Spring 2023 Due Diligence Event In The Books
InCommercial hosted its 1st off-site due diligence event in Scottsdale, AZ and it was a huge success!
KICKING OFF THE EVENT
Even with the unexpected rainy weather, our unwavering leader, Erik Conrad, took a group of diehard hikers for a great trek up Camelback Mountain to kick off the event. The group hiked up the Echo Canyon Trail and made sure to check out the Hidden Cave about 0.8 miles up the trail. It was cloudy but the group was still able to take in some amazing views. Those out opted out of the hike enjoyed lunch and a meet and greet with the rest of the InCommercial team.
Presenters covered topics from real estate market insights, investment philosophies and the impact of the tax code on various investment strategies. The expert panel provided insights on challenges they have overcome to be more successful in today’s market and the benefits of having a development partner, like InCommercial. Last but not least, an entertaining and educational video presentation was also played showing the importance of properties to their respective communities.
DINNER, NETWORKING & BASEBALL
It’s not all work and no play. The group enjoyed a lovely evening outside at the resort for cocktails, dinner, and networking. Another excursion included visiting the Salt River Fields to watch a spring training ballgame.
Thank you to all the attendees, expert panelists, and presenters – your presence made our event great. Spending time with knowledgeable industry professionals, having thought provoking conversations, and making meaningful connections was priceless.
Kudos to the InCommercial team who made it all happen! Tiffany Fraley, JoAnn Saguto, Karla Lombardi, CPA, Michael Woldman, Meggie Jenkins, and Angela Gallik.
Big thanks to the staff at The Scottsdale Plaza Resort & Villas, who went above and beyond to support our team and made our guests feel special and taken care of.
InCommercial Capital: Pulling the Levers of Real Estate Solutions
An Interview with Restaurant Finance Monitor
Both Wes Staples and Marc Barber like solving the capital puzzle for restaurant operators. “It sounds nerdy, but one of the fun things about this job is solving capital issues,” said Staples. “How do we pull the levers of what is going to work for restaurant developers? How can everyone win and make money from deals?”
Indeed, that’s what makes Barber’s day, too: “How do we use our money to help you grow?” Barber is managing broker and Staples is vice president with InCommercial Property Group, a firm “focused on providing real estate capital for growing restaurant companies,” Barber reported. The company was started by real estate executive Erik Conrad in 2003, who launched the commercial brokerage with an SBA loan (West Town Realty). Today, they own or manage over 300 properties, mostly net leased.
As they’ve grown, they have increased the number of services they provide to single-tenant retail operators, including restaurants. Those solutions include:
• Joint Venture Equity
• Preferred Equity
• Mezzanine Debt
• Recapitalization/Sale of Partnership Interest
For the following services, InCommercial doesn’t directly provide them, but can arrange for their clients:
• Credit Facilities
• Permanent and Term Loans
• Construction Loans
“We have found that many of our competitors need clients to fit into their box,” said Barber. “We’re not focused on that. We’re working with our clients to tailor-make solutions to address their pain points” in the real estate process.
He finds most failures for restaurant developers happen early in the process, a place where InCommercial jumps in.
“As an operator you often have that first outlay of capital and you don’t get it back,” he explained. “We can provide capital to close on the land, or for construction, quickly.”
In fact, “we can contribute up to 100 percent of the capital stack,” Staples said.
They are also keen to provide sale/leaseback financing to multi-unit restaurant operators. “We feel like that’s a great way to monetize the real estate for the most value,” said Barber.
They target restaurant operators with more than 20 locations, with financing needs ranging from $1 million to $60 million. And, their term sheets are “friendly,” Barber explained. “Our term sheets aren’t overly onerous. We are putting together terms that don’t include points, for example. Our lending costs are market, or better-than market.”
Plus, while they work in large DMAs, they aren’t afraid to own locations in tertiary markets, either.
“Because we’ve owned in tertiary markets before, we can be comfortable with some of those other brands” other real estate companies aren’t, said Barber. “We think there is an opportunity gap in some of the smaller markets because they get ignored sometimes. Everyone needs to eat, and when the market has only a couple of options, you can get a bigger share of that market.”
For more information, contact Marc Barber at firstname.lastname@example.org, or at (916) 717-2079.
Why Dollar General is Poised to Thrive in a High-Inflation Environment
Inflation – surely a leading candidate for Merriam-Webster’s word of the year. It hides in plain sight and spares few. Businesses as well as consumers are struggling to adjust however some are better positioned than others to weather the storm. Below we explore three primary reasons why Dollar General will find itself in the winner’s category comparative to other notable retailers.
1) CONSUMER BEHAVIOR
As the largest discount retailer in the US by unit count, Dollar General serves demographics most effected by inflationary concerns. Of the 18,000+ Dollar General locations, the vast majority are strategically located in rural communities’ home to fewer than 20,000 and possessing limited retail options. As purchasing power wanes and fears of recession loom, discretionary spending is expected to drop at a greater rate than everyday essentials and consumables – something reflected in Dollar General’s product offerings.
While the Fed may be making the headlines, the consumer is facing the noise on the frontlines and corporate earnings reports have already begun to identify these shifts in consumer behavior. Illustrating this point, Dollar General CEO, Todd Vasos recently told analysts, “We’re already starting to see our core customers start to shop more intentionally.” He added, “Once that gas price reaches over $4 a gallon, which it has now, that we normally see the consumers stay closer to home, which bodes very well for that value and convenient message that we have out there for our core consumer.”
Lower price points, extreme proximity to consumers, and limited geographic competition continue to prove a massive competitive advantage for Dollar General – something Wall Street and Main Street agree on.
2) GROWTH – Opportunistic & Strategic
Logically, smaller price points create greater vulnerability when downward pressure on profit margins are experienced however Dollar General has pursued several new, expansionary business lines that aim to combat this and further fortify revenues.
Dollar General has recently introduced DG Market and pOpshelf to the market – two store concepts with increased store footprints, merchandise mix, and price points. By improving grocer offerings (both perishable and dry goods) via its DG Fresh rollout along with non-consumables, Dollar General is targeting an expanded demographic and consumer base.
Another expansion initiative Dollar General has identified is, healthcare. Vasos estimates 65% of all Dollar General stores are located within healthcare “deserts”. On the heels of CVS announcing the planned closures of 900 stores, Dollar General is uniquely positioned to challenge for market share by undercutting on price for over-the-counter products which enjoy higher margins than perishables.
These new initiatives are designed to supplement existing expansion plans as Dollar General leads all retailers in planned store openings with 1,102 slated for 2022 (10 of which planned to open in Mexico, representing the company’s first international expansion plans), with an additional 1,750 stores slated for remodels. These ambitions sit in stark contrast to only 25 announced closures. Meanwhile, Dollar General has targeted 1,000 pOpshelf locations by 2025.
3) EXPENSE MANAGEMENT
Look no further than recent earnings misses by other prominent retailers – most notably Walmart and Target – as prime examples of the significant headwinds retailers are currently facing. Dollar General has leveraged several key strategies to outperform.
First, Dollar General has displayed superior inventory management. The company’s increased emphasis on their private label goods has provided ideal optionality. Private labeling offers the company increased flexibility in consumable sizing, allowing reductions in size and/or volume offerings as pricing increases, effectively maintaining margins.
Vasos further outlined the importance of such flexibility. “Tougher times for the consumer normally means that she needs us more, and we normally start to see a trade-down once that occurs … that value and convenience really attract that trade-in, trade-down customer.” This also allows Dollar General to adjust to changes in consumer spending patterns and tweak product mix quicker. In aggregate, this decreases the need for price markdowns aimed at increasing inventory turnover which reduces both gross profit and profit margin.
Second, Dollar General has increasingly invested in technology expenditures to lower overhead. Self-checkouts have been added to 8,000 stores, nearly half of all corporate units. A small subset of these have been designed exclusively as self-checkout locations with zero employee-manned cashiers. These investments have effectively lowered the company’s reoccurring overhead and decreased its reliability on the increasingly fickle employment market.
Lastly, Dollar General has placed an emphasis on logistic infrastructure investment. Dollar General claims 75 percent of the US population currently lives within five miles of a Dollar General store presenting a staggering logistical undertaking. This requires the company to operate 28 traditional and DG Fresh distribution centers. To service their 18,000+ stores across 47 States, Dollar General has more than doubled their private fleet since 2021, accounting for approximately 40% of all outbound transpiration – a huge competitive advantage.
We’ve explored how Dollar General has positioned itself to weather the storm but more importantly, the numbers don’t lie. As reported by CNBC’s Melissa Repko, “Dollar General said it expects net sales growth of about 10% to 10.5% compared with its previous expectation of about 10%. It raised its same-store sales forecast to growth of approximately 3% to 3.5% compared with its previous expectation of 2.5%.”
These forecasts suggest the company should outpace inflationary concerns and outperform fellow retailers. It’s not hard to imagine Dollar General becoming a real winner of the post-pandemic retailscape.
Jon Hegwood is a Portfolio Manager with InCommercial Property Group.
Read the ConnectCRE article here: https://bit.ly/3bbWwsU