The Wawa Net Lease Market

As a relative newcomer to the net lease market, Wawa convenient store gas stations are one of the hottest sought after triple net lease investment properties in the net lease market today. With an implied credit rating of BBB- / outlook Stable, most investors understand the credit-worthiness of
this privately owned company, which is considered one of the strongest convenient store operators in the country. In 2009, Wawa was ranked No. 55 in Forbes’ America’s Largest Private Companies list. Wawa currently operates more than 570 convenient stores throughout the mid-Atlantic, 270+ of which include gasMost Wawa net leases properties offer an investor long-term security and absolutely no management responsibilities in the form of a 20-year primary term nnn ground lease. These ground leases provide additional investment security given the nature of the real estate investment made by Wawa’s real estate team, including the Wawa Engineering and Construction Department which is responsible for the design, engineering and construction of all new stores and remodels. As with any ground lease investment, a landlord should be comforted by the fact that the tenant, in this case Wawa, has made a significant capital investment in the construction of the building, which at the end of the lease will become property of the ground lease owner.
Also driving the demand and value of Wawa net lease properties is the strong real estate fundamentals of the property sites. Wawa’s real estate team has specific site select criteria, which focus on key trade area location characteristics. Wawa net lease properties are typically located at signalized corners and out-parcel/pads of shopping centers with good visibility and ingress/egress. Ideal trade area characteristics include adequate population and minimum traffic counts of at least 25,000 vehicles per day. Sites should be located on high-volume intersections near other commercial traffic generators.

Wawa's namesake is a Native American word for the Canada Goose in flight, which is also incorporated into the company's logo. Wawa owns and operates convenience stores and gasoline stations in Pennsylvania, New Jersey, Delaware, Maryland, and Virginia. These stores offer a fresh food selection under the Wawa brand including deli products, wraps, breakfast sandwiches, bakery products, fresh produce, and dairy products. The first Wawa store opened in April 1964 in Folsom, Pennsylvania.

How to Beat the Taxman

How to Beat the Taxman don't pay any more than you have to James Brennan on 1031 Exchanges

WHAT ARE CLIENT’S CONSIDERATIONS WHEN SELECTING AN ENTITY TYPE TO HOLD TITLE TO REAL ESTATE?

BRENNAN:
Clients unfortunately default to an LLC for entity choice simply because of asset protection. However, when co-investing a Joint Member LLC creates exit strategy concerns as it can hamper one investor’s ability to properly structure a like-kind exchange. Clients need to carefully examine the structure that will house their real estate investment and contemplate the next investment assuming this investment is profitable.

WHAT TYPE OF STRUCTURING DO YOU SEE AT THE ACQUISITION AND DISPOSITION STAGES?

BRENNAN:
Often as a function of how real estate syndications are marketed, most General Partners or Developers use a GP/ LP approach to structuring the laddered returns both for limited partners and general partners. This structure is fine for economics and often yields the intended result with a properly drafted operating agreement. However, partnership interests are not eligible for exchange, so limited partners need to focus on real estate interests that are "deed-able" to make the interest conducive to like-kind exchange treatment.

Clients do not need to seek out a commercially packaged Tenant-in-Common deal to achieve these results, clients simply have to select a well-versed Sponsor and a CPA/tax attorney that can craft a win-win structure for both the limited partners and the general partner.

WHAT TYPE OF ESTATE PLANNING TECHNIQUES DO YOU SEE UTILIZED?

BRENNAN:
The $5 million and up net worth set gravitates mostly to a living trust at first as "Family Stewards" are looking to make managing assets easy for heirs, so a Revocable Living Trust gives the comfort that properties will funnel to the right place via contract and the Grantors (current property owners) do not have to sacrifice control of the assets currently.

In my opinion, clients do not pay adequate attention to estate taxes and how assets are titled. Real estate investors particularly tend to have a desire to control their investments; however, certain investments, such as triple net leases, lend themselves to estate planning and passivity.

Clients should really try to plan for both capital gains events and estate events. Unfortunately too much attention is put on deductions, current income, and economics of deals; however, clients face 25-50% in capital gains taxes upon disposition and upwards of 45-55% in estate taxes. This level of taxation will erode a substantial amount of the cash you will net from an investment when attempting to build real wealth.

WHAT PROPERTY TYPES ARE BEING SWAPPED?

BRENNAN:

Right now institutional investors and traditional buy-and-hold investors believe the market is improving- thus, why "sell in a soft market?". However, clients with low-basis property that have certain events (death, retirement, financial distress) are opting to conduct like-kind exchanges.

An example would be an apartment building investor retiring to Florida and swapping out of an Arlington Apartment building and buying a Walgreens NNN lease as replacement property. The client gets cashflow without the "toilets, tenants, and trash".

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