Case Study 2: La Quinta, CA Retail Building

This property was acquired during the height of the pandemic in February of 2021, a period of lockdowns and heightened fear caused by the COVID19 pandemic. Many retail businesses suffered greatly during this period. Tenants sought and were given relief in the form of payment amnesties due to the fact that they could not operate during this period, however Lessor often had trouble collecting subsequently. 
For this reason, many retail properties of all types, sizes and locations became untouchable. 
While others saw nothing but risk, we saw nothing but potential upside. 
Several factors made this an attractive investment during a bleak macro environment: 

• Solid Tenant – The property was on a triple net lease to a chain of thrift stores operated by a large non-profit with a >50 year history. This is no ordinary non-profit, it is well capitalized and brings in well over $30m a year between contributions and sales at the thrift stores. The store was renovated to fit their needs and had a dedicated setup with a loading dock for donations and donation processing.
• Essential Business – As a thrift store, it was deemed an essential business, and therefore not subject to lockdown. The thrift store was actually thriving during the pandemic, as homebound donors cleared out their houses for additional space with additional donations, and bargain hunters sought to save money during an uncertain economy. 
• No Rent Stoppage – the tenant had never stopped paying rent during the pandemic – there was no need to…their business was as solid as ever. 
• Desirable Location – The town of La Quinta is in Riverside County, and is home to the most golf courses per capita in the area. With baby boomers retiring in droves during the pandemic, a flight to safer harbors away from more populated and expensive areas meant La Quinta was an easy retirement spot for warmth, more affordable newer development housing and an overall greater standard of living than much of California. 

An all-cash deal, we were able to secure almost a 10% discount on the property and closed within 30 days. The tenant had recently signed a lease extension for another 5 years with 3% annual increases, and has an option for 2 more. The property is visited regularly and the business is still thriving. 

Our investment thesis for this property is to hold on to this property currently until the lease is renewed in late 2024 and then consider a path forward. 

The property and the surrounding areas saw a resurgence in demand as lockdowns ended. Similar properties have sold for over 30%-40% greater than our acquisition cost. Between the ultimate appreciation in value and the solid cap rate it pays on an ongoing basis, this property is set to generate an annual yield of over 20%.