Challenge

This off-market O’Reilly Auto Parts property is located by the prestigious University of Wisconsin-Madison and is near an abundance of major retailers. The corridor and investment-grade credit tenant made the property a viable asset for any investor looking for a pandemic-resilient net lease asset. In this off-market transaction, the Matthews agents represented the buyer. The seller was motivated to sell this asset after many years of management and a recent vacancy by a subtenant; however, O’Reilly Auto Parts still had a master lease for the entire building. The buyer, a developer for O’Reilly Auto Parts, was well-positioned to take on the risk associated with the property.

The seller wanted to sell this property and a mom-and-pop shop behind the property but separately parceled for $2.8 million. The Matthews agents knew that their clients would not want to be stuck with the mom-and-pop shop because the O’Reilly Auto Parts building was already a challenge on its own with a roof in poor condition and quoted at $160k to replace in addition to the low lease term remaining.

Strategy

Using previous and specialized knowledge, the deal team submitted an offer for the O’Reilly Auto Parts property on behalf of the seller for $2.8 million, without the mom-and-pop shop. This was the second best-placed offer, and the Matthews agents anticipated the offer coming back for renegotiation. They eventually made it to the purchase agreement only to find out the seller’s attorney convinced the seller to sell the property to a local buyer rather than the Matthews client.

Due to the previously failed escrows by the seller, the Matthews agents knew that this one wouldn’t be any different and let them know that the offer price would not be the same if they were to revisit the original offer. When the seller came back two weeks later, the Matthews agents renegotiated the price to $2.5 million, representing roughly an 8.50% cap rate. The deal moved forward at this price.

Results

The agents’ experience having closed 125+ transactions and the hyperactivity in the O’Reilly Auto Parts space helped deliver a “home-run” acquisition for the buyer. Despite the problems with the property, the buyer’s relationship with the tenant put them in a prime position to negotiate a favorable lease extension in the future. Furthermore, with the seller not willing to credit for the deferred maintenance on the roof, the agents were able to aid in finding a local roofer that was competitive and responsible. They found a professional roofer to complete the work for $75K, less than half the original roof report quote.

The biggest achievement is that the client acquired a rare off-market deal in an attractive market at a cap rate much higher than similar sales comparables.