If you want to plunge into the commercial real estate market and enjoy substantial returns, it’ll be best to consider triple-net properties. Why? These investments are hands-free and will yield the passive income you desire.
Most triple-net leases revolve around revered franchises like Circle K, Arby’s, and Starbucks. These entities have an excellent credit rating and a great cap rate. Additionally, you won’t need to perform landlord responsibilities on these properties. Here, the tenant takes care of every expense. Sounds good, right?
But there’s more. If you’d like to make your investment worthwhile, you’ll need to understand the do’s and don’ts alongside other requirements of the franchise you want to attract to your triple-net property.
This guide focuses on CVS Stores real estate requirements, how they select their sites, and their average lease rates. The latter parts of this article will also show if a CVS property is the right fit for your finances and real estate portfolio.
Ready? Let’s dive in!
A Brief Overview of CVS
Consumer Value Stores (AKA CVS) was established in 1963 by Sydney Goldstein, Stanley Goldstein, and Ralph Hoagland. The business first started as a chain of beauty and health aid stores. However, it expanded a few years later, adding pharmacies to its résumé. To extend its influence even further, CVS joined forces with Melville Corporation — a company that oversaw many retail stores.
Following mind-boggling growth in the 1980s and 90s, CVS Corporation detached itself from Melville in 1996 to become an independent firm trading on the New York Stock Exchange (NYSE) as CVS.
In 2007, CVS merged with Caremark Rx Inc., creating CVS Caremark. However, in 2014, CVS Caremark tweaked its name to CVS Health after announcing the discontinuation of tobacco-based products in stores nationwide.
CVS Health is a healthcare company with several subsidiaries. Notable mentions include CVS Pharmacy (retail pharmacy chain), Aetna (health insurance service), and CVS Caremark (pharmacy benefits manager).
With its base of operations in Woonsocket, Rhode Island, CVS has over 9,939 stores in the United States. However, we expect the profit-driven entity to seek ways to set up shop in more locations as time passes.
Notable Considerations for CVS Site Selection
According to a 2020 report, CVS announced an 80.1 million square feet retail portfolio featuring 8,115 stores. Of this number, the company affirmed that it owned just 405 and leased the rest as a tenant.
Whether owned or under a lease agreement, CVS properties aren’t just positioned anywhere. The company has a unique set of guidelines that determines where it opens shop for patrons.
Some significant factors considered by CVS Health when choosing store locations include:
Spacious Parking Lot
Parking spaces are crucial to the success of a CVS store. Nobody wants to park their vehicles miles away to buy drugs from a CVS Pharmacy. With most patrons seeking ease and comfort, CVS demands a location with a dedicated and spacious parking lot that’ll seamlessly accommodate 60 or more cars.
The franchise also expects parking lots to be well-segmented. Customers should be able to get in and out of the store’s parking lot without encountering avoidable traffic.
High Traffic Area
A high-traffic area offers a revered healthcare service provider like CVS more patronage. It’s a no-brainer — when there’s CVS Pharmacy signage at a busy intersection, passersby with medical needs will most likely patronize the store as they’re revered for high-quality medications.
With this in mind, CVS Health ensures that all stores are strategically located in a high-traffic area that witnesses increased foot and vehicular traffic. As an NNN investor looking to attract CVS as a tenant, keying into a property in a busy place is recommended.
Population
No business wants to kick-start operations in an area with low population density. Although population projections for that vicinity highlight an upward trend in the coming years, conducting business in a sparsely-populated area will result in astronomic losses.
CVS Health is a profit-oriented company providing healthcare services. Since a higher population translates to more demand, the company favors densely-populated areas featuring numerous households with different requirements.
As specified by CVS Pharmacy Realty, a potential store is one in a trade area featuring at least 18,000 individuals.
Freestanding Sites With Drive-Thru Capability
When looking for a location to pitch its offerings, CVS favors freestanding sites. Freestanding buildings aren’t attached to a mall or shopping center. The healthcare service prefers these net lease properties because they ward off immediate competition.
But that’s not all:
Once the company finds a freestanding site of interest, it validates the location’s drive-thru pharmacy capability. This section’s availability means patrons can grab essentials without leaving their vehicles. With this “one-stop shop” setting, customers are bound to return due to the convenience.
CVS Health requires freestanding sites with drive-thrus to be on a land mass measuring 1.5 to 2.0 acres.
Average CVS Stores Lease Rates
CVS Health is a sought-after tenant by net lease investors. Why? Because pharmacies qualify for essential retail use. Additionally, CVS Stores are centrally located in areas with a high influx of commercial activities, such as alluring corner lots and signalized intersections.
With baby boomers and senior citizens rising proportionately within the country, CVS Health and its subsidiaries have blossomed in the retail pharmacy market.
As such, they’re invariably developing ROI-yielding real estate possibilities for individuals who invest in net lease properties. According to multiple reports, CVS Health’s statistical sales are approximately $840 per square foot. This value exceeds the $680 average hosted by the entity’s major competitors like Walgreens.
With these amounts, CVS properties are deemed low-risk investments with marketable value. Additionally, CVS Health has a robust corporate guarantee, meaning they’ll take up financial responsibilities without hassles.
CVS Health has signed numerous NN and NNN leasing agreements in the last decade. However, in the early days, NN contracts were prevalent. With this lease structure, rent escalations take precedence every five years. This agreement also ensures landlords settle property-related expenses like parking, landscaping, roofing, and slight structural renovations.
But in recent times, NNN or triple-net leases reign supreme. Here, flat rental rates are charged. However, the most incentivizing aspect of this agreement is that NNN property investors don’t shoulder any landlord responsibilities whatsoever. Once they’ve signed the triple-net lease deal with the tenant, they sit back and wait for annual rent checks.
Typically, the CVS Health franchise signs long-term NNN leases reaching 25 years. The rent escalations on this agreement aren’t definite (hovers around five to six years). CVS net leases also have a 4.80% average cap rate and an average sales price of $6,000,000.
NNN leases typically have termination clauses. Although this might be scary for the investor, CVS Health is a popular healthcare service in the United States. If they hit their revenue targets on your property, they’ll most likely see their triple-net lease agreement through and renew accordingly.
Is CVS a Good Investment?
No investment is 100% certain. However, CVS Health runs a chain of profitable subsidiaries, most notably CVS Pharmacy. With stores at the best real estate locations, CVS Health is a revenue-generating machine. In 2022, the conglomerate made $322.5 billion across its foundational businesses — exceeding the previous year’s value by 10.4%.
CVS Health has a solid corporate guarantee. As such, they’ve got the financial strength to sign long-term lease contracts reaching 25 years. And if the business generates the intended profits within this timeline, they’d most likely renew.
When kick-starting a lease contract with a top-tier client like CVS Health, keying into an NNN agreement is advised. That way, you have zero landlord responsibilities, and whatever requires financing on the property is facilitated and paid for by CVS Health (the tenant). As an investor, just rest easy and wait on those annual checks per your leasing agreement.
Investors will also benefit from CVS Health’s brand recognition. For context, subsidiaries like CVS Pharmacy have become the go-to for individuals seeking high-quality medications. To date, the entity has remained committed to delivering top-notch services. As such, customers will arrive in droves when a CVS subsidiary commences operations on your NNN property.
CVS Health properties feature an average cap rate of 4.80%. However, this percentage can rise to over 6% in locations tallying the company’s site selection requirements to the “T.”
Acquire a Profit-Yielding CVS Health Property With NNN Deal Finder in Charge
Triple net lease properties are “cash cows,” especially when you’ve got a high-profile tenant like CVS Health. But there’s one aspect most investors find challenging — getting started. To kick-start an NNN lease with CVS, you’d need a top-tier real estate team in your corner.
By engaging the services of NNN Deal Finder, you’ll have a real estate team ready to go the extra mile in pointing you towards a property that’ll suit your triple-net lease endeavors with reputable tenants like CVS Health, Starbucks, and Circle K.
With us in your corner, you can diversify your portfolio with NNN properties and make astronomic ROIs while at it. Contact us today to discuss CVS Stores real estate requirements and discover the opportunities they hold for investment!