What retailer sells the most USA Today newspapers, cold single-serve beer, cold single-serve bottled water, cold Gatorade bottled drinks and lottery tickets, and has the largest network of ATMs of any retailer in the US? If you guessed 7-Eleven, you’d be right. The convenience store formula of companies like 7-Eleven and Circle K is satisfying the consumer craving for instant gratification and impulse purchases. It’s also nourishing the portfolios of net-lease investors, according to Hanley Investment Group EVP Jeremy McChesney.
“Convenience stores feed immediate needs and are highly relevant to consumers’ on-the-go lifestyles. Unlike other retail categories, as consumers hit the road for their summer holidays, convenience stores will see as much as a 17% increase in sales,” said McChesney.
According to McChesney, single-tenant convenience stores are nearly a “commodity.” He says that they are easy to own and easy to sell since they are in high demand. They have also proven to be more internet-resistant and recession-resistant and are typically the last type of investment to be impacted by interest rate moves. This is due to the fact that the majority of these properties are not purchased with debt, but rather with cash or exchange dollars from investors who have traded out of more management-intensive investments and are now looking to simplify their life, McChesney tells GlobeSt.com.
“Convenience store buyers are more often private investors, exchange buyers or retirement-age buyers that are looking for passive income from a corporate-backed absolute, triple-net long-term lease,” McChesney notes. “The lease term or length of the lease is a key factor in the property value.”
The value of an absolute, triple-net lease—a feature of a majority of these properties—shouldn’t be overlooked, says McChesney. “A true absolute triple-net lease means that the tenant, not the landlord, is responsible for paying all expenses associated with owning the property. Therefore, the tenant pays for all of the operating expenses, property taxes, utilities, building insurance premiums, maintenance and repairs; not the investor, which is very appealing.”
McChesney continues, “Additionally, the location of a 7-Eleven or Circle K typically has good real estate fundamentals including a high-profile corner location, great proximity and ease of access to major thoroughfares along with strong demographics.”
From April 1, 2017 to April 1, 2018, 74 7-Elevens traded across the country, with an average cap rate of 5.46%, according to CoStar. Approximately 48% of these buyers were from California, which demonstrates investor willingness to look outside of California to meet their investment goals. The average sale price for a 7-Eleven during this period was $2,174,000, ranging from $510,000 to nearly $5,295,000, according to CoStar. As of April 1, 2018, there were 64 7-Elevens listed for sale.
During this same 12-month period, 66 Circle Ks traded in the US, with an average cap rate of 5.99%. The average sale price for a Circle K during this same period was $1,617,000, ranging from $549,000 to $3,000,000, according to CoStar. As of April 1, 2018, there were 16 Circle Ks listed for sale.
“We expect that sales volume for single-tenant convenience store net-leased investments to stay strong in 2018,” said McChesney. “Existing properties with an extensive history and newly-minted long-term leases in core markets should continue to be in the highest demand and trade from 4% to the mid-5% cap rate range depending on the location. Properties with a shorter lease term located in areas with strong real estate fundamentals will also remain in high demand.”
McChesney has completed the sale of more than 30 7-Eleven properties in three years, the most 7-Elevens sold by one individual in the US during this same period. In the last 12 months, he has completed the sale of 16 7-Eleven and Circle K convenience stores. McChesney currently has a substantial pipeline of net-lease convenience stores available for sale around the country, including 7-Elevens in the Los Angeles area.
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