Strip Walgreens gets record $1,736 square foot

The Walgreens drugstore on the Strip has been sold for $27.8 million, or $1,736 a square foot, making it the highest price per square foot for a single-tenant leased drugstore in America, a broker for Marcus & Millichap in Las Vegas said.

The 16,000-square-foot standalone drugstore, built in 2001, is at the north end of the Strip between the Riviera and Wynn Las Vegas and is open 24 hours.

Similar pricing hasn't been achieved since January 2005, the height of the commercial real estate boom, when a drugstore in Miami was sold for $19.5 million, said Ray Germain, property investment specialist for Marcus & Millichap.

The only comparable transaction was a drugstore in Fort Myers, Fla., that sold for $1,466 a square foot in August, according to CoStar, an independent commercial real estate analytics firm.

Germain represented a local real estate investment partnership in the sale of Walgreens, and received multiple offers from investors around the world for this property. The buyer was a Israeli foreign fund set up as limited liability company. The property last sold for $12.2 million in 2004.

Investors will pay a premium for net-leased properties in excellent locations, given the scarcity of quality assets on the market, he said.

"There was a lot of interest, not from mom and pop selling an apartment and looking for an investment, but from REITs (real estate investment trusts) and foreign funds and institutional buyers," Germain said. "We had offers from a family in New York, Israel, Spain, China. The majority of offers were all cash."

The record-breaking sale price and competitive bidding speaks to the strength of the net-leased property sector, Germain said. Landlords have no obligation for expenses on net-leased properties, he said. The tenant pays all taxes, utilities, maintenance and repair costs.

"As the stock market continues to underperform, investors will flee to the safety of net-leased real estate assets," he said.

Walgreens had a 20-year lease on the Strip and extended it for 10 more years, showing the company's longterm commitment to the location and increasing asset value for the new owners, he said. The lease structure is rare for Walgreens in that it provides for 10 percent rent increases every 10 years in addition to a percentage rent clause, Germain noted.

After opening its first drugstore on the Strip in 2001, Walgreens opened three more Strip stores with the latest opening in February on the Strip and Harmon Avenue, across from CityCenter.

Walgreens is able to take advantage of heavy foot traffic from nearly 40 million visitors to Las Vegas every year, Germain said. The stores have also started selling beer and wine.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.