Deal of the Week: Investor Pays Top Dollar for Starbucks Property
A private investor found a California Starbucks property so enticing they paid one of the highest prices yet for free-standing real estate leased to the Seattle-based coffee chain.
The newly constructed Starbucks in San Clemente just off the San Diego Freeway fetched $6.8 million, according to property records. CoStar sales data shows that the next highest price for a Starbucks property hit $6.25 million in June in a deal for the ground under the chain’s Monrovia location, which is to the east of Pasadena. The top five Starbucks deals over the past couple of years have all been in California.
The investor in the San Clemente deal owns the ground and the building. Kevin Mansour, the broker who handled the sale for The Mansour Group of Marcus & Millichap along with fellow broker Ryan Litrich, said such deals can be better for the property owner because they have a tax write-off for the building’s depreciation.
Starbucks properties are among the most actively traded in the quick-service restaurant sector. The strong-performing chain makes them low-risk investments. But Starbucks also chooses well-located real estate, which stands a better chance of attracting a new tenant if the chain ever leaves the space.
Starbucks deals for free-standing buildings typically involve net leases. The landlord has little to no responsibility for the operating expenses on the property but collects rent and gets an annual return on their investment known as a cap rate.
No cap rate has been disclosed for the San Clemente deal but the Monrovia location, which opened in May, has a 3.6% cap rate, lower than the average of 4% to 5%. The years left on a lease is a key factor in determining the cap rate and real estate price. More years tends to mean a higher price and a lower cap rate.
The Monrovia and San Clemente locations have 20-year leases, double the length of a typical Starbucks deal. With the San Clemente location, “Starbucks wanted to be there so badly they signed a 20-year lease,” Mansour said.
Mansour said it took four years to get the Starbucks built in that location. San Clemente has stringent design guidelines, so the Starbucks’ exterior looks quite different from other locations.
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