Due Diligence Checklists – For Commercial Real Estate Transactions
January 26, 2012 | 
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Planning to purchase or finance Commercial or Industrial Real Estate? Shopping Center? Office Building? Restaurant/Banquet property? Parking Lot? Storefront? Gas Station? Manufacturing facility? Warehouse? Logistics Terminal? Medical Building? Nursing Home? Hotel/Motel? Pharmacy? Bank facility? Sports and Entertainment Arena? Other?
A KEY to investing in commercial real estate is performing an adequate Due Diligence Investigation to assure you know all material facts to make a wise investment decision and to calculate your expected investment yield.
The following checklists are designed to help you conduct a focused and meaningful Due Diligence Investigation.
Basic Due Diligence Concepts:
Commercial Real Estate transactions are NOT similar to large home purchases.
Caveat Emptor: Let the Buyer beware.
Consumer protection laws applicable to home purchases seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of commercial real estate.
Due Diligence: “Such a measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case.” Black’s Law Dictionary; West Publishing Company.
Contractual representations and warranties are NOT a substitute for Due Diligence.
Breach of representations and warranties = Litigation, time and money.
WHAT DILIGENCE IS DUE?
The scope, intensity and focus of any due diligence investigation of commercial or industrial real estate depends upon the objectives of the party for whom the investigation is conducted. These objectives may vary depending upon whether the investigation is conducted for the benefit of (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer; or (iv) a Lender.
If you are a Seller, understand that to close the transaction your Buyer (and its Lender) must address all issues material to its objective – some of which require information only you, as Owner, can adequately provide.
GENERAL OBJECTIVES:
(i) A “Strategic Buyer” (or long-term lessee) is acquiring the property for its own use and must verify that the property is suitable for that intended use.
(ii) A “Financial Buyer” is acquiring the property for the expected return on investment generated by the property’s income stream, and must determine the amount, velocity and durability of the revenue stream. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the must less precise capitalization rate (“cap rate”), and will need adequate financial information to do so.
(iii) A “Developer” is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although, a Developer might plan to hold the property long term as Financial Buyer after development or redevelopment. The Developer must focus on whether the planned change is character or use can be accomplished in a cost-effective manner. A developer conducting due diligence will focus on issues involving market demand, access, use and finances.
(iv) A “Lender” is seeking to establish two basic lending criteria:
1. “Ability to Repay” – The ability of the property to generate sufficient revenue to repay the loan on a timely basis; and
2. “Sufficiency of Collateral” – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary.
The amount of diligent inquiry due to be expended (i.e. “Due Diligence”) to investigate any particular commercial or industrial real estate project is the amount of inquiry required to answer each of the following questions to the extent relevant to the objectives of the party conducting the investigation:
I. THE PROPERTY:
1. Exactly what PROPERTY does Purchaser believe it is acquiring?
(a) Land?
(b) Building?
(c) Fixtures?
(d) Other Improvements?
(e) Other Rights?
(f) The entire fee title interest including all air rights and subterranean rights?
(g) All development rights?
2. What is Purchaser’s planned use of the Property?
3. Does the physical condition of the Property permit use as planned?
(a) Commercially adequate access to public streets and ways?
(b) Sufficient parking?
(c) Structural condition of improvements?
(d) Environmental contamination?
(i) Innocent Purchaser defense vs. exemption from liability
(ii) All Appropriate Inquiry
4. Is there any legal restriction to Purchaser’s use of the Property as planned?
(a) Zoning?
(b) Private land use controls?
(c) Americans with Disabilities Act?
(d) Availability of licenses?
(i) Liquor license?
(ii) Entertainment license?
(iii) Outdoor dining license?
(iv) Drive through windows permitted?
(e) Other impediments?
5. How much does Purchaser expect to pay for the property?
6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?
(a) Property owner’s assessments?
(b) Real estate tax in line with value?
(c) Special Assessment?
(d) Required user fees for necessary amenities?
(i) Drainage?
(ii) Access?
(iii) Parking?
(iv) Other?
7. Any encroachments onto the Property, or from the Property onto other lands?
8. Are there any encumbrances on the Property that will not be cleared at Closing?
(a) Easements?
(b) Covenants Running with the Land?
(c) Liens or other financial servitudes?
(d) Leases?
9. Leases?
(a) Security Deposits?
(b) Options to Extend Term?
(c) Options to Purchase?
(d) Rights of First Refusal?
(e) Rights of First Offer?
(f) Maintenance Obligations?
(g) Duty on Landlord to provide utilities?
(h) Real estate tax or CAM escrows?
(i) Delinquent rent?
(j) Pre-Paid rent?
(k) Tenant mix/use controls?
(l) Tenant exclusives?
(m) Tenant parking requirements?
(n) Automatic subordination of Lease to future mortgages?
(o) Other material Lease terms?
10. New Construction?
(a) Availability of construction permits?
(b) Utilities?
(c) NPDES (National Pollutant Discharge Elimination System) Permit?
(i) Phase 2 effective March 2003 – Permit required if earth is disturbed on one acre or more of land.
(ii) If applicable, Storm Water Pollution Prevention Plan (SWPPP) is required.
II. THE SELLER:
1. Who is the Seller?
(a) Individual?
(b) Trust?
(c) Partnership?
(d) Corporation?
(e) Limited Liability Company?
(f) Other legally existing entity?
2. If other than natural person, does Seller validly exist and is Seller in good standing?
3. Does the Seller own the Property?
4. Does Seller have authority to convey the Property?
(a) Board of Director Approvals?
(b) Shareholder or Member approval?
(c) Other consents?
(d) If foreign individual or entity, are any special requirements applicable?
(i) Qualification to do business in jurisdiction of Property?
(ii) Federal Tax Withholding?
(iii) US Patriot Act compliance?
5. Who has authority to bind Seller?
6. Are sale proceeds sufficient to pay off all liens?
III. THE PURCHASER:
1. Who is the Purchaser?
2. What is the Purchaser/Grantee’s exact legal name?
3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?
(a) Articles or Incorporation – Articles of Organization
(b) Certificate of Good Standing
4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?
(a) Board of Director Approvals?
(b) Shareholder or Member approval?
(c) If foreign individual or entity, are any special requirements applicable?
(i) Qualification to do business in jurisdiction of the Property?
(ii) US Patriot Act compliance?
(iii) Bank Secrecy Act/Anti-Money Laundering compliance?
5. Who is authorized to bind the Purchaser/Grantee?
IV. PURCHASER FINANCING:
A. BUSINESS TERMS OF THE LOAN:
What loan terms have the Purchaser, as Borrower, and its Lender agreed to?
(a) What is the amount of the loan?
(b) What is the interest rate?
(c) What are the repayment terms?
(d) What is the collateral?
(i) Commercial real estate only?
(ii) Real estate and personal property together?
(e) First lien? A junior lien?
(f) Is it a single advance loan?
(g) A multiple advance loan?
(h) A construction loan?
(i) If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?
(j) Are there reserve requirements?
(i) Interest reserves?
(ii) Repair reserves?
(iii) Real estate tax reserves?
(iv) Insurance reserves?
(v) Environmental remediation reserves?
(vi) Other reserves?
(k) Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?
(l) Is the Borrower required to pledge business accounts as additional collateral?
(m) Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “pre-payment penalties”)?
(n) Are there repayment blackout periods during which Borrower is not permitted to repay the loan?
(o) Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?
(p) Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at closing?
(q) What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay Lender’s expenses if the loan does not close?
B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN
Does Purchaser have all information necessary to comply with the Lender’s loan closing requirements?
Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.
As guidance to what a commercial real estate lender may require, the following sets forth a typical Closing Checklist for a loan secured by commercial real estate.
Commercial Real Estate Loan Closing Checklist
1. Promissory Note
2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties or a variety of other types of guarantees as may be required by Lender).
3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)
4. Mortgage [sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing]
5. Assignment of Rents and Leases
6. Security Agreement
7. Financing Statement (sometimes referred to as a “UCC-1″, or “Initial Filing”)
8. Evidence of Borrower’s Existence In Good Standing; including
(a) Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization and written Operating Agreement, if Borrower is a limited liability company; Certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)
(b) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)
9. Evidence of Borrower’s Authority to Borrow; including
(a) a Borrower’s Certificate;
(b) Certified Resolutions
(c) Incumbency Certificate
10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents of record appearing on Schedule B of the title commitment which are to remain after closing), with required commercial title insurance endorsements, often including:
(a) Affirmative Creditors Rights Endorsement (extending coverage over policy exclusion 7 and policy exclusions 3(a) and 3(d) as they relate to creditor’s rights matters)
(b) ALTA 3.1 Zoning Endorsement modified to include parking
(c) ALTA Comprehensive Endorsement 1
(d) Location Endorsement (street address)
(e) Access Endorsement (vehicular access to public streets and ways)
(f) Contiguity Endorsement (the insured land comprises a single parcel with no gaps or gores)
(g) PIN Endorsement (insuring that the identified real estate tax permanent index numbers are the only applicable PIN numbers affecting the collateral and that they relate solely to the real property comprising the collateral)
(h) Usury Endorsement (insuring that the loan does not violate any prohibitions against excessive interest charges)
(i) other title insurance endorsements applicable to protect the intended use and value of the collateral, as may be determined upon review of the Commitment for Title Insurance and Survey or arising from the existence of special issues pertaining to the transaction or the Borrower.
11. Current ALTA Survey (3 sets), [typically prepared in accordance with 2005 Minimum Standard Detail for ALTA/ACSM Land Title Surveys, certified to the lender, Buyer and the title insurer, including items 1 through 4, 6, 7(a), 7(b)(1), 8 through 11(a) and 14 from the Surveyor's "Optional Survey Responsibilities and Specifications" referred to as "Table A"].
12. Current Rent Roll
13. Certified copy of all Leases (3 sets)
14. Lessee Estoppel Certificates
15. Lessee Subordination, Non-Disturbance and Attornment Agreements [sometimes referred to simply as "SNDAs"].
16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report
17. Appraisal (must comply with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)
18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Reports)
19. Environmental Indemnity Agreement (signed by Borrower and guarantors)
20. Site Improvements Inspection Report
21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “additional insured” (sometimes listed as simply “Acord 27 and Acord 25, respectively)
22. Legal Opinion of Borrower’s Attorney
23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by Lender
24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after closing, errors or omissions in loan documentation.
It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth with some detail in the lender’s Loan Commitment – which is typically much more detailed than most loan commitments issued in residential transactions.
Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events.
If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “due diligence period” – which typically provides for a so-called “free out” – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to close may attach.
CONCLUSION
Conducting an effective due diligence investigation in a commercial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance.
Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser’s home, commercial real estate acquired for business use or for investment is impacted by numerous factors that may affect its use and value.
The existence of these factors and their affect on a Purchaser’s ability to use the Property for its intended use and on the Purchaser’s projected investment yield can only be discovered through diligent investigation and attention to detail.
The circumstances of each transaction will determine what degree of diligence is required. The level of diligence required under the circumstances is the diligence that is due.
Exercise Due Diligence.
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Carnival 2-Day Cruises
Carnival Cruise Lines have shorter cruises available that last from 2 to 5 days. They run the largest short cruise program in the cruise industry. You can take a short cruise on one of 12 ships from 12 North American home ports. A short cruise gives passengers a good idea of what cruising is about so they like it. Carnival has a short New York Cruise to know where you can enjoy excellent service in a relaxing atmosphere. You’ll be back to the New York City Port in a few days.
A Carnival 2 day cruise is perfect if you don’t have time to take a longer cruise. This means you can take a short cruise over the weekend and be home or back at work by Monday. Smelling the sea air, eating fantastic food and watching great entertainment for two days is a nice way to refresh yourself from the routine of every day life. You can exercise at state-of-the-art fitness facilities, go swimming in the pool or get pampered at the spa.
Another benefit of taking a Carnival 2 day cruise is the low cost. You may have to pay for extra things like spa treatments, games or shore excursions. Carnival has an affordable short cruise that leaves from Miami and Port Canaveral in Florida. There’s also a Carnival cruise that departs from Long Beach, California and heads to Ensenada, Mexico. Always, plan a head of time when you schedule a short cruise. Ask about the different kinds of ships. You wouldn’t want to go on a ship with partiers if your family is with you or you want to relax.
Sometimes, a Carnival 2 day cruise can take you to the same worldwide destinations as the 17 day cruises. You can travel to New England, Alaska, Europe, Caribbean and other places. The Carnival Miracle has short cruises from places like to New York to the Caribbean. On one of these cruise you can experience a little of the things that offered on a longer cruise. There’s many international cuisines and the option of made to order at the Carnival Miracle Lido Restaurant. You can dine in the Carnival Miracle Bacchus dining room. Other highlights on this ship are shows at the Phantom, Mad Hatter’s Ball, a sing along at Sam’s piano bar and Raven Library and Internet Cafe.
Book a Carnival 2 day cruise early since these types of cruises are popular and fill up quickly. Generally the times of year that short cruises are offered are in the spring and summer. Dress is mainly casual for short cruises but you may have to dress formal for the dining room. If you’re a regular cruiser, you may want to take a short cruise between longer cruises. If you’re a new cruiser, then you may be able to see one or two destinations on a mini or short cruise. You won’t need to worry about lots of luggage or being away to long. It’s best not to try to do too many things on a short cruise so you don’t become overwhelmed.
Life In The Hot Sahara Desert
The Sahara Desert is the world’s largest hot desert and is spread across 8.6 million square kilometers in Northern Africa. The average year round temperature in Sahara exceeds 30°C with the temperatures rising above 50 degree centigrade during summers and the winter temperatures falling below freezing point. With the daily temperature variation fluctuating anywhere between the values -0.5 to 37.5 degree centigrade, the conditions are really harsh and difficult to sustain life and this condition is further deteriorated due to the hot, dusty winds. The high temperatures during summer, scanty rainfall, and freezing winters, along with the severely dry weather make Sahara’s weather very inhospitable. As a result, plant and animal population is sparse.
Plants and animals develop certain adaptations in order to adapt to life in the harsh desert conditions.
Desert plants possess very long roots that penetrate very deep into the earth, and their broad leaves are replaced with spines, and thick green stems in desert plants like cactus where the spines help in preventing excessive water loss while the stem performs photosynthesis as well as holds water for a very long time. Xerophytes, grasses, shrubs, and trees comprise the common vegetation in the Sahara desert.
Desert animals rarely come out in the hot sun and instead stay underground during most part of the day and eat such foods which contain a lot of water content. The desert animals are also smaller in size which minimizes water loss from their bodies. The animal species found in the Sahara include the desert hedgehog, gerbil, jerboa, cape hare, common jackal, dorcas gazelle, oryx, dama deer, Nubian wild, barbary sheep, anubis baboon, spotted hyena, sand fox, Libyan striped weasel, the slender mongoose, rattlesnakes, kangaroo rats, kit foxes and numerous species of frogs, toads, crocodiles, lizards, chameleons, skinks, cobras snails, brine and algae shrimps.
DIY Vermicomposting – A Worm Farm on a Budget
Have you wanted to set up a home worm farm, but been put off by the high cost of purchasing one of the neat “designer label” multi-tiered “vermicomposting” kits, promoted by garden centres and mail order companies? Well, let’s cut through the crap! – ITS ACTUALLY NO SECRET !!! -You can easily make your own DIY three bin kit for a just a few dollars and your worms will be as happy as little pigs in the yellow stuff, with no big bad wolf in sight. Moreover, you don’t need to be an expert handyman to achieve this!
Hardware stores, supermarkets and camping outlets sell tough, general purpose black (opaque) plastic storage containers for a very reasonable price. These are usually tapered so that they can be nested to facilitate stacking on the retailer’s shelves and come with a “snap-fit”ce lid. For your worm farm, you will need three of these tapered containers (but only one lid). For a simple home worm farm I would advise going for 12 gallon (45 litre) containers. Typically, they will be about 15 inches deep (400mm). You can go smaller, if you want.
In the first storage container, drill a 3/8 inch (15mm hole), centrally placed, in the side of the bin, just above the base. Insert a ½ inch (12mm) cheap plastic barrel or irrigation tap (with washers) into your hole and tighten fast with lock nuts – make sure you get a good seal – test by filling the container with tap water. This container is to be the lowest one in your stack and will retain the highly nutritional “worm tea” leachate, that will start dripping down from the composting bins above. Worm tea is a valuable liquid organic fertilizer, that can be diluted and used directly on your organic vegetables.
The two upper bins will actually hold the worms. They are to be identical and are prepared as follows : -
Drill a pattern of ¼ inch (6mm) holes across the entire base of each container for drainage and to allow drainage and the upward migration of the compost worms, these holes should be regularly spaced at approx two inch (50mm) centres in either direction.
For aeration, drill two rows of ¼ inch (6mm) holes at two inch (50mm) centres, in a continuous band around each of the bins. This band of holes would be about four inches (100mm) below the top rim of the bin.
It is not essential to drill holes in the lid, which is closed tightly over the upper bin. as you should get enough air through the sides.
You first set up the lower (sump) bin on bricks or blocks, allowing enough space to tap off the fluid from beneath it. Choose a shady location for the worm farm (in a shed or garage, if you are subject to frosts).
The second and third bins are “nested” within each other and dropped into the sump bin. To maintain a working space for the worms, and for accumulation of compost, you need a few spacers or packers of about six to eight inches height, between the two upper bins and some smaller packers of about four inches in the lower (sump) bin. You can use wood blocks or sealed food jars for packers. The packers also prevent the tapered worm bins from jamming together.
To prevent “nasty bugs” from squeezing in between the bins, you should close (caulk) the small gap between them with strips of shade cloth, or mosquito netting.
Now you are ready to go into production. Space prevents us from giving fully detailed notes here for the fine points of operating the system, such as choosing and feeding your worms, eradicating pests and maintaining the worm farm etc – you can visit our website for this information. However, just make sure that you cover the following points: -
Set up your worms in the top bin with a good (damp) fibrous bedding (or even shredded newspaper) and after a few days you will be ready to start feeding in your kitchen scraps. Cover the food with more bedding material to discourage pests and keep the lid closed.
Make sure the worm farm is never allowed to dry out, by sprinkling water over the bedding periodically, if there is not already enough moisture coming from the food scraps.
When the top bin has been fully productive for a while, the worms will multiply and compost will be start accumulating from the worm castings. When the quantity of compost is meaningful, stop putting feed into this bin and swap over the upper two bins by putting bin No 2 to the top of the stack, with bin No 1 now in the middle. Set up this new top bin with clean bedding, a small amount of the old castings and immediately start feeding your kitchen scraps into it. The worms will naturally migrate upwards towards the new food source, leaving the lower bin with only a few stragglers and ready for the harvesting of your compost within about three weeks after the swap.
All you need to do is to keep repeating the process of alternating the top two bins on a regular basis, taking out the compost, whenever it accumulates, and tapping off the worm tea from time to time. Use both products in your garden and grow delicious fully organic vegetables and stunning roses. Sit back and enjoy the fruit of your labours – your worms are doing most of the work anyway!
To see a detailed diagram of this simple worm farm, as described, and some illustrative photos, you can visit our web site at http://www.working-worms.com/
Happy worming!
Facts About Cake
Cakes normally combine some kind of flour, a sweetening agent which is commonly sugar, a binding agent that is generally eggs, though gluten or starch are often used by vegetarians and vegans. Fats which consist usually of butter, shortening, or margarine, although a fruit purée such as applesauce is sometimes substituted to avoid using fat, a liquid, though many cakes lack these ingredients and instead rely on air bubbles in the dough to expand and cause the cake to rise.
Cake making continued to improve especially with the new ingredients such as chocolate and vanilla, and eventually sugar that came to Europe with the discovery of the new world. The Egyptians discovery and skill at using natural yeast helped leaven those once flat cakes. Some yeast raised cakes survived, such as the Alsatian Kugelhopf, but the new cakes got their lightness from beaten eggs.
Cheesecakes use mostly some form of cheese which is often cream cheese, or ricotta, and have very little to no flour component, although it sometimes appears in the form of a sweetened crust.
Some varieties of cake are widely available in the form of cake mixes, wherein some of the ingredients usually flour, sugar, flavoring, baking powder, and sometimes some form of fat are premixed, and the cook needs add only a few extra ingredients, usually eggs, water, and sometimes vegetable oil or butter.
It is often the dessert of choice for meals at ceremonial occasions, particularly weddings, anniversaries and birthdays. The cutting of a wedding cake constitutes a social ceremony in some cultures.
Your wedding cake is the centerpiece of your wonderful reception. Don’t settle for a newcomer on the scene to make the most important cake of your life.
Irish Christening Gowns – Much More Than Shamrocks and Lace
Irish christening gowns feature inspiring designs and generations of craftsmanship. Celtic christening gowns look stunning in embroidered shamrocks and Cluny lace. Although traditional, their charming Irish style allows for flexibility. The christening dresses might have shamrock lace, a shamrock inset, or other shamrock details. The gowns may have Victorian lace, Irish lace, or Venice lace.
Irish symbols can include Celtic crosses, the Claddagh, Celtic knot, or other Celtic symbolism. Irish christening gowns, just like Celtic wedding dresses, are embellished with ‘shingerleens’ (embellishments of Irish lace, embroidery, and ribbons). Some Irish parents have the family crest or the names of wearers embroidered on the christening gown, cape, or blanket. The Irish christening gown symbolizes purity, joy, faith, and new life.
Irish Christening Gowns
. Shamrock
The shamrock is one of the most well-known and popular Irish symbols. Symbolizing the Trinity, the shamrock usually adorns Irish christening outfits. The shamrock can be woven into the fabric or be featured in one or more places on the gown.
Shamrocks, either green or white, can decorate everything from christening dresses and rompers to headbands and christening bibs. Satin gowns with overlay organza can have scattered shamrocks and tiny pearls. Often the bodice of an Irish christening dress will have embroidered shamrocks.
Floral shamrock embroidery can fill the bodice, sleeves, and skirt of a christening dress. You can choose christening fashions with many shamrocks or just a few – even gowns with just a single shamrock. A boy’s soft gabardine, sailor-style, christening romper can have embroidered shamrocks and clovers on the chest. The matching christening hat may also sport a shamrock.
. Lace
Irish baptism dresses use all kinds of lace from French lace to Venetian lace. The Irish Cluny lace is a cotton lace. With a light and airy appearance, Cluny lace resembles the crochet stitch.
Irish christening gowns can feature lovely lace in elaborate style. Vertical lace can create separate ‘panels’ on a skirt that are deeply scalloped – each one with different embellishments. The center front can be breathtaking with a cross decorated with embroidered ribbons and beautiful flowers. The side panels could have shaped lace in a Celtic pattern and more lace can adorn the scalloped hemline.
. Irish Linen
Linen is a special fabric that has been woven from natural flax fiber for thousands of years. Linen is woven throughout the world and is a strong and resilient fabric. With its expert spinning, weaving, and finishing, Irish linen is recognized as the world’s finest linen. Fine linen from Ulster, Ireland, is a favorite for Celtic christening fashions including bonnets, under slips, and booties. 100% pure Irish linen can be decorated with tiny, embroidered Celtic knots, a row of shamrocks or rosebuds, and pretty pearls.
A lovely Irish linen gown is a delight with delicate Venice lace beading and shamrock lace featuring an embroidered Celtic cross with trinity knots and shamrock appliques. An Irish linen christening gown can have crosses and hearts on scalloped Victorian lace at the hemline. A gorgeous, little trouser set and Grandad shirt (with ‘grandad’ collar), can be made from pure Irish linen.
. Crocheting
Often crocheting will show up on Irish christening gowns (sometimes called ‘robes’ in Ireland). Crocheted in fine, mercerized cotton with a hint of shine, a bodice might feature a shamrock inset with picot chains and a satin ribbon at the front. Crocheting was introduced in Ireland in the mid-nineteenth century.
Women and children were trained in the art. Within a few years, the Irish had become skillful enough to supply markets in Dublin, London, Paris, Rome, and New York. Crocheting work helped to supplement family income. Indeed, some Irish people used the money to immigrate to the United States.
. Smocked
Although Celtic christening dresses can have intricate detail, the smocked gown is also a longtime favorite in Ireland. Made from fine Irish linen, with triple pin tuck finishing detail across the hem, a lace-edged under slip, and matching bonnet, this simple style can reflect an air of elegance. Exquisite hand embroidery can adorn the bodice, bonnet, and sleeves of a soft, smocked christening gown.
. Celtic Cross
The Celtic Cross shows up everywhere at Irish christenings. The Celtic Cross (or high cross) is a beloved Irish symbol. Maybe a single Celtic cross might be in the center of a skirt with white (or light green) shamrocks going around the hem.
Crossed shamrocks may rest on a bodice beneath a Celtic cross with heirloom leaves on either side. Shamrocks and leaves can continue around the hem of a christening gown. A boy’s christening romper might have embroidered Celtic crosses or his satin shoes might show off a Celtic cross.
The Celtic cross is believed to signify the four directions of the wind as well as the four seasons. The earliest known Irish high cross can be traced back to Donegal. The seventh century Carandonagh Cross was part of a hermitage in the northwest of the County.
. Celtic Knot
The Celtic Knot is a favorite adornment for Irish christening attire and accessories. The Celtic Knot design has been found in the jewelry of the Celts – even going back before the time of Christ. The Celtic Knot is associated with the ornamentation of early Christian monuments and manuscripts (such as the 8th Century Book of Kells). This Irish symbol is thought to protect against evil – the more complex the knotting, the greater the protection.
The Celtic Knot might show up on the bodice of a three-piece, puff sleeve, christening outfit with a Celtic floral lace trim. Even a blue Celtic knot cross may be featured on the bodice of a gown. Sometimes red roses surround a blue and gold knot cross while a shamrock, claddagh, and thistles go around the hem. Often below a center cross, the baby’s name and the date of the christening will be embroidered on the gown. Trinity Knots can be embroidered across the chest directly under the collar on christening rompers.
. Claddagh
The Claddagh (a ‘holding hands’ symbol – sign of friendship and love) is always seen on christening fashions. A gorgeous christening gown might have a satin ribbon band on the front yoke with a Claddagh applique. As well, christening accessories use the claddagh such as in a crystal rosary bracelet with pearls, cross, and a claddagh charm.
. Celtic Tree of Life
The Celtic Tree of Life is another Irish symbol that can be applied to a christening gown. The Celtic tree of life is supposed to deliver wisdom. The symbol is believed to deliver messages from the gods.
. St. Bridget’s Cross
St. Bridget’s Cross is a familiar Celtic symbol that shows up on Irish baptism gowns. Brigid’s crosses are associated with Brigid of Kildare who is venerated as one of the patron saints of Ireland. Made from pure Irish linen, a christening gown can have a pin tuck skirt, satin ties at the back, and a St. Bridget’s Cross embroidered on the bodice.
. Tara Brooch Embroidery
Christening capes may use embroidery modeled after the Tara Brooch – one of Ireland’s best-known antiquities. Believed to be made about thirteen hundred years ago, the real Tara is an ornate Celtic ring brooch made of gold, silver, copper, amber and glass. The brooch was found on the seashore at Bettystown, south of Drogheda, and is now preserved in the National Museum of Ireland in Dublin.
. Christening Capes
Christening capes – especially the Kinsale cloak – are popular for Irish babies. For hundreds of years in rural Ireland, wearing a hooded, full-length cloak was a tradition. Indeed, cloaks can still be seen in the area west of County Cork.
. Spirals
Pretty spirals float softly across Irish christening gowns. Prominently displayed on ancient Irish artifacts, Celtic spirals are second only to knotwork designs as the symbols most associated with Celtic art. Without any written history about spirals, there is still some mystery around their meaning. Within the Druid faith, it was forbidden to put sacred material into writing. No doubt, spirals represented something sacred to the Druid people.
Most scholars believe that because of their simplicity, spirals are symbols of the spiritual balance between inner and outer consciousness, the sun, and the cosmos. Some Celtic art scholars believe that the significance of the spirals may lie in their direction. Clockwise spirals may be associated with the sun and harmony with the earth. Counter-clockwise spirals might be associated with the manipulation of nature. Other people think that the Celtic spiral symbolizes the seasons of life and the cycles of time.
Often Celtic spirals are seen in ancient burial mounds and sacred places. Many believe that spirals have mystical powers that prevent evil from entering into a sacred tomb. In 1991, archaeologist Kate Johnson, at Arizona State University, conducted computer analysis on the structure of some Celtic spirals found in ancient rock carvings. He compared these spiral patterns with astronomical events that had occurred over the course of the last millennium. According to his research, the Celtic spirals were accurate representations of visible planetary configurations and the brightest fixed stars during total eclipses ages ago.
The Triskele (or triskelion) is a three-pronged spiral which is often used as a basis for more complex spirals. Some suggest ancient Celtic triskeles represented the Triple Goddess of the three ages of womanhood. Later, the symbol came to represent the Holy Trinity in Christianity – God the Father, Son, and Holy Spirit. The motif is based around the number ’3′ regarded as a sacred number in many ancient cultures.
Types of Tape and Their Uses
So much tape and so many uses! Here are a few things that can be done with different types of tape for any or all of your taping needs!
Masking Tape should be a household staple item with all its uses. You can use it to label supplies and mark containers. Because it is easily written on, the possibilities are endless in this regard. For the frugal minded, you can use masking tape to repair vacuum cleaner bags so you can use them more than once! Use masking tape to hang up party decorations such as streamers and balloons as masking tape will not leave the sticky residue like other tapes can. Finally, there are several types of masking tape – some of which can help with painting projects to get the perfect lines every time.
Duct Tape is probably one of the most versatile tapes available. You can use it to patch water pipes until a more permanent fix can be performed. Patch holes in children’s pools and use it as weather stripping around your windows and doors. It is a strong tape that can be use in a pinch to hem pants or a skirt/dress. Often times it is used to repair vacuum cleaner hoses or to stop that leak in your garden hose. It’s perfect for removing lint from clothing and even reinforcing a book binding. This tape is a handy one to have around.
Electrical Tape has some great uses because it is stretchy and easily torn by hand. Since it comes in many different colors, it’s a great one to use for color coding. Electrical tape isn’t just for electrical.
Tape isn’t just used for wrapping presents as you can see. The uses and possibilities are endless. So the next time you’re holding a roll of tape in your hand, look at it differently and ask yourself “what else could I do with this today?”
How to Care For Your Braided Money Tree
A Braided Money Tree is a lovely and rare plant that can make an outstanding addition to any room in your home. This tree is composed of several trunks that wind around each other, it can reach heights anywhere from a foot tall or more. The bonsai version is around a foot tall, while the fuller sized trees can tower up to seven feet tall.
Plenty of lovely green foliage tops this plant, making for a package that is a decorators dream come true. The bonsai style of this plant, makes it an ideal addition to an indoor garden environment.
Taking care of any type of bonsai plant requires time and planning. By incorporating some simple tips, your Braided Money Tree will thrive for years. Growing one from a seedling requires expert knowledge, and will take years to grow to its maximum potential.
With any bonsai plant, watering is crucial. Most bonsai like to have plenty of water, but proper water drainage is key. This is maintained by two very important factors: soil and the pot.
The soil should contain a mixture of earth and small gravel pebbles which lie in the pot with one or more drain holes. These holes need to be covered with mesh, to allow the water to flow freely but retain the soil. You can also add some river and to the mixture, to create porous areas in the soil which aid in draining. Some bonsai even grow well in a mix of peat, vermiculite and perlite.
The Braided Money Tree prefers much less water than other plants. Once a week is sufficient. Some do well on as little as a cup of water per month, but the amount varies with the pot size and soil composition. Misting the plant is also another recommendation. It helps the plant leaves get extra moisture and keeps them free of dust.
The soil in the pot, should be allowed to dry completely out before another watering. There are several ways to realize if the amount of water is adequate. If the plants leaves become droopy and yellow, this is a sign of too much water. When the leaves are wrinkly and curled up, this means you are not watering it enough.
The Braided Money Tree requires a medium amount of sunlight. Indirect light is best, but a few hours in the direct sunshine if fine, making sure the area does not become overly hot. A corner that gets some sun and shade, is the ideal location. Being a native of a wet, hot region, the plant will fare well when temperatures drop. If you keep the plant outside on the porch, you need to remember to bring it inside when the temperatures drop below 50 degrees.
It is unnecessary to give the tree fertilizer, specifically in the bonsai plant size and style. Trimming the dead leaves and providing plenty of fresh air, will allow your Braided Money Tree to live for many years.
Beta Fish Care Basics
The Beta Fish, also known as the Siamese Fighting Fish, is a popular, beautiful and inexpensive pet. It’s hard to resist these stunning little jewels!
Beta fish are considered to be a relatively easy pet to own, but keep in mind that beta fish do have specific requirements to keep them comfortable, safe and healthy. Here are some beta fish basics to get you started.
The Beta fish’s official name is Betta splendens. The Beta fish’s natural coloring was originally much more drab than the intense colors that we see in pet shops today. Also in the wild the original beta fish sported much shorter fins.
The Beta fish originated in the hot, humid rice paddies of Asia. The Beta Fish developed a way to breathe oxygen directly from the air, using a lung-like “labyrinth” organ to survive as the rice paddies experienced drought.This way the bettas could still get air, while living in muddy, shrinking water holes and could survive until the rains returned.
Beta fish do not actually enjoy existing in tiny containers. Even though it’s possible for Beta fish to survive in these harsh conditions, this ability was developed by the Beta fish as a means of survival rather than choice. It’s much kinder to house your Beta fish in a 2.5 gallon tank or larger.
While it’s not necessary to house your Beta fish in a 10 gallon fish tank, it is much more comfortable and your Beta fish will appreciate it. A larger fish tank, such as a ten gallon tank, will also provide you with a fun way to display your prized Beta by adding plantings and other appropriate touches to your fish tank.
Because the Beta originated in a warm climate, Betas do not enjoy being cold. Your Beta will most likely consider your home’s room temperature too cold. We suggest investing in an inexpensive aquarium thermometer. A stick-on thermometer will do. You may want to consider placing a small heater in your Beta tank or placing your Beta’s bowl in a warm area of your home. Your beta will sit clamped and lifeless in a huddle near the bottom of his tank when he is too cold. Beta’s enjoy a water temperature in the mid 70 degrees.
The beta fish is commonly called the Samurai Fighting Fish because male Beta fish will attack each other and fight to the death. Never house male beta fish together. We also do not recommend placing a female Beta fish with your male Beta fish. It is very likely that your male beta will attack the female Beta as well, or possibly harass her to death.
Be aware that Beta fish are not recommended for community tanks. In a community tank the other fish will most likely nip at your Beta fish’s long beautiful fins and injure them. If you do decide that you want some companion fish with your Beta, be sure to research which species will coexist peacefully before placing the other fish with your Beta.
Your Beta fish needs only 3 or 4 grains of food each day. It’s best to feed your betta one grain of food at a time, several times a day. A Betas stomach is about the size of their eyeball. Too much food will give your Beta bloating pains, constipation, and possibly swim bladder issues (which is often deadly). Feed your Beta fish only special fish food made for bettas.
Betta fish are beautiful and interesting fish to own. Beta fish are intelligent and will quickly learn who their caregiver is. You will notice that your Beta fish will soon learn when you approach and become very excited! If you give your Beta fish the attention and care that he deserves, you will be rewarded with a stunning and interesting pet that is a pleasure to own.
Walgreens, CVS, and Rite Aid – What RE Investors Should Know in 2011
Walgreens, CVS or Rite-Aid: Which Tenant Is Best in 2011?
There are 3 major drugstore chains in the US: Walgreens, CVS, and Rite Aid. Below are some key statistics about the 3 major drugstore chains as of July 2010:
Walgreens
ranks #1 with market cap of $29.33 Billion, $66.25 Billion in revenue, and S&P rating of A+. According to Walgreens, 75% US population lives within 3 miles from its stores. On Oct 1, 2009, Walgreens opened its 7000-th store in Brooklyn, New York. In April 2010, it acquired 258 Duane Reade drug stores in New York Metropolitan area.
CVS
ranks #2 with market cap of $42.09 Billion, $99.1 Billion in revenue (CVS revenue alone is less than Walgreens if revenue from its Caremark group is taken out), and S&P rating of BBB+. CVS opened its 7000-th store in Little Canada, Minnesota on October 5, 2009 and currently operates 7025 drug stores..
Rite Aid
ranks #3 with market cap of $869 Million, $25.53 Billion in revenue, 4780 drug stores and S&P rating of B-.
Investors purchase properties occupied by these drugstore chains for the following reasons:
The drugstore business is very recession-insensitive. People need medicine when they are sick, regardless of the state of the economy. Both rich and poor people in the US have access to medicine. Some even argue that low-income people use more medicine due to free or low-cost drugs offered by government-assisted programs. So the tenants should do well during tough time and have money to pay rent to landlords.
The drugstore business has a good prospect in the US:
People are living longer and need more medicine to sustain longevity, e.g. Actonel for osteoporosis, Aricept for Alzheimer’s symptoms. Older people tend to use more medicine than younger ones as they often have more medical problems. As the 78 million baby boomers are getting closer to retiring age starting from 2008, the drugstore chains anticipate the demand for medicine to increase in next 20 years.
The drug market continues to expand as the US population will continue to grow. More and more Americans suffer from various diseases. The number of Americans suffers from seasonal allergies doubled in the last 15 years to 37 million people per Fortune magazine. They spent $5.4 Billion in 2009 for allergy drugs. As their waist lines balloon (75% of Americans are forecasted to be either overweight or obese by 2020), more Americans are diagnosed with diabetes, high cholesterol at younger and younger ages. In addition, doctors also recommend treating various diseases sooner than later due to better understanding about the diseases. For example, doctors now prescribe antiretroviral drugs for patients soon after infected with HIV virus instead of waiting for the infection to become AIDS. More doctors combine insulin with oral medicines to treat type-2 Diabetes instead of just oral medicines alone. All these factors increase the size of the drug market.
Advance in genetic engineering has introduced various new genetic DNA testing kits which allow the genetic diagnosis of vulnerabilities to inherited diseases and disorders. Genetic testing is currently the highest growth segment in the diagnostics industry. Some of these genetic tests will probably transform into direct-to-consumer testing kits available in drug stores in the near future. Upon FDA approval, these new products will potentially bring in additional revenue for drug stores.
The passage of Health Care Reform Bill on March 23, 2010 provides insurance coverage to an estimated 33 million more American. This is a major present to the drugstore industry.
There are new drugs to treat previously untreatable illnesses, and new diseases, e.g. Viagra for men’s unhappiness, Zoloft for depression, Avastin for colon cancer, Herceptin for breast cancer, Nicotine patches for smokers to kick the habit, Tamiflu for a potential bird flu pandemic, vaccine for swine (H1N1) flu pandemic, Tekturna/Rasilez for hypertension and various new drugs for AIDS and Attention Deficit Disorder (ADD). The new medicines are very expensive, e.g. a year’s supply of Avastin costs about $55,000. Eli Lilly has sold about $4.8 billion of Zyprexa in 2007 for schizophrenia and yet most people have never heard of this medicine.
There are existing drugs now approved to treat new illnesses and thus increase their sales revenue. For example, Lyrica was originally intended to treat pain caused by nerve damage in people with diabetes. It is now approved by FDA to treat Fibromyalgia which affects 5.8 million Americans per WebMD.
Big advances in genetics, biology and stem cells research are expected to produce a new class of drugs to treat diabetes, Parkinson’s and various rare genetic disorders. For example the new drug Ilaris from Novartis targets genetic causes of an inherited disorder that there are only 7000 known cases worldwide. However, Novartis hopes to gradually broaden its drugs to a blockbuster drug to more common disorders caused by similar genetics.
Technology and modern life introduce and require new products, e.g. pregnancy test kits, Lamisil for stronger clearer toe nails, Latisse for longer & thicker eyelashes, Premarin for menopausal symptoms, diabetic monitors, electronic toothbrushes, contact lenses, lenses cleaners, diet pills, vitamins, birth-control pills, IUDs, nutrition supplements and Cholesterol-lowering pills (Americans spent nearly $26B in 2006 on Cholesterol medications alone per IMS Health, a Connecticut-based consulting company that monitors pharmaceutical sales.) There are also more surgeries: C-sections, Kidney transplants, open-heart triple by-pass, and breast augmentations. More surgeries mean more medicines are needed such as Vicodin for pain management and Warfarin to prevent blood clots in surgeries.
Before the customers can get to the medicine aisles or pharmacy counters, they have to pass by chocolates, sodas, digital cameras, watches, toys, dolls, beers and wines, cosmetics, video games, flowers, fragrances, and greeting cards. Drug stores hope you use the one-hour photos services and exchange your liquid propane tanks there. The stores also carry seasonal items, e.g. Halloween costumes, and “As Seen on TV” merchandise, e.g. Shamwow. As a result, customers buy more than their prescriptions and medicine in these drugstores. Rite Aid sells more 28,000 non-pharmacy items in its stores while Walgreens has 22,000 different items on store shelves. CVS reported that non-pharmacy sales represented 30% of the company’s total sales in January of 2007. The figure for Walgreens is 34% and 37% for Rite Aid. Many pharmacy locations are in effect convenience stores especially ones that are in residential or rural areas. And so Walgreens hopes that customers also pick up WD-44, and screw drivers at its stores instead of at Home Depot; Thai Jasmine rice, and fish sauce to avoid a trip to Safeway or Kroger Supermarkets. During the recession, sales of these non-drug items are down as customers buy what they need and not what they want. Walgreens tries to reduce the number of items by 4000. It also introduces its own private label which has higher profit margins.
There are more and more generic medications on the market as a number of enormously popular brand-name blockbusters will lose their 20-year long patents, e.g. Lipitor (best selling drug in the world to lower cholesterol) in 2010, Viagra (you know what it’s for) in 2012. Drugstores prefer to sell generic drugs to customers due to higher profit margins than the brand-name medications.
Some people are addicted to pain killers, e.g. Hydrocodone and consume a large amount of medicine, e.g. 30-day dosage in a day to get high. According to testimony from the National Institute on Drug Abuse, US retail pharmacies dispensed nearly 180 million prescriptions in 2007 for opiates, e.g. Hydrocodone. A high percentage of these prescriptions are probably not used for any legitimate medical purposes.
This author estimates that at least 10% of the dispensed prescription drugs are not used at all and sit idle in the medicine cabinets. They are eventually expired and thrown away.
These companies sign very long-term, NNN leases, guaranteed by their corporate assets. This makes the investment in the underlying property fairly low risk, especially for Walgreens with an A+ S&P rating. In fact, these properties are sometimes referred to as investment-grade properties. Once the drugstore chains sign the lease, they pay the rent promptly and timely. This author is not aware of any properties leased by one of these drugstore chains in which the tenants failed to pay rents. Even when the stores are closed due to weak sales (Walgreens closed 119 stores in 2007), these companies may sublease the properties to other companies and continue to pay rents on the master leases.
A typical Walgreens lease consists of 20-25 year primary term plus 8-10 five-year options. During primary term and options, there will be no rent increases in most of the leases. This is the main disadvantage of investing in Walgreens drugstores.
A typical CVS lease consists of 20-25 year primary term plus 4-5 five-year options. The rent is normally flat during the primary term and then there is a 2.5%-10% rent increase in the in each 5-year option.
A typical Rite Aid lease consists of 20-25 year primary term plus 4-8 five-year options. The lease often has a rent increase every 5-10 years.
Investment Risks: Although the pharmacy business in general is recession-insensitive, there are risks involved in your investment:
The main downside about investing in pharmacies is there is little or no rent bump for a long time, e.g. 20-50 years, especially for Walgreens. So the rent is effectively reduced after inflation is factored in. This is one of the main reasons these properties do not appeal to younger investors.
The 3 drugstore chains now have a new formidable competitor, Wal-mart. Wal-mart sells prescription drugs in more than 4000 Wal-mart, Sam’s Club and Neighborhood Market stores in 49 states. The retail giant is known for launching in 2006 a highly-publicized $4 generic prescription drug program which now sells 350 generic medications for a 30-day supply. The actual number of medications is less as the medications with different strengths are counted as different medications. For example, Metformin 500 mg, 850 mg, and 1000 mg are counted as 3 medications. Wal-mart probably makes very little profits on these medications if any. However, the marketing campaign–created by Bill Simon, the President and CEO of Wal-mart US, generates a lot of publicity for Wal-mart. Wal-mart hopes to draw customers to its stores with other prescriptions where it has higher profit margins. In an unscientific survey with just one brand-name prescription of Lyrica, this author finds the lowest price at Costco, the highest price at Walgreens and Wal-mart at the middle. Other drug chains try to counter Wal-mart in different ways. Target now offers the same 350 generic medications for $4 for a 30-day supply. Walgreens has a Prescription drugs club with membership fee which offers 1400 generic medications for as little as $1/week. CVS says it will match any offers from its competitors.
Chief Business Correspondent Rick Newman from US World & News Report predicted that Rite Aid might not survive in 2009. While Rite Aid is still around in 2010, dire predictions continue. The study by Audit Integrity gave Rite Aid about a 10.5 percent chance of filing for bankruptcy in 2010.
Drugs are also sold in thousands of supermarkets, Target stores, and Costco warehouses. However, there are no drive-thru windows at these stores or Walmart to conveniently drop off the prescriptions and pick up medicines. Customers will not be able to pick up their prescriptions during lunch hour or after 7PM at Target stores or supermarkets. They need to have membership to buy medicines at Costco. Others may not fill their prescriptions at Walmart because they don’t want to mingle with typical Walmart customers who are in lower income brackets. And some babyboomers don’t want their prescriptions filled at Target or Walmart because there are no comfortable chairs for them to sit down to wait for their medicines.
Many leases in areas with hurricanes and tornados are NNN leases with the exception of roof and structure. So if the roof is damaged, you will have to pay for the expenses.
The tenant may move to a new location down the road or across the street when the lease expires. This risk is high when the property is located in small town where there is low barrier for entry, i.e. lots of vacant & developable land.
The tenant may ask for rent concession to improve its bottom line. The possibility is higher if the tenant is Rite Aid and if the store has low sales revenue and/or higher than market rent.
More Americans are walking away from their prescriptions, especially the most expensive brand-name medicines. This may have negative impact on the sales revenue and profits of drug stores and consequently may cause drug store closures. According to Wolters Kluwer Pharma Solution, a health-care data company, nearly 1 in 10 new prescriptions for brand-name drugs were abandoned by people with commercial health plans in 2010. This is up 88% compared to 4 years ago just before the recession began. This trend is driven in part by higher and higher co-pays for brand name drugs as employers are shifting more insurance costs to their employees.
Among 3 drugstore chains, Walgreens and CVS pharmacies in general have the best locations-at major intersections while Rite Aid has less than premium locations. Walgreens tends to hire only the top graduates from pharmacy schools while Rite Aid settles with bottom graduates to save costs. When possible all drugstore chains try to fill the prescriptions with generic medications which have higher profit margins
Walgreens: the company was founded in 1901 by Charles Walgreen, Sr. in Chicago. While the company has existed for more than 100 years, most stores are only 5-10 years old. This is the best managed company among the three drugstore chains and also among the most admired public companies in the US. The company has been run by executives with proven track records and hires the top graduates from universities. Due to its superior financial strength–S&P A+ rating– and premium irreplaceable locations, properties with leases from Walgreens get the highest price per square foot and/or the lowest cap rate among the 3 drugstore chains. In addition, Walgreens gets flat rent or very low rent increase for 20 to 60 years. The cap rate is often in the low 6% to 7.5% range in 2009. Investors who buy Walgreens tend to be more mature, i.e. closer to retirement age. They are looking for a safe investment where it’s more important to get the rent check than to get appreciation. They often compare the returns on their Walgreens investment with the lower returns from US treasury bonds or Certificate of Deposits from banks. Walgreens opened many new stores in 2008 and 2009 and thus you see many new Walgreens stores for sale. It will slow down this expansion in 2010 and focus on renovation of existing stores instead
CVS: CVS Corporation was founded in 1963 in Lowell, MA by Stanley Goldstein, Sidney Goldstein, and Ralph Hoagland. The name CVS stands for “Consumer Value Stores”. As of 2009, CVS has about 6300 stores in the US, mostly through acquisitions. In 2004, CVS bought 1,200 Eckerd Drugstores mostly in Texas and Florida. In 2006, CVS bought 700 Savon and Osco drugstores mostly in Southern California. And in 2008 CVS acquired 521 Longs Drugs stores in California, Hawaii, Nevada and Arizona for $2.9B dollars. The acquisition of Long Drugs appears to be a good one as it CVS does not have any stores in Northern CA and Arizona. Besides, the price also included real estate. It is also bought Caremark, the largest pharmaceutical services company and changed the corporation name to CVS Caremark. When CVS bought 1,200 Eckerd stores, it formed a single-entity LLC (Limited Liability Company) to own each Eckerd store. Each LLC signs the lease with the property owner. In the event of a default, the owner can only legally go after the assets of the LLC and not from any other CVS-owned assets. Although the owner loses the guaranty security from CVS corporate assets, this author is not aware of any incident where CVS closes a store and does not pay rent.
Rite-Aid: Rite Aid was founded by Alex Grass (he just passed away on Aug 27, 2009 at the age of 82) and opened its first store in 1962 as “Thrif D Discount Center” in Scranton, Pennsylvania. It officially incorporated as Rite Aid Corporation and went public in 1968. By the time Alex Grass stepped down as the company’s chairman and chief executive officer in 1995, Rite Aid was the nation’s largest drugstore chain in terms of total stores and No. 2 in terms of revenue. His son, Martin Grass, took over but was ousted in 1999 for overstatement of Rite Aid’s earnings in the late 1990s. Rite Aid is now the weakest financially among the 3 drugstore chains. In 2007, Rite-Aid acquired about 1,850 Brooks and Eckerd drugstores, mostly along the East coast to catch up with Walgreens and CVS. In the process, it added a huge long term debt (currently owes over $5.69 Billion) and is the most leveraged drugstore chain based on its market value. The integration of Brooks and Eckerd did not seem to go well. Revenue from some of these stores went down as much as 20% after they change the sign to Rite Aid. In 2009, Rite-Aid had over 4900 stores and over $26 Billion in revenues. The figures went down in 2010 to 4780 stores and $25.53 billion in revenue. On January 21, 2009 Moody’s Investor Services downgraded Rite Aid from “Caa1″ to “Caa2″, eight notches below investment grade. Both ratings are “junk” which indicate very high credit risk. Rite Aid contacted a number of its landlords in 2009 trying to get rent concession to improve the bottom line. In June 2009, Rite Aid successfully completed refinancing $1.9 Billion of its debts. However, it continues to struggle in 2010 as same store sales decreased 2.5% in June, 1.7% in May, 1% in April,.1% in March, 3.2% in February, and 2.1% in January..
Things to consider when invested in a pharmacy
If you are interested in investing in a property leased by drugstore chains, here are a few things you should consider:
If you want a low risk investment, go with Walgreens. In stable or growing areas, the degree of safety is the same whether the property is in California where you get a 6% cap or Texas where you may get a 7.5% cap. So, there is no significant advantage to invest in properties in California as the property value is based primarily on the cap rate. In 2010, the offered cap rate for Walgreens seems to come down from 7.5%-8.4% in 2009 to 6.5%-7.5% for new stores.
If you are willing to take more risk, then go with Rite-Aid. Some properties outside of California may offer up to 10% cap rate in 2010. However, among the 3 drug chains, Rite Aid has 10.5% chance of going under in 2010. Should it declare bankruptcy, Rite Aid has the option to pick and choose which locations to keep open and which locations to terminate the lease. To minimize the risk that the store is shuttered, choose a location with strong sales and low rent to revenue ratio.
Financing should be an important consideration. While the cap rate is lower for Walgreens than Rite Aid, you will be able to get the best rates and terms for Walgreens. A 7.25% cap Walgreens with 5.25% interest rate on the loan will generate more cash flow than a 10% cap Rite Aid with 9% interest rate (if you could find a lender for Rite Aid).
If you are not a conservative investor or risk taker, you may want to consider a CVS pharmacy. It has BBB+ S&P credit rating. Its cap rate is higher than Walgreens but lower than Rite Aid. Some leases may offer better rent bumps. On the other hand, some CVS leases, especially for properties in hurricane areas, e.g. Florida are not truly NNN leases where landlords are responsible for the roof and structure. So make sure you adjust the cap rate down accordingly. Some of the CVS locations have onsite Minuteclinic staffed by registered nurses. Since this clinic idea was introduced recently, it’s not clear having a clinic inside CVS is a plus or minus to the bottom line of the store.
All 3 drugstore chains have similar requirements. They all want highly visible, standalone, rectangular property around 10,000 – 14,500 SF on a 1.5 – 2 acre lot, preferably at a corner with about 75 – 80 parking spaces in a growing and high traffic location. They all require the property to have a drive-thru. Hence, you should avoid purchasing an inline property, i.e. not standalone and property with no drive-thru windows. There is a chance that these drugstores may not want to renew the lease unless the property is located in a densely-populated area with no vacant land nearby. In addition, if you acquire a property that does not meet the new requirements, for example a drive-thru, you may have a problem getting financing as lenders are aware of these requirements.
If the pharmacy is opened 24 hours a day, it is in a better location. Drugstore chains do not open the store 24 hours day unless the location draws customers.
Many properties may have a percentage lease, i.e. the landlord can get additional rent when the store’s annual revenue exceeds a certain figure, e.g. $5M. However, the revenue used to compute percentage rent often excludes a page-long list of items, e.g. wine and sodas, tobacco products, items sold after 10 PM, drugs paid by governmental programs. The excluded sales revenue could account for as much as 70% of store’s gross revenue. As a result, this author has seen only 2 stores in which the landlord is able to collect additional percentage rent. The store with a percentage rent is required to report its monthly sales to the landlord. As an investors, you want to invest in a store with strong gross sales, e.g. over $500 per square foot a year. In addition, you also want to check the rent to revenue ratio. If the figure is in the 2-4% range, the store is likely to be very profitable so the chance the store is shut down is low.
It does not matter how good the tenants are, avoid investing in declining and/or low-income areas or small towns with less than 30,000 residents within 5 miles ring. In a small town, it may be the only drug store in town and captures most of the market share. However, if a competitor opens a new location in the area, revenue may be severely affected. These properties are easy to buy now and hard to sell later. In 2009 where the credit market is tight, you may have problems finding a lender to finance these properties.
Many properties have an existing loan that the buyer must assume. If you have a 1031 exchange, think twice about buying this property. You should clearly understand loan assumption requirements of the lenders before moving forward. Should you fail to assume the existing loan (assuming an existing loan is a lot more difficult than getting a new loan), you may run out of time for a 1031 exchange and may be liable to pay capital gain.
With few exceptions, drugstore chains do not own the stores they occupy for several reasons. Here are just a couple of them:
They know the pharmacy business but don’t know real estate. Stock investors also don’t want Walgreens to become a real estate investment company.
Owning the real estate will require them to carry lots of long term debts which is not a brilliant idea for a publicly-traded company.
About 10% of the drugstore properties for sale and typically CVS pharmacies require very small amount of equity to acquire, e.g. 10% of the purchase price. However, you are required to assume an existing fully-amortized loan with zero cash flow. That is, all of the rent paid by the tenant must be used to pay down the loan. The cap rate may be in the 7% range, and the interest rate on the loan could be attractive in the 5.5% to 6% range. Hence, the investor pays off the loan in 10 to 20 years. However, the investor has no positive cash flow. This requires you to come up with outside cash to pay income tax on the rental profits (the difference between the rent and mortgage interest). The longer you own the property, the more outside cash you will need to pay income taxes as the mortgage interest will get less and less toward the end. So who would buy this kind of property?
The investors who have substantial losses from other properties. By acquiring this zero cash flow property, they may offset the income from the drugstore tenant against the losses from other investment properties. For example, a property has $105,000 of rental profits a year, and the investor also has losses of $100,000 from other investment properties. As a result, the combined taxable profits are only $5,000.
The uninformed investors who fail to consider that they have to raise additional cash to pay income taxes.
Out of the Box Thinking If you put too much weigh on the S&P rating of the tenants, you may end up either taking a lot of risks or passing up good opportunities.
Good location should be the key in your decision on which drug store to invest in. It’s often said a lousy business should do well at a great location while the best tenant will fail at a lousy location. A Walgreens store that is closed down later on (yes, Walgreens closed 119 stores in 2007) is still a bad investment even though Walgreens continues paying rent on time. So you don’t want to blindly invest in a drug store simply because it hasa Walgreens sign on the building.
No company is crazy enough to close a profitable location. It does not take a rocket scientist to understand that a financially-weak company like Rite Aid will make every effort to keep a profitable location open. On the other hand, a financially-strong Walgreens will need justifications to keep an unprofitable location open. So how do you determine if a drug store location is profitable or not if the tenant is not required to disclose its profit & loss statement? The answer is you cannot. However, you can make an educated guess based on store’s annual gross revenue is often reported to the landlord as required by the percentage clause in the lease. With the gross revenue, you can determine the rent to income ratio. The lower the ratio, the more likely the store is profitable. For example, if the annual base rent is $250,000 while the store’s gross revenue is $5M then the rent to income ratio is 5%. As a rule of thumb, it’s hard to make a profit if this ratio is more than 8%. So if you see a Rite Aid with 3% rent to income ratio then you know it’s likely a very profitable location. In the event Rite Aid declares bankruptcy, it will keep this location open and continue paying rent. If you see a Rite Aid drug store with 3% rent to income ratio offering 11% cap, chances are it’s a low risk investment with good returns. The weakness of corporate guaranty from Rite Aid is probably not as critical and the risk of having Rite Aid as a tenant is not really that significant.
Drug stores with new 25 years leases tend to sell at lower cap, e.g. 7-7.5% cap on new stores versus 8.0-8.5% cap on established locations with 8-10 years remaining on the lease. This is because investors are afraid that the tenants may not renew the leases. Unfortunately, lenders also have the same fear! As a result many lenders will not finance drug stores with 2-3 years left on the leases. The fact that drugstores with new leases have a premium on the price means they have potential of 10% depreciation (buying new at 7.3% cap and selling at 8.3% cap when the leases have 10 year left). Some investors will not consider investing in drug stores with 5-10 years left on the lease. They might simply ignore the fact that the established stores may be at irreplaceable locations with very strong sales. Tenants simply have no other choices other than renewing the lease.