Analysis of Investments

Grocery Portfolio 2

Capital Square Realty Advisors

Capital Square Realty Advisors Grocery Portfolio 2 is an investment into two grocery anchored retail center that are located in North Carolina. The anchor tenant at each location is a Food Lion and there are smaller local tenants that fill the rest of the spaces.

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.00%
  • Initial Occupancy 94.95%
  • Est. Time Horizon None YEARS
  • Current Cash Flow
  • Yr. 1 Cap Rate to Investor 7.20%
  • Investor Purchase Price $11,009,000
  • Total Offering Size $4,509,000

Loan Information

The total loan is $6,500,000 and is from Cantor Commercial real Estate Lending LP. The loan is for a term of 10 years with the first two years being interest only. Amortization is based on a 30 year schedule. The interest rate is fixed at a rate of 4.750%.

  • Yr. 1 DSCR 2.4
  • Loan-to-Offering 59.04%
  • Hold Period DSCR 2.07

Tenant Information & Lease Terms

There are three total properties in this investment. The tenants are discussed below:
Food Lion - Owned by Delhaize Group which has an investment grade rating of Baa3 by Moody's. They operate a chain of supermarket stores in 16 of the states. 

Family Dollar - Non-Investment grade of Ba1 from Moody's 

Other tenants are local and do not have a rating from any of the major credit rating agencies.

Key Positives

  • The seller has stated that they will complete "substantial renovations at the property." This should limit the amount of capital expenditures that would be needed to be completed by the trust. It should also limit the capital expenditures needed during the hold period.

  • The sponsor is using conservative underwriting assumptions. 

Key Risks to Consider

  • The sponsor is projecting Effective Gross Revenue by 25.9% above the trailing 12 months at the property. This is an aggressive growth assumption.

  • The rent increase over the trailing 12 months is about $0.57 per square foot. This would need to come from rent escalations or new tenants.

  • The Food Lion leases are NN which leaves some of the costs of maintenance at the property to the trust.

  • There are vacancies at the properties that have been yet to be filled.

  • The population numbers at the properties are very low. The 5-mile radius had only 24K at one property and 7K at the other.

  • The sponsor has projected economic occupancy to be 99% which is an aggressive assumption as physical occupancy is currently not this high.

Investment Sponsor Information

Capital Square Realty Advisors

Capital Square 1031 is a national real estate investment and management company. The firm sponsors institutional-quality real estate exchange programs that qualify for tax deferral under Section 1031 of the Internal Revenue Code. Capital Square uses the Delaware Statutory Trust (DST) structure to make quality real estate available to a larger number of investors.

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