The Dollar General store at 3751 S Pantano Road in the Eastern submarket of Tucson sold for $1.7 million ($188 PSF) to DG Pantano & Escalante, LLC a private investment group out of Salt Lake City, UT (Gary Benyon, managing member). The 9,100 sq. ft. building (built 2013) is on 1.07 acres. The seller and builder was DCM Development Company of Tucson (Chris Lechner, managing member).

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[mepr-show rules=”58038″]Dave Hammack of Volk Company in Tucson represented the seller. J.R. Broadbent of Salt Lake City, Utah represented the buyer.

Family Dollar could be an acquisition target according to Credit Suisse analyst Edward Kelly, and an FDO fusion with DG makes “compelling strategic sense.” Kelly believes Dollar General could pay in the $90-to-$100-a-share range for Family Dollar if the FTC approval is granted. This $90-to-$100-a-share range equates to a 24-38 percent premium above FDO’s share price of $72.49 at Monday’s close.

Shares of both Dollar General (NYSE: DG) and Family Dollar (NYSE: FDO) are outperforming the broader equities market as analysts speculate on a likely buyout deal.

Dollar General has more than 10,600 stores, while Family Dollar has almost 8,000. A buyout by Dollar General, which has more than double Family Dollar’s $8.3 billion market value, may cut costs at the smaller company, according to Albert Fried & Co. Credit Suisse Group said Family Dollar could get as much as a 39% premium in a sale. The deal could create a dominate retailer through reduced competition and a move towards a more proactive (rather than reactive) management style. Kelly also sees potential cost and revenue synergies resulting from the acquisition.

Dollar General Shares closed at $55.59 Monday, up 5.5% since buyout speculation began last week.

Private-equity bidders could see an opportunity to make Family Dollar more efficient and turn a greater profit, analysts at Edward Jones & Co. said. The retailer’s profit margins lag behind those at Dollar General Corp., which KKR & Co. bought in 2007 and took public two years later.

Family Dollar rejected a $55-to-$60-a-share offer from Trian in 2011, saying it “substantially” undervalued its business. The retailer also adopted a “poison pill” defense to discourage unsolicited bids at that time. Family Dollar’s board removed the poison pill in November.

Dollar General, a discount retailer based in Goodlettsville, Tenn., emerged from private-equity ownership with higher operating margins than Family Dollar: 10.2% during the past year versus Family Dollar’s 6.6%. Buyout firms may see a similar chance to increase Family Dollar’s efficiency, said an analyst at Edward Jones.

If Family Dollar Chairman and CEO Howard Levine can be persuaded to sell, the company’s shareholders should welcome a merger, said Sachin Shah, arbitrage and special situations analyst at New York-based Albert Fried.

Lechner can be contacted at (520) 888-1212. Hammack can be reached at (520) 326-3200. For Dollar General Information contact (615) 855-5210.[/mepr-show]

[ismember]Sale date was 7/26/2013. Sale price was $1,706,425. Property sold with a 7.6% cap rate. Property was in escrow before construction. [/ismember]

Sabino Canyon Properties, LLC of Tucson (Bob Gugino, managing member) sold 5.91 acres of vacant land at the southwest corner of Sabino Canyon and River Road to Alta Vista Communities of Tucson (Roger Karber, managing member) for $1.4 million ($5.55 PSF). Members of the joint venture selling the property had owned it for 35-years prior to the sale.

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[mepr-show rules=”58038″]The property was approved for zoning from SR to CR-4 on July 2 by the Pima County Board in 5-0 unanimous vote, the final hurtle for a development of a 53-unit detached SFR rental community on this site.

The buyer, Roger Karber, and founder of Aerie Development, a local builder of luxury rental homes told us that the community ‘Aerie at Sabino & River’ will be exclusively 2- and 3-bedroom homes, ranging in size from 965 to 1,244 sq. ft., and include Aerie’s signature amenities such as elegant granite counter tops, ten foot ceilings, and stainless steel kitchens. All homes have private yards and a community pool and Jacuzzi.

Another Aerie rental community, Aerie at Tanque Verde, recently sold for a record price of $146,000 per unit  for a multifamily development. See July 19^th story on Aerie Tanque Verde sale here.

Mike Carlier and Jim Vincent of the Carlier Company in Tucson and Mike Ebert of Trident Commercial Real Estate in Tucson handled the transaction for the buyer.

Karber can be reached at (520) 977-5456. Carlier and Vincent are at (520) 529-3800. Ebert should be contacted at (520) 320-9311. [/mepr-show]

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[ismember]Sale date was 8/12/2013. Exact sale price was $1,428,010, all cash deal.  Escrow time was 5-6 months pending rezoning and final plan approval. There was opposition from the neighbors that was overcome after rezoning did not pass in May. Buyer has an additional parcel in escrow nearby that is being replatted from 196-units to 150-units for development services. [/ismember]

CVS Pharmacy Store, at 7740 N Cortaro Road in Marana, at the southwest corner of Silverbell Road and Cortaro Road, sold for $6 million ($414 PSF). The ±14,419 SF building (built 2003) on 2 acres, was fully leased to CVS Pharmacy Store #8420 and sold with a twenty-five year absolute triple-net lease backed by a corporate guarantee.

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[mepr-show rules=”58038″] The transaction sold in a “Zero Cash Flow” or “Zero” sale as it is sometimes called, one of the least understood types of real estate structure in the net lease market today. So we’re going to take a stab at explaining it, and the best way to do that, is to jump right into the fire with this transaction.
A few things stand out as unusual with this sale and “zero” sales in general, besides the odd numbers. First, the financing loan to value is high! A $5,206,865 loan on a purchase price of $5,967,280 is an 85% LTV. These “highly leveraged” LTVs cannot be achieved by just going out and buying any property on the market.

This kind of leverage in zero deals requires a strong tenant such as a CVS. Typically, tenants must have a strong S&P rating of at least BBB and be strong bond net leases. CVS (NYSE:CVS) has an S&P rating of BBB+.

A second unusual feature is that the financing of zero properties is assumable, fixed rate, non-recourse, and often full amortization. At the end of the loan term, the property is owned free and clear of debt. With the financing already in place,  the loan is easily and quickly assumable at a low cost to buyers, attractive for 1031 Exchange buyers.

Third, and here’s the basis as to why it’s called “zero cash flow,” or “zero” – all of the property’s net operating income goes directly to service the underlying loan, with none remaining for distribution to the owner. Wells Fargo is the lender of our CVS deal in Marana. This might not sound attractive to all investors, but this real estate structure does have its benefits.

One of the key features of zero sales is called “Paydown/Readvance”. This is usually a one-time option that allows the property owner to pull out a large amount of cash from the property. This feature is perhaps the number one reason why zeros are so popular for 1031 Exchange buyers. Use the pulled out cash for whatever reason you want – without any fear of violating the exchange rule (since all the exchange requirements have already been satisfied). Use the money to go out and buy another property (you get to start all over again on depreciable basis), use the money for working capital, use it to go to Vegas, or whatever. The point is, you can use it for whatever you want.

Further, the more seasoned that zeros become (older) the more valuable they tend to get, as the owner gets closer to the day of owning it free and clear.

Remember, there are no landlord responsibilities with a zero. Investors may buy zero properties to put into their 401K or for the grand-kids who won’t need the cash for awhile.

So how does one calculate the cap rate on a zero property? Values for zero cash flow properties are usually expressed as a percentage over the debt. Or to value the property as any other NNN property by applying a cap rate to the NOI. It should be noted that both of these methods determine “gross” values and not a “net” value. That is to say that the net value (Gross Value minus the Debt) is the actual out of pocket cost to do the deal.

“The attractiveness of zeros is a function of equity over debt and the assumption of leverage,” Steve Underwood of Phoenix Commercial Advisors summed up to us. “And the tax benefits to the owner, something only an accountant can calculate.”

The seller, SCP Capital of Utah has been selling CVS Pharmacies in this manner since 2001 when Staubach of Texas acquired 10,000 active CVS store leases in a major sale/leaseback deal for $288 Million. The buyer was Marana Zero I, LLC; Marana Zero II, LLC; and Marana Zero III, LLC of Sandy, UT (Scott Beynon, managing member).

Steve Underwood and Chad Tiedeman of Phoenix Commercial Advisors in Phoenix handled the transaction for buyer and seller.

Underwood should be reached at (602) 288-3477 while Tiedeman can be contacted at (602) 288-3472 for more information.[/mepr-show]

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[ismember]Sale date was 8/2/2013. Exact sale price was $5,967,280. Broker reported cap rate of 8.97% based on NOI. Market time was 242 days. This was the buyers’ upleg in a 1031 exchange.  [/ismember]