While owners of net-leased drugstores enjoy the consistent, passive, monthly income that these investments provide, it’s important to understand that over time, the value of these properties will go down.
This happens as the years remaining until the tenant’s next option begin to decrease. As your lease term remaining dips below 10 years, the value and liquidity of your investment diminish.
Here’s what can happen: Once your lease has less than five years remaining, Walgreens, CVS, or Rite Aid may send a letter insisting that your store is underperforming, the rent is above market, and unless the rent is reduced, they will close the store and transfer the prescriptions to the next closest location. It becomes a potentially costly game of “chicken”. The problem is the corporate tenant is the 500 pound gorilla in this situation and you won’t have much negotiating leverage.
Trade Into a Longer Lease Term
As the remaining guaranteed lease term on a drugstore property grows shorter, and equity and liquidity begin to diminish, it may be time to consider a sale.
- Guarantee you income for a longer period of time
- Best protect the residual sale value
Drugstores have already seen a dip in front of house sales, and compressed margins/reimbursements in Rx. So when you add to that the loss of general Rx sales with new competition from Amazon’s Online Pharmacy and future competition from the expansions of Walmart Health Centers, the risk of rent reduction demands and even store closures from tenants becomes very real.
Most drugstore owners invest with plans to hold long-term.
Nonetheless, market cycles make it prudent to reassess and evaluate your drugstore investment on paper at least once per year — especially when CAP rates and interest rates are at all-time lows, with no place to go but up. As interest rates go up, CAP rates will also go up. And when CAP rates go up, property values will go down.
Having an expert analyze your equity position will help you quantify your risk.
If you request a personalized Drugstore Property Report from Deerfield Partners, we will provide you with:
- Profitably assessment for your store & likelihood of termination or renewal
- Current market value and forecast of future value
- 1031 tax analysis to best protect equity, enhance cash flow, and maintain liquidity
Request Your Free Strategic Evaluation
- Option 1: Simply send an email to email@example.com and reference your Store Number or Property Address.
- Option 2: Call us at 888-353-0441 and leave a voice message with your request.
- Option 3 (Fastest): Use the button below to fill out basic info required for us to analyze your investment.