Want to 'Amazon Proof' Your Real Estate? Some Investors Lean Toward Convenience Stores
Consumers want convenience and that has shown in convenience store sales.
In a survey by the National Association of Convenience Stores, 84% of retailers said their in-store sales increased last year. Food led the way, according to the survey.
With convenience stores doing well, some believe their real estate becomes a safer investment. Properties filled with such names as 7-Eleven, Circle K, Wawa and Speedway are popular among private investors looking for a passive investment that requires little to no management.
Bryan Belk, senior director for retail investment sales with FranklinStreet in Atlanta, said “buyers like them because they’re considered Amazon proof.”
Their locations tend to be another enticing factor. “Convenience stores sites are very high profile,” said Jenkins Williamson, a partner in Columbia, South Carolina-based Columbia Development. Williamson said they have a lot of traffic and high visible locations.
“What you know as an investor is you can recycle that real estate” if the tenant ever goes away, he said.
Convenience store companies often sell off their real estate and then lease it back from the new owners, either through a ground lease or a built-to-suit arrangement. They enter into so-called net leases that typically put all of the property management and expense on the tenant. Private investors hold onto them or sell them to another investor in time.
More than a 100 of these types of properties have been sold over the past 12 months, according to CoStar data. And there are more than 100 on the market now.
Sale prices are based in large part on the annual yield, known as the cap rate, and the number of years left on a lease. Prices for top properties tend run $2 million to more than $5 million.
In addition existing properties, convenience store chains continue to expand and sell those properties in sale leaseback deals, with 7-Eleven being one of the biggest, with more locations around the country than any other.
“They are definitely in an expansion mode,” said Barry Wolfe, senior director with real estate firm Marcus & Millichap’s national retail group.
New properties can have long leases, perhaps 15 or 20 years, and lower cap rates than older ones, frequently 5% or lower, Wolfe said. That can allow a smaller investor an advantage when competing against larger firms, such as real estate investment trusts.
Wolfe said “RIETs can’t pay the yield” to meet promised dividends to their investors. They will look at cap rates closer to 6%. If REITs want a particular brand, they will look at older buildings with shorter term leases.
A perfect example is a deal Wolfe and his fellow broker Alan Lipsky brokered for a Wawa in Delray Beach, Florida, this month. A private investor paid $6.84 million with a 4.53% cap rate and a 20-year lease.
