Here is a real run down of a 1031 NNN deal we did recently and the location analysis we did as part of the transaction.
Partial email to 1031 NNN investment Client:
The biggest risk of this deal is the small tenant. However, the property has solid fundamentals and the location/demographics/traffic etc is better than 90% of the 1031 NNN investment deals available nationwide. Bottomline, the tenant has low rent to sales ratio, historical occupancy and increasing store sales; I don't think they are going anywhere.
If we were to have issues with the tenant, we can put another franchisee in or better yet we could put in a (omitted) or (omitted) (both of which do not have locations nearby and demographics are ideal).
A stronger operator on a 15 year lease would make the cap rate go down and push the value up. If a new tenant paid the same rent, a 6.5% cap rate sale would put the value at (omitted). If we could get a new stronger tenant to pay (omitted) (7.5% on (omitted) sales) we could sell for (omitted). With this said, we would almost want the tenant gone and you could make some serious profit.
I found a sold comp just north of the subject property that is similar to this property. See attached list of recent sales; property #4 sold for (omitted) for half an acre and vacant (omitted) sf building. Using that sale as a value comp, your property already has profit built in.
Digging In… 1031 NNN data points.
Below are some date points I gathered on this 1031 NNN investment deal to help my client make the best decision.
- Lease Comps for immediate market: $18 to $33 psf. Your property is at bottom end of market at $19 psf
- Retail Trade Area Supply and Demand: the market is undersupplied in many segments. *5 minute drive time Food and Drink Category- under supplied by $6.5M *10 minute drive time Full Service Restaurants Category- under supplied by $18.8M
- Crime Data - mid-range; similar to a lot of metro high population areas
- Population Density- mid to high. There are a lot of apartment complexes nearby
- Demographics: *5 minute drive: 70,000 people *10 min drive: 265,000 people *15 min drive: 539,000 people *population and incomes are growing in all drive times (see attached with highlights)
- traffic counts: 40,000 daily cars in front of property and the surrounding intersections. Most Walgreens only have 25k to 30k daily cars.