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Author Topic: Walgreens NNN questions  (Read 18505 times)

Offline adam w

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Walgreens NNN questions
« on: November 29, 2011, 09:08:43 am »
Hello everyone,

This is my first time posting here.  I am seeking information on how a typical NNN walgreens deal is closed.   

It is my understanding that the cap rates are usually between 5-6% and that financing is 100% based on Walgreens AAA credit rating.  The lease is a credit tenant lease (CTL), and is usually for 25 years.  Most of the new stores sell for between $5,000,000 and $8,000,000.   The average yearly income from one of these properties would be between $300,000 and $500,000, and this would be just enough to cover the loan.  My questions are:

Is anyone familiar with the details of a NNN Walgreens deal, and what the process is from start to finish?

How much are the closing costs on one of these deals and are the closing costs built into the loan?

Since 100% financing used on a deal like this, what are the hidden or out of pocket expenses the investor must pay? 

What is the expected down payment with 100% financing, and are there large fees associated with processing the loan?

What to watch out for?

Thanks!

Offline Gold River

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Re: Walgreens NNN questions
« Reply #1 on: November 30, 2011, 01:38:21 am »
Hi,

    You are talking about two entirely different things! Commercial Real Estate Purchase and Commercial Space triple net Lease!

Please rephrase your question's in two different post's and present your commercial purchase questions individually to your commercial triple net lease questions?



                  GR


Offline davewindsor

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Re: Walgreens NNN questions
« Reply #2 on: November 30, 2011, 06:19:29 am »
A typical Walgreens gives an investor 100% financing at rates with amortization under the 5-6% cap rate to make it profitable to an investor?  Who told you that?!  Where do I sign up?  I'll take a hundred of them to improve my balance sheet.

Who's offering those kinds of loans?  Can anyone just walk off the street and get them or do you have to secure it with equity from other real estate to get 100% financing? 

Did someone from a Russ Whitney seminar tell you that garbage to get you sign up for their $50K secret seminar workshop on commercial real estate investing? 

Why wouldn't Walgreens just own the building outright; it would only improve their balance sheet.  With NNN, they have to pay all the repairs themselves.  There's no advantage to Walgreens selling these kinds of assets off.  This information doesn't sound accurate.
Landlord and investor

Offline Real Estate Seller

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Re: Walgreens NNN questions
« Reply #3 on: November 30, 2011, 10:31:38 am »
Where do I sign up to get a deal like Walgreen?
I am the king of short sales.

Offline adam w

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Re: Walgreens NNN questions
« Reply #4 on: November 30, 2011, 12:47:53 pm »
Walgreens expands by leasing back the properties to investors with exclusive lease agreements, letting the investors take on the long term risk, allowing the company to free up capital.  The reason a Walgreens deal  is different from a most NNN deals is that Walgreens has a great credit rating (AAA) that can carry the deal.  With a credit tenant lease deal, 100% financing is possible.

What I am interested in specifically is how these Walgreens credit tenant lease deals are done, and what the up front costs are for potential investors.  What are the barriers that keep small investors out? 

There is not much information on the internet or in real estate books about the actual process of completing a credit tenant lease deal,  like a Walgreens.  Since credit tenant lease is a specialized area of NNN financing,  it seems to me that only experienced investors who have bought or sold a Walgreens or experienced commercial real estate mortgage bankers would have access to this information.


Offline davewindsor

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Re: Walgreens NNN questions
« Reply #5 on: November 30, 2011, 03:36:21 pm »
Walgreens expands by leasing back the properties to investors with exclusive lease agreements, letting the investors take on the long term risk, allowing the company to free up capital.  The reason a Walgreens deal  is different from a most NNN deals is that Walgreens has a great credit rating (AAA) that can carry the deal.  With a credit tenant lease deal, 100% financing is possible.

What I am interested in specifically is how these Walgreens credit tenant lease deals are done, and what the up front costs are for potential investors.  What are the barriers that keep small investors out? 

There is not much information on the internet or in real estate books about the actual process of completing a credit tenant lease deal,  like a Walgreens.  Since credit tenant lease is a specialized area of NNN financing,  it seems to me that only experienced investors who have bought or sold a Walgreens or experienced commercial real estate mortgage bankers would have access to this information.



Financial companies are not lending 100% LTV on the building alone.  Who told you this?  I've talked to a lot of real estate brokers and mortgage brokers who've closed a lot of commercial deals and that's not how it works.  Even if you got 100% financing using equity from your other property, you still wouldn't make enough money to cover the monthly payments because the amortization and interest rates wouldn't be low enough.

Property with AAA Tenants like Walgreens are for organizations like pension funds and trusts that pay almost all cash and are ok with 5-6% returns on their money because it's more secure and looks better on a balance sheet than holding stocks or lending it to investors who want to speculate in real estate with no money down deals.  Walgreens are not for somebody who plans to borrow money from the bank to buy it.  There's a good reason why you can't find a find a lot of information on it.  The only people who make good money on these deals are the real estate brokers who solicit these pension funds, fund managers who run these trusts, and the construction companies that build the Walgreens. 

Whoever is telling you this crap that an investor can put together a no money down deal and buy a Walgreens building and have it cash flowing positive by Walgreens is talking out of their ass and has an ulterior motive such as selling you overpriced mentoring, workshop or upfront consulting fees.  I'm 100% certain that every mortgage broker you've spoken to about this told you the same thing, which is why you're posting here. 

If you find someone who can make money off a Walgreen's tenant by having the building 100% financed by the bank, please let me know who it is because I've talked to a lot of people who couldn't find a way to make it work and I'd love to give your guy a call and partner with them on a lot of deals.  You're not going to a find an answer to your question here because simply put you're chasing unicorns.
Landlord and investor

Offline craiggrella

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Re: Walgreens NNN questions
« Reply #6 on: December 09, 2011, 08:22:22 am »
Walgreens doesn't own real estate, they lease almost exclusively.

A developer develops a plot of land for walgreens (or any other commercial establishment), and in the early stages of that development he negotiates a pre-lease with walgreen's real estate department.

Those leases are arranged with anything from a 10 year to a 99 year lease, depending on location. For example, in a city like NY you're not very likely to get a longer lease because space is in such demand.

The developer building the property would get a land development loan to purchase the land and develop the property. Clear, grade, and prepare the lot. He/She then gets a construction loan to build the shell building. A few years ago banks were providing 100% construction loans for developers building property pre-leased with national credit tenants, but those days are gone. Today, they're luck to get 70% of cost on a property like this.

From there, depending on the lease/contract the developer finishes the building or Walgreens takes over and finishes it out themselves.

If there is an opportunity to purchase a property for which walgreens has already pre-negotiated a lease, my guess is the developer who previously owned that property got stuck and can't develop it anymore. You'd need to do two things, 1. make sure that walgreens is still on board by speaking with walgreens, and 2. make sure the development is still economically viable, because there is ZERO chance of a 100% deal here.

Hope that helps...good luck.

Hope that helps.

Offline Real Estate Seller

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Re: Walgreens NNN questions
« Reply #7 on: December 09, 2011, 10:16:07 am »
We spoke with Gregory D. Wasson CEO of Walgreen and he said that they only lease 20 years at a time.
I am the king of short sales.

Offline craiggrella

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Re: Walgreens NNN questions
« Reply #8 on: December 09, 2011, 10:25:16 am »
If you can get him on the phone again, have him introduce you to the real estate department. That's a great contact if you plan on doing development.
And introduce yourself to some commercial lenders who do single tenant NNN lease construction loans.
Those are good clients to have.

Offline javipa

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Re: Walgreens NNN questions
« Reply #9 on: December 09, 2011, 10:42:57 am »
Look up the investor/owners of an existing Walgreens property and ask how they structured the deal.
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Offline craiggrella

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Re: Walgreens NNN questions
« Reply #10 on: December 09, 2011, 12:02:18 pm »
That's one way to go, and certainly the right type of person to speak too, because it would be the developer who made the deal, but it might be tough getting that contact info. It's almost sure to be listed to a corporate entity with the attorney as the agent. But who knows, you might get lucky.

You might have an easier time calling up the local development companies, or management companies that manage the multi-use properties upon which many walgreen's are built. They usually have signs out front like "this property under management by..." The management company will have a copy of that info, and they will have contact info for the owners rep as well.

Finally, you can try the really big development companies that do malls, like simon or westfield. They own huge lots and do leases to companies like walgreens. Try to find a local rep in your area and ask him/her about it how they structure their leases.

That's where I'd start.

Offline alapuzzo

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Re: Walgreens NNN questions
« Reply #11 on: February 22, 2012, 02:47:53 pm »
It is possible to obtain this kind of financing.  It is called a Zero Cash Flow deal and it is typically used as a type of tax shelter.  I could tell you a ton more about specifics.  alapuzzo at lee-associates dot com

 




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