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CONVENIENCE RULES: 7-Eleven, Others in Convenience Category Proving Resilient Through Recession

7-Eleven Growing Aggressively, but Entire Industry Proving More Resilient and Active than Most Retail Segments in this Recession
June 24, 2009
An Example of an "Urban Walk-Up" 7-Eleven Store
An Example of an "Urban Walk-Up" 7-Eleven Store
The convenience store / gas station category have been an unsung hero in the current retail real estate landscape, proving to be more recession-resistant than most other retail property types, even continuing to expand and account for a significant amount of sale and lease transaction activity across the nation.

CoStar Group currently tracks more than 23,300 convenience store / service station properties across the country totaling 69 million square feet of building area (average building size is about 3,000 square feet) that are typically located on highly visible acres of land situated on high-traffic corners.


Dallas-based 7-Eleven boasts the nation's largest network of stand-alone convenience stores, with about 7,800 stores in North America. Daniel Porter, 7-Eleven's vice president of real estate told CoStar that the convenience store industry is more stable and has been more active in sale and lease transactions than most other property types because, "people need and want convenience." He added that the low price point and accessibility of products, such as freshly prepared foods and a variety of beverages, as well as the necessity factor of gasoline, keep this retail segment more recession-resistant.

Following the opening of 170 new 7-Eleven stores in the U.S. last year, the company recently announced an aggressive expansion plan to open 200 new stores in 2009, 275 in 2010, and nearly 400 in 2011.

Where is 7-Eleven expanding? "We have aggressive expansion plans in: New York metro, Northern NJ, Washington DC-Baltimore, Hampton Roads, Tampa-St Pete, Orlando, Miami, Dallas-Fort Worth, Denver, SLC, Seattle, San Francisco Bay-Sacramento, Los Angeles, and San Diego," said Porter, explaining that these high population density markets are generally geographies where 7-Eleven already has significant market share, strong store performance, and additional demand for 7-Eleven stores.

While 7-Eleven's competitors typical limit their selection of sites to freestanding buildings on high-traffic corners where gasoline could be sold, 7-Eleven is considering a much wider variety of sites; from the standard freestanding stores, to urban street locations and end-caps of shopping centers. Additionally, Porter emphasized that 7-Eleven is actively seeking opportunities where it can become a key tenant in the redevelopment of a center or revitalization of a specific area.

Porter described 7-Eleven's general site criteria, "We are looking for strong retail properties located on signalized intersections with excellent access, visibility, maneuverability and front parking. We are looking for 2,000 to 3,000-square-foot retail spaces in strip centers or free standing buildings with front nose-in parking capability. We prefer strong population density of 3,000 within one half mile." For 7-Eleven's detailed site criteria for different property type scenarios, click here.

This flexibility, as well as its aggressive expansion plan, has 7-Eleven quickly becoming a tenant targeted by landlord representatives across the country as a viable candidate that could backfill vacated stores. Also fueling this interest is that 7-Eleven is a high-credit tenant; which is a factor that its landlords enjoy even when a franchisee is involved. Porter explained that in most situations, 7-Eleven executes all store leases, even if the stores are run by a franchisee -- which is non-typical for the franchise industry.

On lease terms, Porter said that generally, landlords seem more willing to negotiate shorter lease terms for the industry, but 7-Eleven chooses not to go that path, preferring to sign a minimum of a 10-year lease. However, landlords have "been very receptive to working with us on tenant improvement allowances and finish-out work, as well as offering us free rent for a period of time to get the store up and running," said Porter.

In an example of a lease 7-Eleven signed in an urban location, Robert K. Futterman & Associates (RKF) announced on June 24 that it represented 7-Eleven in the execution of a 2,500-square-foot lease for its sixth Manhattan convenience store at 103 West 14th Street. The property, which was recently renovated, has a bus and subway stop right in front of it and is located on a stretch of 14th Street that connects Union Square to Chelsea and the Meatpacking District. Neighboring retailers include Urban Outfitters, Levi's, Guitar Center, LensCrafters, Pinkberry, Payless ShoeSource, Red Mango, Wet Seal, Staples and Chipotle.


According to a search of existing convenience stores and service stations using CoStar Property Analytics, this property type has bucked the trend of increasing vacancy that most other retail property types have been suffering from since this recession started.

The current total vacancy rate at the nation's convenience stores and service stations has been improving consistently for the last three years -- from 6.1% in third quarter 2006 to the current rate of only 2.8% vacancy. Note, however, that space advertised as "available", but not vacant, tacks on another 3.5 million square feet, for a total availability rate of five percent.

For a point of reference establishing the stability of convenience / gas properties compared to other retail property types: Over the same period of time, the vacancy rate at the nation's neighborhood and community shopping centers has increased from 7.6% to the current rate of 10.1 percent.

Porter pointed out that the convenience / gas industry contains just a few national / regional operators and the majority of the industry is comprised of independent operators and franchisees. The large operators' brands have been growing primarily through acquisitions or franchisees converting to different brands.

Therefore, the industry is so fragmented that actual new unit growth contributing to retail real estate expansion is very hard to track. Also consider that this segment of retailing (particularly combo convenience / gas stations, not stand-alone convenience stores, 7-Eleven said) is pretty well built-out, with convenience / gas stations populating several corners in most cities. Porter said that many regional operators are choosing to grow much slower, and in much smaller markets, than 7-Eleven is.

Having said this, since second quarter 2008, CoStar Property Analytics has recorded the addition of 200 net new convenience store / gas station properties. Note that this number does not include convenience stores leasing space within shopping centers, which has been a major new unit growth area for 7-Eleven.

7-Eleven said that about 50% of its new stores would be opened under its business conversion program. In this scenario, an existing business, whether it is a bakery or a convenience store operating under a different banner, converts its business into a 7-Eleven franchise. While this program generally won't result in vacant property being back-filled, it may result in 7-Eleven signing new leases with landlords.

While most freestanding convenience stores and gas stations are owned, those that do lease have enjoyed declining average asking rental rates. Since hitting a high of $24.44 per square foot in second quarter 2008, the average asking rental rate on convenience store or service station buildings has decreased 11% to the current rate of $21.89 per square foot.

Porter said that in general, 7-Eleven is experiencing landlords increasing willingness to negotiate, which is resulting in more favorable rental rates and lease terms for the convenience store operator.

"We have seen a decline in lease rents anywhere from flat to 35% down, depending on the individual market," said Porter, adding that a few of the “coast” markets, such as Washington D.C. and parts of Southern California, "have been a bit more insulated."

In a related matter, 7-Eleven announced in May that it hired CB Richard Ellis to review its real estate portfolio in certain key markets to determine "market rent" and assist 7-Eleven in renegotiating leases. Porter said that so far, this process is "going well and we're finding that landlords are being very receptive" -- both in the form of temporary rent relief and complete lease restructures.

A search in CoStar COMPS of convenience store and service station properties that have sold over the last year reveals that this is one of the only retail property segments that has kept a strong pace of sale transaction activity going throughout the recession.

For example, over the last year, CoStar has recorded 1,651 sale transactions involving convenience store / service station properties (298 so far in 2nd quarter), while only 842 sale transactions involving any type of shopping center have been recorded.

Porter explained a major reason that sales transactions have kept up pace in this market, "Many of the major oil companies made the decision to exit the retail convenience market; so they're selling off properties to fuel distributors and independent retailers to focus more on refining the supply and distribution side of the fuel business. Most deals carry a stipulation that the buyer must continue to sell their products," he said. For briefs involving a number of large portfolio deals that fit this description, click here.

Over the course of the last year, the metrics of convenience / service station property sales transactions have weakened, but not as drastically as most other retail property types. Over the last year, the average sale price / asking price ratio has declined from 84.3% to 79.4%; the average sale price per square foot has declined only 5% to $346.08 per square foot; the average cap rate has increased from 7.95% to 8.49%; and the average time spent on the market for sale has increased from 269 days to 377 days.

"We've seen a slight decline on the sales price of properties over the past six to eight months and that is expected to continue throughout the rest of the year, but it probably hasn't been as much of a decline as some of the rest of the industry," commented Porter. On cap rate trends in this segment, Porter added, "In most markets, we're seeing cap rates up 1.0-1.5 points; and up to 2.0 points in some markets where we do deals."


Jack-in-the-Box Secures Unidentified Buyer for its Quick Stuff Stores
Fast food operator, San Diego-based Jack in the Box Inc. (NYSE: JBX), announced a plan last October to exit its convenience store business by selling its chain of 61 Quick Stuff convenience / gas stations. Now, nearly eight months later, Jack-in-the-Box has secured a buyer. Last week, the company entered into a purchase agreement with an unidentified buyer that agreed to acquire 55 of the 61 stores, which are primarily located in California and Texas. Each station is adjacent to a Jack-in-the-Box restaurant -- these are not being sold as part of the deal. The deal is expected to close by Sept. 27, 2009.

DAG Petroleum Buys 30 Properties from Exxon Mobil for $54 Million
On June 16, Springfield, VA-based DAG Petroleum closed on the acquisition of 30 convenience / service station properties in the Washington, D.C. area from Exxon Mobil for $54 million (Comps ID# 1724951).

NRC Realty Advisors Brokering Sale of 47 Appco Stores
On June 11, NRC Realty Advisors was designated as the agent that would sell the 47 gas / convenience stores leased and operated by bankrupt company, Appalachian Oil Co (Appco), that are located in northeastern Tennessee, southwestern Virginia and eastern Kentucky. Bids for the bankruptcy auction of leasehold assets are being accepted through the 9th of July.

APEC Selling Off 78 Gas / C-Stores at Auction; Following Acquisition of 32 BP Stations in 2009 and 22 Exxon Mobil Stations in 2008
Brandon, FL-based Automated Petroleum & Energy Co. (APEC), announced on June 9 that it would be selling off 78 of its convenience / gas properties throughout Florida in a sealed bid auction on July 28 that is coordinated by The Energy Exchange of Chicago, and Petro Properties & Finance LLC of Coral Gables, FL. APEC is requiring that bidders either commit to using its fuel for the next 20 years, or propose alternative uses for the properties.

Established in 1981, APEC, which is run by William McKnight, currently owns 247 convenience / gas stores throughout Florida. According to CoStar COMPS, the company has been responsible for a number of recent portfolio transactions involving convenience / gas stations. APEC closed on the acquisition of seven properties in May for $10.27 million (Comps ID# 1705215), nine properties in March for $11.6 million (Comps ID# 1695302), and 16 properties in January for $21.96 million (Comps ID# 1648982) -- all were located in South Florida and bought from BP Products of North America. On top of this, APEC acquired 22 properties in the Tampa area from Exxon Mobil in late 2008 (Comps ID# 1607810), in addition to several one-off transactions with individual operators that year.

Couche-Tard Reaches Deal with Exxon Mobil to Acquire On the Run Franchise System and 43 Stores
On April 28, Alimentation Couche-Tard Inc. announced that it would acquire Exxon Mobil's "On the Run" convenience store franchise system, which consists of 450 franchised stores in 28 states. Additionally, Couche-Tard would acquire 43 of Exxon Mobil's company-owned and operated On the Run stores in the Phoenix area -- 33 of which are owned, while the remaining 10 are leased. Couche-Tard plans to re-brand the Phoenix area stores into its Circle K banner. The deal for the Phoenix stores closed on June 2 for $39.76 million (Comps ID# 1717047).

DAG Acquires 18 Stations from Shell
In mid-April, DAG, through newly formed arm, NOVA Petroleum, acquired 18 Shell stations in the Arlington and Alexandria, VA areas from Shell / Motiva Enterprises for an undisclosed price. In an interview with CSNews Online, DAG said that PetroProperties handled the 60% financing on the deal. Joe Mamo, operator of DAG, commented on how tough it is to close large transactions in the current market, "It was a tough deal to get done given the financial environment. If major oil companies want to divest additional locations, like they are trying to right now, they will have to take some paper back-carry secondary financing themselves-to make it easier for distributors to finance these stations. If you have to come up with 40% of the down payment, big deals won't be done. They have to think outside the box, to make sure financing is available."

The Pantry to Acquire 40 Stores from Herndon Oil
On April 14, The Pantry, Inc. (NASDAQ:PTRY ), announced it would acquire 40 gas / convenience stores from Herndon Oil Corp that primarily operate under the "Flamingo" banner. The deal includes the real estate underlying 32 of the 40 stores, which are located in the Mobile, Alabama (32) area; Florida (6); Mississippi (1) and Louisiana (1). The deal is expected to close in the second half of 2009.

BP Completes Sale of 42 Stations to Englefield Oil
On Feb. 4, Englefield Oil Company closed on the acquisition of 42 gas stations from BP Exploration & Oil for an undisclosed amount. The stations, which will continue to be supplied by BP, are located throughout the Columbus, OH area. Englefield plans to convert 18 of the stations to carry the "Duke & Duchess" banner, while 25 will continue to carry the existing "ampm" banner. This transaction brings Englefield past the 100-store mark, with locations throughout Ohio and West Virginia. (Comps ID# 1646035.)

Hess Acquires 11 Stores from Christy's of Cape Cod for $26 Million
On Feb. 3, Hess Corporation closed on the acquisition of 11 gas / convenience stores in the Cape Cod, MA area from Christy's of Cape Cod for $26 million. Hess said it would rebrand any stations selling beer and wine to Hess stores (Comps ID# 1645903).

BP Completes Sale of 57 Stations to Atlas Oil
In January, Atlas Oil Company completed the acquisition of 57 gas stations from BP Products North America for an undisclosed amount. Atlas immediately began supplying and managing the South Chicago stations and now supplies fuel to 354 gas stations in the U.S. and Canada. The sale included 12 company-operated BP stores and 40 dealer-owned sites, 16 of which carry the "ampm" banner. Atlas plans to transition at least 20 of the newly acquired sites to the "ampm" brand over the next two to three years. This acquisition is part of a strategic relationship formed with BP in December 2007, under which Atlas closed on the purchase of 23 stations from BP in September 2008. (Comps ID# 1638162).

(Editor's Note: To keep up on happenings and trends in retail real estate, subscribe to CoStar's Retail News Roundup, a weekly column covering retailer expansions and new concepts, store closings, bankruptcies, cutbacks, acquisition, mergers, sales. new shopping centers, personnel changes, and sustainability. Follow this link for access to back issues of the roundup. In addition to appearing every week in the national news and retail news sections of our web site, you may also receive the Retail News Roundup for free via email by requesting to be added to the distribution list by contacting senior editor, Sasha Pardy at Also, click here to subscribe to CoStar's dedicated Retail RSS Feed.

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