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Thursday, October 8, 2015

Rich Uncles Hits A Double!

Welcome amigos!  It's that time of year again...when a baseball game becomes just a tad bit less boring.  That's right, the major league season has concluded and the playoffs are what's on television for many sports fans.  If you follow the Dodgers, Mets, Cardinals, Blue Jays, Rangers, Astros, Royals, and Cubs, then congratulations.  You get to see your team play at least a few more games.  But as we all know, only two will face off for the World Series.

If the team you follow didn't make the playoffs, this is a good chance to tune into the prowess of three hitting prospects swinging the bat as sweet as Ted Williams: Rich Uncles, Ray Wirta, Harold Hofer, and Howard Mackler.  It wasn't too long ago that I published news of Rich Uncles REIT, RichUncles.com, making an acquisition of a commercial property to add to the portfolio.  In fact, it happened on September 11, less than a month ago!  And here I am again, helping to spread the word of the company's latest acquisitions...yes, plural...as in more than one property.

Ripping a double into the outfield, Rich Uncles REIT made investors jubilant today with the following news:

Location: Roseville, CA
Purchase Price: $2,772,000

Summary. The Company has purchased a Valero gas station, car wash, and mini-mart that is currently being re-branded to a modern Chevron service station and Chevron “ExtraMile” –  mini-mart (“Property”) located in Roseville, CA. Roseville is a Sacramento suburb, located approximately 20 miles northeast of downtown Sacramento, along the I-80 freeway that connects Sacramento to Reno, NV.
The Property's tenant has a series of contracts with Chevron related to the gas sales and "ExtraMile" operations. Chevron has invested substantial cash into this property and has required recapture rights in the unlikely event of tenant default. Chevron thereby manifests a significant vested interest in the success of the Property.
This investment reflects the Company’s ability to deliver solid yields to its investors, while meeting its mandate to acquire properties with credit-strong tenants, under longer-termed leases, and for properties with desirable real estate dynamics.
Property. The Property sits on 1.1 acres of land and is located at the intersection of Riverside Ave and Cirby Way, approximately 1,000 ft. from the I-80 interchange. The neighborhood around the Property is composed primarily of commercial and residential properties, with Kaiser Permanente directly across the street.
Lease & Tenant. The Property has a new 10 year Triple Net (“NNN”) lease (“Lease”) with a multiple location Chevron operator/franchisee who is responsible for paying all property related expenses (tax, insurance, and maintenance). The Lease is personally guaranteed by tenant's owner, has four 5-year renewal options, and the rent increases by 10% every five years during the current (and extended) terms.
Economics. The initial rent under the Lease generates a 7.3% cap rate and we purchased the property with cash on hand. In large part, we were the successful bidder for this desirable asset because we could act quickly to purchase the Property on an “all-cash” basis, without any mortgage finance contingencies.
Post-closing, we are in the process of placing an approximate $1,120,000 mortgage loan on the Property in line with our 40% mortgage cap mandate which will drive our cash-on-cash equity yield to 7.5%.
Why we like this deal.
  • The property has a new 10-yr NNN Lease with a proven, multiple-location service station operator who is responsible for paying all property-related expenses.
  • The Property has a state-of-the-art appearance, with 12 pumps and a new Chevron-branded “ExtraMile” mini-mart.
  • This proven operator projects a healthy profit at the Roseville location after making the rent payments due under the lease. Through our own due diligence, we believe these projections to be reasonable.
  • The Lease is personally guaranteed by the financially strong owner of the tenant.
  • The Property is located on the heavily trafficked Cirby Way, with 44,500 cars per day passing its intersection with Riverside Ave.
  • The 7.3% acquisition cap rate is very favorable for a modern, major branded gas station.
Lease Guarantor and Environmental Review
The Lease Guarantor entered the gas station industry as a broker in the 1990’s. Twelve years ago, he commenced the business of actually owning and operating service stations, and he now operates eight total gas stations. The Guarantor’s net worth and liquidity is substantial.
All aspects of the Property, along with related public records, have been analyzed by Vertex Companies, Inc. a national engineering firm. Their property and environmental assessments, plus seismic and flood analyses, all concluded positively.
The tenant and lease guarantor have indemnified the Company against correction costs of any on-site environmental damage – without limit.  Also, an environmental insurer provides for up to $2 million of environmental pollution liability coverage.
Environmental issues not specific to the property: The gas station industry is now highly regulated with numerous safety features, including:
  • Underground Storage Tank Designated Operator - a contracted third party who reports to regulatory authorities regarding environmental monitoring and auditing.
  • A system that continuously monitors the underground storage tanks and related fuel lines for leaks.  If a leak is detected, the system is automatically shut down.
  • An annual monitoring system certification process.
  • Underground Storage Tanks are now double-hulled.

Property # 2:

Location: Elk Grove, CA
Purchase Price: $3,720,000

Summary. The Company has purchased an Asian specialty food market (“Property”) located in Elk Grove, California. Elk Grove is a Sacramento suburb, located approximately 15 miles south of downtown Sacramento, along Highway 99. The Property is subject to a new 10 year lease with two 5 year extension options, which is guaranteed by a creditworthy entity. Rent increases are 10% every 5 years, including renewal options.
Property. Island Pacific is a 14-unit, California-based, ethnic Filipino food market (see www.islandpacificmarket.com). The 13,963 SF retail building is on a 1.7 acre site within a shopping center anchored by Kohl’s Department Store and Walgreens.  The Property was originally constructed in 2011 and over the last year, the landlord has spent $350,000 in tenant improvements and the tenant has itself spent $1,700,000.  Exterior appearance, interior functionality, truck access, and 5.23 parking spaces per 1,000 SF are all positive factors. The Company’s inspecting engineer’s reports for environmental, property condition, and geotechnical conditions showed no negative conclusions.
The Property is located at the southwest corner of Calvine Road and Elk Grove - Florin Road. This high traffic intersection is approximately 2 miles east of the Central Valley Highway 99. The Property’s Village Green Shopping Center consists of approximately 250,000 SF of recently completed retail space. Tenants include Kohls, Walgreens, Panda Express, Bank of America, Bank of the West, and other shop space tenants. In the other three quadrants of this intersection Safeway, CVS, 24 Hour Fitness, Bel-Air Supermarkets, Petco, Sizzler, and other leading retailers are present.
Elk Grove has a population of 117,000, and 26% of this population is of Asian origin. New residential development by KB, DR Horton, Richmond American, and others continues to expand the municipality’s population and purchasing power.
Island Pacific has no direct competition in the immediate area and limited competition throughout Greater Sacramento. The MSA’s retail market is healthy, with an overall 10.6% vacancy (which is the lowest rate since 2008) and with community/neighborhood/power centers having an average rent of $17 NNN. The same vacancy and rent figures for the Elk Grove sub-market are 3.7% and $20 NNN/SF respectively. Recent shopping center sales comps for the Greater Sacramento area averaged $265/SF, led by the Elk Grove sale of a 14,905 SF retail building at $389/SF. These metrics indicate below market rental rate and sale price when compared to the Property’s $15.50 NNN/SF rental rate and $266/SF acquisition price.
The Sacramento MSA has a population of 2.5 million. The area’s job and population has shown consistent growth with a 20% growth rate over the last decade. This health is based largely upon government, services, and healthcare employment.
Lease & Tenant. The Property is one of 14 Filipino-based Island Pacific markets throughout California. Each location is leased by its own legal and financial entity, but all are 100% owned by J. N. Lim, a former food retail specialist CPA with Arthur Andersen. In 2000 he opened his first Filipino supermarket in Cerritos, California and continues to follow his strategy of opening one or two new locations annually, when he finds the correct combination of demographics, competitive set, and cost-effective real estate. The consolidated financial condition of Mr. Lim’s Asian market business includes $11.5mm in liquidity and $11.7mm in net worth on $69mm in annual sales.
This Property has a new 10 year Triple Net (“NNN”) lease (“Lease”), with 2 five-year options to extend, and 10% rate increases every five years. The tenant is responsible for all building expenses except structural building components. Given the August 2015 commencement of operations at the Property, financial information regarding the tenant is not available. However, Island Pacific personnel state that this location outshines the opening performance of all previous Island Pacific locations by a large margin despite having a zero dollar advertising budget.
The Lease is guaranteed by Island Pacific Supermarkets Inc. and both entities are parts of Mr. Lim’s consolidated supermarket business. The guarantor entity shows a $3mm net worth with $2mm in current assets.
Economics. The Property was purchased with cash on hand and we are in the process of placing a mortgage loan on the Property secured by the Property. We expect that this new mortgage will bear a fixed rate of interest of approximately 3.5%.
Why we like this deal.
  • The Property has a new 10-yr NNN Lease. 
  • The Property is of recent construction and is in excellent condition and appearance with excellent parking, truck access, and modern features. 
  • This is a proven, multiple location, niche grocery concept with initial store performance exceeding performance of other locations at similar business stage.
  • This Property is located in a market with above-average projected growth.
  • The Lease is guaranteed by an entity with substantial assets, net worth, and credit.
As of late, I've been getting inquiries right and left about the investment opportunity this company provides.  So investors, don't hesitate to email me after doing your due diligence.  Here to help the small investor get their hands on a solid investment in commercial real estate.  Until next time!  info@commoncoremoney.com 

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