Analysis of Investments
Cedar Falls Grocery
GK Development Cedar Falls Grocery is an investment in a single tenant supermarket property which is operated by Hy-Vee. The property is located in Cedar Falls, Iowa. The property is located near the University of Northern Iowa and College Square Mall.
- Yr. 1 Cash-on-Cash 6.00%
- Initial Occupancy 100.00%
- Est. Time Horizon 10 years YEARS
- Current Cash Flow
- Yr. 1 Cap Rate to Investor 6.58%
- Investor Purchase Price $10,917,494
- Total Offering Size $5,076,122
The total loan is $5,841,372 and is from Bankers Trust. The loan is for a period of 10 years with no interest only period. Amortization is on a 25-year schedule. The interest rate has been hedged with a SWAP for an effective fixed rate of 4.530%.
- Yr. 1 DSCR 1.83
- Loan-to-Offering 53.50%
- Hold Period DSCR 1.9
Tenant Information & Lease Terms
"The investment only has one property that is leased to a single tenant.
Hy-Vee does not have an investment grade from the traditional credit rating agencies, however has a NAIC rating of 1, which is equivalent to a rating of A from Standard and Poor's or Moody's. Hy-Vee is a supermarket store that operates 240 stores in the Midwest. They have 78,000 employees and have annual sales of $8.7 Billion. The lease is NN with the landlord responsible for Common Area Maintenance. Rent escalations are scheduled every 5 years and there are extension options of 25 years in increments of 5 years each."
The property has a great location. It is situated on a major street that has a total traffic count of 12,100 cars per day. Population in the 5 mile radius is 79,189 but has limited growth potential projected until 2020.
The property is being purchased from an affiliated company at a price that is below appraised value according to a third party appraiser.
The tenant has a NAIC rating of 1, which is equivalent to an investment grade credit rating of A from Moody's or Standard and Poor's.
Key Risks to Consider
The sponsor owns the adjacent College Square Mall which is currently in foreclosure. This is a risk due to the sponsors track record in the area. According to the sponsor, the anchor tenant left which led to other tenants choosing to leave the property as well. The weak occupancy at College Square Mall could hurt the subjects ability to pull in cross traffic.
There are no reserves that are set aside for Capital Expenditures. This may become an issue should Hy-Vee not renew their lease. A new tenant would be hard to acquire without proper reserve accounts to pay for Tenant Improvements.
As the remaining lease falls below 10 years it may become more difficult to market the property and sell at a price that would allow investors to recover their capital. However, the sponsor may sell the property at any time during the hold period should it maximize the value for the investors.
Investment Sponsor Information
According to the sponsor's website: "GK Development, Inc. is a commercial real estate firm based in Barrington, Illinois. Guided by an experienced and tightly knit management team, GK Development acquires, develops, owns and operates a diversified portfolio of commercial and retail property across the United States. GK Development specializes in identifying the potential in smaller, niche markets that are in robust trade areas. To ensure the feasibility of target properties, we maintain strict underwriting standards for our acquisitions, focusing on those properties that are the dominant retail draw within their trade area."