When we could not lease the vacancy, we stopped looking at it as a vacancy.
The Setup
We had a vacant freestanding Rite Aid at a shopping center we eventually planned to sell. The initial plan was obvious: find another tenant for the box.
We tried, but the right tenant never materialized.
So we moved to Plan B: subdivide the building into multiple spaces, generate higher rents per square foot, and create more NOI. We worked through the design, but the configuration made it difficult to maximize the leasable square footage. By the time we accounted for the construction costs and achievable rents, the math was not compelling.
The building remained vacant, creating a larger problem. We had always planned to sell the shopping center, but without meaningful NOI coming from the freestanding pad, we were not going to generate the exit value we needed from that part of the property.
We needed another idea.
The Twist
Dollar Tree was already operating at the shopping center. It was a strong merchant with good credit, but something else about the retailer caught our attention: the flexibility of its real estate strategy.
Dollar Tree could operate in a traditional shopping center, an unanchored strip center, or a freestanding building. And freestanding locations backed by its credit traded well in the net lease investment market.
That got us thinking: Maybe the solution to the vacant building was already at the property.
We called Dollar Tree and asked whether they would consider relocating into the former Rite Aid. Their answer was straightforward: They would, if we could make the economics work.
So could we. But we needed one thing—a true triple net lease.
They agreed, and the math started to change.
The Curveball
We were not going to get the rent Rite Aid had been paying. Normally, that would sound like a step backward. But rent was only one part of the equation.
We were creating a freestanding, triple-net-leased building backed by Dollar Tree’s strong national credit. That building could be sold separately into the net lease market. When we evaluated the asset through that lens, its projected sale price was equal to or greater than the exit value we had originally expected that portion of the property to generate.
We had potentially solved the vacant building. But we had also created another vacancy.
Relocating Dollar Tree meant getting its existing space back in the main shopping center. Some might look at that and say we were simply moving the problem from one part of the property to another.
We saw it differently.
Dollar Tree’s existing location was good space, and the rent it was paying was below what we believed the market would support. If we could backfill the space at a higher rent, we could create value on both sides of the move.
The Decision
There was one condition: We were not relocating Dollar Tree until we had its current space covered.
Fortunately, we knew the market. We had been talking with Citi Trends, a national off-price retailer that wanted to be at the property. We had simply never had the right space available.
Now we did.
Citi Trends was interested, and suddenly the pieces began fitting together:
- Dollar Tree would relocate into the vacant freestanding Rite Aid under a triple net lease.
- Citi Trends would take Dollar Tree’s former space in the shopping center.
- We could sell the freestanding Dollar Tree separately from the balance of the property.
We worked both leases simultaneously. In short order, both were signed.
The Outcome
Dollar Tree relocated. Citi Trends backfilled its former space. We took the freestanding Dollar Tree to market and sold it separately. Eventually, we sold the balance of the shopping center as well.
What began as a stubborn vacancy became two transactions and a better exit.
We did not create value by finally finding a tenant willing to take the former Rite Aid. We created value by changing how the pieces of the property fit together.
Lessons Learned
Know how your tenants use real estate. A retailer is not necessarily tied to one format. Understanding where and how a tenant can operate may reveal opportunities that remain invisible when you only look at the rent roll.
Know how capital values the lease. Rent matters, but so do credit, lease structure, and the available buyer pool. Sometimes lower rent in the right structure creates more real estate value than higher rent in the wrong one.
Never stop leasing a full shopping center. If we had stopped talking to retailers because we did not have a vacancy, we would not have known Citi Trends could backfill the space created by the Dollar Tree relocation.
Operational knowledge creates options. Leasing, construction, subdivision, tenant strategy, and capital markets all mattered in this deal. None of them would have solved the problem independently.
Closing Thought
The breakthrough came when we stopped treating the vacancy as an isolated problem. The tenant we needed was already at the property. Its replacement was already in our pipeline. And the buyer for the freestanding asset existed in a different part of the capital markets.
The value was there. We just had to rearrange the pieces to unlock it.
Sometimes making it pencil is not about finding a better piece.
It is about seeing the whole board.
—Chris
Making it Pencil is Chris Ressa’s monthly newsletter on LinkedIn. Click here to subscribe.
