Posted by J. Henry P. on February 04, 2010 at 16:27:45:
In Reply to: Re: Dollar General Stores posted by OhioBill on February 03, 2010 at 21:23:28:
I would think about your risk tolerance, your minimum acceptable ROI, Look closely at the terms of the lease that are in place now, most likely NNN leases. With NNN and stand alone,the management should be very minimal. I still like to use 4-6%. I would look at the quality of the construction. I like to plug in a reasonable amount for a reserve for things like parking lot replacement, roof, hvac etc, not normally covered by CAM. Then NPV the existing lease, next NPV the lease if the DG were to exercise their option to extend their lease. Typically being that the option is a one sided clause in their favor, the landlords most beneficial time in the lease, is on the front end, so it may not be beneficial for you to extend, however if the lease stipulates that DG has the right to extend at a certain rate, you're stuck, unless you can restructure it so that it's a win win again. In short, I think the main things to watch for in this thing is, 1.How stable is the tenant? 2.How was the options negotiated and how will that affect the Present value of the Lease if you assume that they will exercise their option. That may reveal a different reason for the important question of "why are you selling?", than the answer the seller initially gives. The very first question I ask when acquiring a performing asset is: does the reason that this person wants to dispose of this make sense. Hope something in this post helps!