7-Eleven Case Study

Shortly after being contacted by a long time client about their upcoming 1031 Exchange, we identified a value-add building in south San Diego County.  The property, an AutoZone, would soon to be vacant as they were relocating to a new building a few blocks away.  The owner, an 85 year old investor from the Bay Area, knew his income stream would be ending soon and wanted to sell the property rather than deal with a potential release and rehab.  

Seeing the opportunity, we made an offer on the property within the first 24 hours of contact with the owner.  In order to convey our intent to close, we wrote an all-cash offer with an short due diligence period.  The owner, ready to move on, accepted our offer.  

The building layout and size seemed to fit perfectly for 7-Eleven, who we knew had been searching within the market.  Our challenge was that approximately half a mile to the north was an operating 7-Eleven.  We quickly gathered supporting documentation (demographics, site plan, consumer spending reports, etc.) and made contact with the Southern California 7-Eleven leasing representative.  Although the two sites were close to one another, we were able to convince 7-Eleven that the dense demographics and daytime population, as well as, location on different thoroughfares, could support the two stores.  

In total we spent 17 months from close of escrow on the vacant building, to close of escrow on the rehabbed investment property.  Our initial investment of $750,000 resulted in a new 15 Year Corporate Lease, featuring 10% rental increases every 5-years and Four 5-year Options to extend.  Should we have chosen a hold strategy, our stabilized cap rate would have been 12.93%.  

Ultimately we decide to take advantage of the cap rate compression and arranged a sale to a local 1031 Investor which yielded a 2.7x equity multiple.