Auto Garage ‘Take 5’ Takes a 5 Cap

A former drive-thru bank at a bustling intersection in Greenville, South Carolina, that’s now leased for 15 years by national credit tenant Take 5 Oil Change scored a neat 5% cap rate in February.

What’s remarkable, in this case, is that the $2 million triple-net investment deal indicates that the market for auto repair garages, especially when they’re part of a 1031 exchange, is running like a well-oiled machine. To verify this, LoopNet checked under the hood and discovered a trend: five auto repair properties selling with 5% cap rates.

It only took around 45 days to close the Take 5 auto garage deal in Greenville, according to broker David Hoppe, executive vice president of capital markets for Atlantic Retail. Selling in a 1031 Exchange for $2 million on Feb. 21, the property attracted an out-of-state buyer. Coming with a 15-year ground lease that includes 12% rent increases every five years and five additional five-year extensions, the asset was “ideal for a hands-off investor looking for true passive income.”

Though the site originally had a four-lane drive-thru bay for its former use as a SunTrust (now Truist) bank, the property wasn’t suited for a direct conversion. A New York-based REIT, The Necessity Retail, razed the bank building to make way for a standard Take 5 spec construction that aligned with the national chain’s expansion plans last year.

The site, a 31,000-square foot lot at a lighted intersection and corner entry of a strip mall anchored by two grocery stores, fit neatly into a market gap for Take 5 and marked the brand’s 46^th location in the Carolinas.

“When it comes to the location, everything was A+,” Hoppe told LoopNet. “These banks pick excellent locations, but the banking industry has changed, lending their sites to new highest and best uses. Retail is all about location, and there’s always going to be a user for a good location.”

The 1,829-square foot property with three bays was in high demand, attracting several interested buyers immediately upon hitting the market, Hoppe continued. “Well-located long-term absolute net leases in fast-growing markets in the Southeast are very desirable and that was proven by this process.”

Hoppe said his team reverse-engineered the 5% cap rate using net operating income from comparable stores to land at an asking price that they easily achieved.

Triple net investors keen on automotive properties are zeroing in on 5 caps, as evidenced by several other similar sales this month across various markets. For example, two O’Reilly Auto Parts stores sold for $2.1 million and $1.6 million in Caledonia, Michigan, and Nashville, Tennessee, respectively, for 5.25% and 5.5% caps.

Both traded in the same week as the Take 5, also as investment triple net assets between private players. Frank Rogers, vice president of SRS National Net Lease Group, brokered the Michigan deal, while Robert Schmidt of NAI Earle Furman handled the Nashville sale.

Another automotive property deal that scored an exact 5% cap rate came in the form of a Caliber Collision lease that sold in the same week for $4.7 million. The 11,500-square-foot new build in the Albuquerque suburb of Rio Rancho, New Mexico was projected to bring the 1,500-location chain a net operating income of nearly $250,000 to kick off its 15-year NNN lease that started in January. The lease includes 10% annual rent increases and two five-year extensions.

Another Caliber Collision center in Clovis, California, with five years remaining on its lease and three five-year extension options, was sold for just $1.1 million in an all-cash deal that closed in the same week as the other deals to land — you guessed it — a 5% cap rate. The 7,410-square-foot light industrial facility brought in a NOI of $60,000 last year.