We’re pleased to announce our latest acquisition, a 7,200 SF retail strip center at the front door to the Wal-mart Supercenter in Troy, Alabama.
Typically we’ll look at 75-100 deals before we find one that fits our criteria and that we purchase. We thought it might be helpful to explain to brokers (or whoever is reading our blog) what we’re looking for in a deal and how we found that in this property.
The Troy strip has 4 tenants, Rent-A-Center (RAC), Advance America, Alltel and a billboard ground lease (all national or at least regional credit tenants). The center is only 3.5 years old and was built as a build-to-suit for RAC. Four years ago the southern part of Troy was just starting to grow and therefore rents were low. The original lease had RAC at $11.50 PSF and Advance America at $12.00. After the center was built, the developer signed Alltel at around $16.00 PSF.
After undertaking a market survey of existing centers, we found that the market rate in the area is now $16 to $18 PSF and that there were very few vacancies. We were therefore buying a center with below market rents in an excellent location and the price we paid for the building was less than we could build it for today. Unfortunately we paid a premium for the in-place rents, but don’t mind doing this as our upside occurs at lease expirations. We prefer this scenario over buying a center with above or at market rents where you get to catch a bullet if your tenants blow out. Finally, we’ll only buy in a small town like Troy if there are clear signs that it is growing and is forecasted to continue to do so.
In Summary, we like:
- Below Market Rents
- Excellent Locations
- Below Replacement Costs
- Growing Markets