into a holding pattern, defer taxes, and then roll it all into one big commercial property later on, that would be the dream.  I don't know if it works like that though.

I wanted a few pharmacies because of the lower cap rate, with the idea that the tenants are low hassle and it's priced in the cap rate, and that these tenants are usually NNN vs other commercial tenants. Part of it may also be an ego thing too. I want to be a pharmacist or a former pharmacist who owns a CVS and a Walgreens, maybe 2 Walgreens and a CVS in my golden years. Pharmacist who owns 2 Starbucks and a Dennys doesn't have the same ring to it.

I will absolutely take the checklist and add it to my commercial real estate notes and knowledge folder.  Thanks.

Well, if a million is the buy in price then I guess I will just save up a little bit longer.  I could do it but I wanted to miniminze my investment for now since the returns appear to be so low.  The idea was to have a spot to park money, hopefully appreciate, and get regular rental income that would be almost tax free with depreciation deduction.  It would also be a route to transition out of residential rentals to be free of so many tenants while delaying depreciation recapture with a 1031 exchange. 

I will continue researching and investing.  If this is a low point in the stock market then my liquid cash has the potentially to increase significantly over the next few years, maybe then would be a better time to try to transition into parking my money in a commercial deal.  Thanks all for the input, especially Joel.

Looking for insights and opinions on my personal situation. I am exploring the transition into NNN investing because I'm tired of residential tenants. If someone's heat or toilet is broken I would rather that not be my problem. I thought more units means more money but it also means more issues and more units is not the answer. I'm thinking commerical, good tenant, higher dollar cost but overall fewer units.

I'm looking at CVS and Walgreens with NNN leases. I am a pharmacist and I believe these to be stable companies even though cap rates might be lower to reflect that.

I would be looking for leases with over 10 years remaining since I'm not eager to value add and I would rather put off the potential for having to deal with a possible vacancy until I have more experience in the field.

I'm in New York state and I would be looking to buy in NY. I know with a NNN lease it shouldn't matter since I have no landlord responsibilities and I could be looking nationally, but I like the idea of being able to drive to these locations and check them out for due diligence and at least having it in the same state if I do have to deal with it going dark or have a vacancy.

I'm looking to buy the lowest cost property that's reasonable. Meaning I'm not looking for the cheapest listing overall, but maybe the cheapest that still has over 10 years on the lease. With a high quality tenant such as CVS or Walgreens I'm hoping the down payment would be 20%. With this being my first foray into the market I'm just looking for a good first transaction investing the least amount possible. My returns are going to be greater elsewhere but active management and volatility of the stock market both suck. If all goes well then maybe I either pay down the loan come refinance time for more return, or buy more NNN properties. If NNN is great then sell all residential rentals and accept lower overall returns in exchange for not having to deal with people and issues.

With a $2.5 million listing at 20% down we would be talking 500k down.  I currently have about 800k liquid cash and another $2 million in residential rentals.  

My questions:

1. How does financing work?  Is 20% down reasonable for these high quality tenants?  With residential it was easy, go to local bank and they just finance the deal with 25% down.  I've been searching online to find commercial lenders or specialized lenders for CVS or Walgreens but it seems a lot harder to sort these companies out and terms seem to be a lot more opaque.  Are national lenders better than local lenders for this marketplace, or are local lenders not even a thing?

2. How do commisions work in commercial real estate?  I'm also a licensed real estate broker and for residential properties a trick I would use is to represent myself and collect a commision on the transaction.  So on a 125k duplex my down payment might be 31k, but I would get a 3% commission on the 125k and get almost 4k back.  Is that also possible with a commercial transaction?  Do commercial brokers share commisions the same way?  3% on a $2.5 mil transaction is 75k, which isn't nothing.  Especially compared to a 500k down payment.  But I also know that commissions are generally lower for the commercial sector.

3. Any major "gotchas" in NNN that can blindside a new investor? In my research one potential concern would be a "rent holiday." A lease can have the commercial tenant just not pay rent in the last 3 years of their lease. This sounds crazy in my opinion and is not a thing for residential tenants. Is the owner supposed to charge more in the beginning and just hopefully have it made up for in the overall picture? Seems like it would wreak havoc for stable, consistent cash flow and it's like dropping a bomb on the new owner if it's going to happen on their watch.

Thanks to everyone in advance for their willingness to opine on my life.