CORONA DEL MAR, CA — A 7-Eleven property offers a well-known, corporate-backed, AA-credit-rated, secure tenant—but that’s not the only reason they’re so popular among retail investors, Hanley Investment Group EVP Jeremy McChesney tells GlobeSt.com. McChesney has sold 20 7-Elevens in the last two years, the most 7-Elevens sold by any individual in the US during this period. We spoke with him about why the retail investors are so drawn to this iconic convenience-store brand.
GlobeSt.com: Why are single-tenant 7-Elevens so popular among investors now?
McChesney: A 7-Eleven property offers a well-known, corporate-backed, AA-credit-rated, secure tenant. People know 7-Eleven, so there is an instant brand-recognition that allows investors to get very comfortable, very quickly with the investment. Investors who are transitioning out of apartment buildings or management-intensive retail properties can purchase these assets without the management responsibilities associated with their prior investments. The ease of ownership is a real benefit to many investors.
GlobeSt.com: What has changed in the retail investment world to elevate these properties in the eyes of investors?
McChesney: The retail landscape is dramatically changing. It is no secret that many retailers are being negatively impacted by online sales. Amazon is now bigger than most brick-and-mortar retailers combined. The online retailer is worth $356 billion, making it one of the largest companies by market capitalization in the world. Convenience stores like 7-Eleven are unique in that they rely on people’s impulses and the need for instant gratification, as well as convenience. People won’t typically buy a big box of Slim Jim Snack Sticks on Amazon or at Costco and carry the big box around in their car every day. You can’t buy a Slurpee online. 7-Eleven has done an excellent job of understanding its consumer base and tailoring its stores to meet consumers’ daily impulse, instant gratification and convenience needs. Further, time has proven that 7-Eleven continues to thrive during a down economy, which is important to investors.
GlobeSt.com: What other emerging trends are you noticing in the single-tenant retail market?
McChesney: I think that investors today want security. They want corporate-backed, secure deals with well-known tenants that are positioned properly in their market (i.e., the best out of the bunch). In the convenience-store category, it is 7-Eleven and Circle K. In the fast-food category, it is McDonald’s and Chick-fil-A.
A lot of investors who are transacting in the single-tenant category have come from apartment buildings or maybe from the stock market and are looking to diversify their portfolio. They might never have owned a retail asset. The single-tenant 7-Eleven offers a great way to own a commercial asset for the first time without the management headaches.
With the use of technology, we are seeing tenants get smarter, really paying attention to their consumer base and tailoring their stores, as well as their marketing efforts, to better reflect the needs and wants of their customers.
GlobeSt.com: What else should our readers know about single-tenant 7-Elevens?
McChesney: Single-tenants are nearly a “commodity.” They are easy to own and easy to sell since they are in high demand. The location of a single-tenant 7-Eleven typically has good real estate fundamentals, including high-profile corner locations, great proximity and ease of access to major thoroughfares along with strong demographics. Furthermore, a majority of these properties have corporate-backed absolute triple-net leases. A true absolute triple-net lease means that the tenant, not the landlord, is responsible for paying all expenses associated with owning the property. Therefore, the tenant, such as 7-Eleven, has to pay for all of the operating expenses, property taxes, utilities, building-insurance premiums, maintenance and repairs—not the investor, which is very appealing.
From January 2016 through March 2017, 113 7-Elevens traded hands across the country with an average cap rate of 5.21%. What is interesting to note is that 60% of these buyers were from California. The average sale price for a 7-Eleven in 2016 was $2.2 million, ranging from $300,000 to nearly $6 million. Currently, there are 42 7-Elevens for sale. I have multiple 7-Eleven properties listed for sale, including a high-profile 7-Eleven in Los Angeles as well as 7-Eleven properties in Buffalo, NY; Saint Louis; and Lakewood, OH.
We expect that sales volume for single-tenant 7-Eleven net-leased investments to stay strong in 2017. Existing properties with an extensive history and newly-minted long-term leases should continue to be in the highest demand and trade in the mid 5% to 6% cap rate range. Properties with a shorter lease term located in areas with strong real estate fundamentals will also remain in high demand. Investors like single-tenant 7-Eleven properties for their residual value since they are typically constructed as vanilla boxes, which is easier to re-tenant in the event the tenant vacates.