November Capital / July 30, 2024
Brand New Construction NNN Lease Dollar General Sells in North Augusta, South Carolina
Location: https://maps.app.goo.gl/PKQuYaF6ZiuevZMw5
Hassle-Free Dollar General NNN Lease Structure
Owning a Dollar General property is remarkably straightforward. The leases are typically structured as Absolute NNN, meaning the landlord has no maintenance obligations. New construction leases usually span 15 years, and this property is no exception.
Built in 2024, this new Dollar General features rental escalations—a relatively new addition for Dollar General leases. Traditionally, these leases have not included rental increases. However, newer builds starting from 2024 are beginning to see rental increases in the primary term. This property offers 5% increases every five years. While better than a flat-term lease, this is modest compared to most NNN leases today, which feature 10% increases every five years. The limited rent increases can be seen as a drawback for potential buyers.
Pricing
The property sold for $2,260,688, representing a 6.40% cap rate. While this cap rate offers a decent return compared to other new construction net lease products, most new Dollar General stores are trading at cap rates of 7.00% and above as of July 2024.
Location
As an advisor for individuals in 1031 exchanges and private funds, I typically recommend high-quality real estate with strong residual land value. Dollar General stores are generally not situated on prime real estate. They are often located in tertiary markets where the land value is relatively low. This property is 14 miles northeast of Augusta, Georgia, but the immediate trade area is quiet. The 10-mile population is about 144,000 people, but the 5-mile population drops to around 20,000, which is less impressive.
There are eight other Dollar General stores within a 10-mile radius of this location. If this store underperforms, Dollar General can easily close it, given the nearby alternatives. It’s worth noting that Dollar General specifically chose this site and collaborated with a developer for new construction. However, there is a concern that Dollar General might be overexpanding and overestimating demand for their stores.
On a positive note, the average household income within a 3-mile radius is unusually high for a Dollar General site, almost $100K, which is a favorable factor.
Credit
Dollar General leases are signed by the corporate entity, providing the NNN lease owner with a full guaranty from Dollar General Corporation. The company has an investment-grade BBB rating by S&P, indicating a high likelihood of rent payments throughout the 15-year initial term.
Deal Story
The risk in this deal lies not in the credit but in the location. The underlying real estate has very limited value. If Dollar General decides not to renew the lease in 2039, they could easily relocate, leaving the buyer with a vacant property in a quiet market. This could be a significant challenge, especially for first-time landlords, despite the “ease of management” often touted with such properties. Re-tenanting the property could be a daunting task if Dollar General vacates in 15 years. Therefore, purchasing a Dollar General is advisable primarily for those already experienced in real estate.
November Capital is writing an article about a transaction that occurred in the NNN marketplace. We make no claim to this transaction. This is only editorial.
