So You Want To Buy A NNN Property?
How About A Drugstore!
Since you are considering buying NNN properties, you will want to know more a bit about drug stores. Walgreens, CVS and Rite Aid are the 3 major chains in the US today.
Drug stores are a popular kind of NNN real estate. This type of NNN property is considered recession proof because people need medicine in all kinds of economic climates. Also, both the less fortunate (through programs like Medi – Care) and the wealthy have this need. More reasons NNN Property investors choose to purchase Drug Stores are as follows:
- The population is continuing to grow and thus there are more people needing medication.
- People are living longer and require prescriptions to help ward off serious disease. Also, the elderly often need more medicine than younger people. The baby boomers are closing in on retirement and they will need additional medicine in the upcoming years.
- Innovative drugs are being introduced to treat new illnesses (for example the West Nile Virus or the Bird Flu) or previously untreatable diseases (nicotine patches for smoking, anti depressants, drugs to combat cancer and drugs for Attention Deficit Disorder (ADD) and Aids). Many of these new drugs are extremely expensive.
- The modern lifestyle has introduced new products that people have made a part of their daily lives. Some examples of these products are electric toothbrushes, pregnancy tests, vitamins, contact lenses and the solutions that accompany them, pain killers and many more.
- There are more surgeries being performed in the USA than ever and people use medicines to help recover from them. Extra strong pain killers and coagulants are two examples.
- On the way to collect their medicines from the pharmacy. The populous have to pass by candy, soda, cosmetics, games, sunscreens, greeting cards and more. Drug stores have reported between 30 and 35% of their total sales for non – pharmaceutical items.
For all of the above reasons the drug store industry is considered a safe investment for your NNN real estate purchase.
Walgreens is thought of as the leading drug store chain in the US with an S&P rating of A+. As of May 31, 2008, Walgreens operated 6,727 locations in 49 states, the District of Columbia and Puerto Rico. If you are looking for a very safe NNN property to invest in consider a Walgreens. The returns on these NNN properties are stacked against the returns on from US treasury bonds or Certificate of Deposits from banks. Investors who want a NNN property with very little risk should purchase a Walgreens.
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Rite Aid operates over 5,000 stores in 31 states and the District of Columbia and is largest drugstore chain on the East Coast and the third largest drugstore chain in the U.S. The Fortune 500 Company had some credit issues and is S&P rated B-. Investors willing to take a bit more risk for a higher return should look at a Rite Aid for their NNN Real Estate needs.
These companies make excellent tenants for NNN properties. Please speak with one of our NNN real estate advisors for more information about these tenants and other NNN properties.
Additional tips for purchasing the best NNN properties, specifically if you consider a drug store:
- Purchase a property with higher than average store sales. Not all the drug stores report total store sales so it might be difficult to accurately determine what the store sales are. If the store has a percentage lease clause it should be easier to find out store sales.
- If the NNN property has a pharmacy that is open 24 hours a day this will translate to a good location that draws customers.
- Purchase a store that fits the building specifications that these tenants are looking for and you lessen your chances that the tenant will not renew the lease. Below is a partial list of what these tenants are wanting:
- Very visible, corner lots with adequate parking
- 12,000 – 14,000 sq. ft. rectangular, free standing buildings
- Drive Thru
- Growing Areas
- There is a possibility to purchase a Zero Cash Flow property. Several drug stores, typically CVS’s are set up to allow an investor to place less than 15% of the purchase price down as their equity. With these NNN property deals the investors are also required to assume an existing fully amortized loan with zero cash flow. All of the income generated by the property is used to pay down the loan. Thus the building will be owned free and clear in approximately 22 years. The owner might have to raise money to pay the income taxes from outside sources if depreciation runs out. This is a great investment for someone who has rental losses from other properties they own because the income and losses will cancel each other out. This kind of investment is also good for a person looking for good cap rates and a low down payment.
These companies make excellent tenants for NNN properties. Please speak with one of our NNN real estate advisors for more information about these tenants and other single tenant NNN leased properties
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[...] you know you can purchase a NNN Property with Walgreen’s, CVS or Rite-Aid as your tenant? Learn all about why Drug Stores make excellent [...]
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