Record Low Cap Rate for a Rite Aid in the Inland Empire
MENIFEE, Calif. – (RealEstateRama) — Hanley Investment Group Real Estate Advisors, a nationally-recognized real estate brokerage and advisory firm specializing in retail property sales, arranged the sale of a new single-tenant absolute net-lease Rite Aid property located at 28995 Newport Road in Menifee, Calif. The purchase price was $9 million, which represented a cap rate of 4.72 percent.
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Hanley Investment Group Executive Vice President Kevin Fryman represented the seller, Parkcrest Construction Inc. A Real Estate Development Company of Ontario, Calif. The buyer, a private investor, was represented by First Vice President Investments Ron Duong of Marcus & Millichap of Newport Beach, Calif.
“The sale of the Rite Aid represents the lowest cap rate for a single-tenant Rite Aid in the Inland Empire ever,” said Fryman. “It was also one of the lowest cap rates for a fee-simple Rite Aid nationwide.”
Completed in late 2016, the new 17,185-square-foot freestanding building with a drive-thru is situated on a 1.63-acre parcel of land at the southwest corner of Newport Road and Menifee Road in Menifee. Rite Aid has nearly 20 years remaining on the initial term with increases every 10 years.
“Currently, there are no competing drug stores in the immediate trade area,” said Fryman. “Rite Aid, the third-largest U.S. drug store chain, has been seeking the Federal Trade Commission approval of their merger with Walgreens since October 2015. To obtain approval, there have been plans to divest between 1,000 to 1,200 stores to Fred’s after they were denied in an earlier plan to divest 865 stores.”
According to a report in the New York Post on February 16, 2017, the companies may be close to winning Federal Trade Commission approval with a revised plan, possibly in the next two to four weeks, says Fryman. Combined, Walgreens/Rite Aid would have a reported 46% US market share.
“We commenced marketing during construction, and received multiple offers within a couple of weeks,” said Fryman. “We were also able to overcome the issues of rising interest rates during the purchase agreement negotiation and the breakdown of the Rite Aid/Walgreens merger during escrow. The buyer was hopeful that the merger would eventually go through. This transaction is a testimony to the demand for well-located single-tenant investments.”
Newport Road is the primary retail thoroughfare in the Temecula Valley, connecting Interstate 15 in Lake Elsinore to Interstate 215 in Menifee and the surrounding cities. National retailers along Newport Road include Super Target, Lowe’s, Ralphs, Best Buy, BevMo!, Dollar Tree, Kohl’s, Living Spaces, Michaels, Petco, Ross Dress for Less, Staples and T.J. Maxx.
Menifee is the second fastest growing city in Southwest Riverside County. Fryman reports that 115 percent population growth is expected within the next two years. The trade area has affluent demographics with $73,000 average household income within three miles of the property. The property also benefits from the 15,000+ students that attend Mount San Jacinto Community College one mile from Rite Aid property.
“We expect that investors will continue to seek out well-located single-tenant retail investments as the flight to quality increases, which strengthens the compression of cap rates, especially for assets like Rite Aid,” Fryman said.
About Hanley Investment Group
Hanley Investment Group Real Estate Advisors is a retail investment advisory firm with a $5 billion transaction track record nationwide, who works closely with individual investors, lending institutions, developers, and institutional property owners in every facet of the transaction to ensure that the highest value is achieved. For more information, visit www.hanleyinvestment.com.