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America’s Dollar-Store Showdown Comes Down to Real Estate

Dollar General, primarily situated in rural locales, is set for expansion, whereas Family Dollar, with a focus on urban areas, is poised to shutter hundreds of stores.

America's Dollar-Store Showdown Comes Down to Real Estate

Dollar General, primarily situated in rural locales, is set for expansion, whereas Family Dollar, with a focus on urban areas, is poised to shutter hundreds of stores.

Together with

Good morning. America’s two leading dollar-store chains are heading in opposite directions due to diverging real estate strategies. Meanwhile, occupancy rates at many senior communities, which fell during Covid-19 era, are back on the rise.

Today’s issue is brought to you by Xeal Energy—future-proof your properties with the #1 EV charger for real estate.

Market Snapshot

S&P 500
GSPC
5,243.77
Pct Chg:
-0.20%
FTSE NAREIT
FNER
728.92
Pct Chg:
-0.99%
10Y Treasury
TNX
4.339%
Pct Chg:
+0.01
SOFR
1-month
5.31%
Pct Chg:
0.0%

*Data as of 4/01/2024 market close.

RETAIL STRATEGY

America's Dollar-Store Showdown Comes Down to Real Estate

America's leading dollar stores are heading in different directions: Dollar General is expanding with 800 new stores, while Family Dollar plans to close 600.

The real estate strategy: Dollar General's growth strategy is aggressively rural, with plans to increase its store count to nearly 21,000. This expansion leverages the chain's dominance in areas with low competition and real estate costs, contributing to its impressive 31-year streak of growth. Dollar General's real estate occupancy costs are notably lower, by nearly a third, compared to those of Family Dollar, illustrating a leaner operational model.

Family Dollar's fight for viability: In contrast, Family Dollar's strategy involves closing stores primarily in urban and suburban areas, where competition is fierce and real estate costs are higher. These 600 closures are part of a larger turnaround plan that includes the eventual closure of an additional 400 stores. Despite this contraction, Family Dollar has seen comparative sales outperform Dollar General's in four of the last five quarters, signaling a potential pivot towards efficiency and quality over quantity.

The dollar economy: The broader dollar-store sector is on a growth trajectory, with dollar stores constituting over a quarter of all U.S. retail store openings in recent years. Dollar General alone has expanded from 5,000 stores in 2001 to 20,000, highlighting the sector's rapid development. Moreover, the combined annual revenues of Dollar General and Dollar Tree are projected to reach $83.1 billion by 2027, marking a nearly 26% increase from 2022, according to Coresight Research and S&P Global Market Intelligence.

➥ THE TAKEAWAY 

Big picture: Originally thriving in rural and suburban areas with minimal competition, dollar stores faced increased challenges and competition following their expansion into suburban markets, particularly affecting Family Dollar. Despite these hurdles, including inflation and changes in government aid, the sector's growth underscores the continuous demand for affordable household essentials among lower-income consumers. The

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✍️ Editor’s Picks

  • Loan modifications: In 2023, loan modifications more than doubled from 2022, and there are predictions of a continued increase amidst $210 billion in 2024 maturities.

  • Patience: Carlyle eyes major net lease portfolio after a "modest" $100 million transaction streak in the previous year.

  • Unemployment: California leads the continental U.S. in unemployment rates, prompting speculation about potential trends in other states amid labor market slowdowns.

  • Last mile inflation: Persistently high inflation in the U.S. and Europe challenges central bankers and raises questions about global economic optimism.

  • Get it while you can: Companies are hurrying to fulfill their financing requirements prior to the upcoming US election, aiming to preempt potential market turbulence.

🏘️ MULTIFAMILY

  • Policy update: The Biden administration plans to introduce a rent increase cap for federally subsidized affordable housing units.

  • Under pressure: Elevated interest rates and operational costs strain rental housing availability and affordability nationwide.

  • Polarizing policy: A year after its implementation, Los Angeles' "mansion tax" remains a contentious issue.

  • Luxury lull: Manhattan's luxury real estate hits a three-year low in March, with a notable decrease in high-end contract signings.

  • Risk premiums: After a flat period, apartment deals in 2021 and 2022 reintroduce risk premiums regardless of property age.

  • Financing: Transcontinental Realty secures a $25.4M construction loan for the Merano multifamily development in McKinney, with a prime + 0.25% interest rate and a 2028 maturity date.

🏭 Industrial

  • On the rise: Silicon Valley, Northern Virginia, and Chicago, data center asking rents are near peak levels amid strong demand outpacing supply, echoing 2010-2011 highs.

  • Industrial expansion: Brennan Investment Group breaks ground on a 393,796-square-foot Class A industrial facility in Laredo, Texas, and plans to complete it by December 2024.

  • Market entry: Denholtz Properties, an out-of-state developer, acquires an industrial campus in the Austin-San Antonio corridor, marking its first venture into Texas.

🏬 RETAIL

  • Building an empire: Jeff Sutton, from camera business fallout to "King of Retail," built a multi-billion dollar real estate legacy with strategic Fifth Avenue deals.

  • Community call: Chicago TREND encourages Roseland locals to invest in a strip mall, offering stakes for as low as $1,000, following successful property acquisitions in Baltimore with city support.

  • Bondholders: Woodbridge Center in New Jersey, a 1.7 million-square-foot mall formerly managed by Brookfield, sells at a significant loss for $70.4 million.

🏢 OFFICE

  • Urban opportunity: San Francisco clinches a deal for a discounted lease and purchase option on the mostly vacant 1145 Market Street, positioning itself as a key tenant to rejuvenate the area.

  • Optimistic bet: EW Capital Management seeks a visionary investor for a 1 MSF tower project near Grand Central, with a $300-$350 million asking price for the existing property at 250 Park Avenue.

  • Leasing slump: Manhattan's office leasing drops nearly 25% in the first quarter, with only a few submarkets nearing pre-pandemic activity levels, reports Colliers.

SENIOR LIVING

Rising Rents and Occupancy Highlight Senior Housings Comeback Story

The senior housing market is rebounding post-COVID, exceeding investor expectations as occupancy and rents rise amid an aging baby boomer influx.

Recovery: The pandemic led to a spike in vacancies due to increased fatalities and isolation among seniors. However, the industry is bouncing back, with occupancy rates nearing pre-pandemic levels. The National Investment Center for Seniors Housing & Care (NIC) reports a rise from a low of 77.8% during the pandemic to 85.1% in late 2023, although this is still slightly below the early 2020 figures. Rent increases are also outpacing inflation, suggesting a strong recovery.

Challenges ahead: Despite the positive trends, senior housing owners face hurdles, including staffing shortages and the impact of high-interest rates on property values. Additionally, the demand for independent living units remains weak as many seniors prefer to age in place, supported by advancements in healthcare and technology.

➥ THE TAKEAWAY 

Looking ahead: The aging population represents a significant opportunity for the senior housing market, with Americans aged 65 and older expected to make up 21% of the U.S. population by 2030. The sector anticipates a demand-supply imbalance, potentially attracting more investors. Companies like Ventas are already planning acquisitions, signaling confidence in the market's growth.

📈 CHART OF THE DAY

Here’s how many multifamily markets have seen value declines over the last 20 years.

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