Challenge

A free-standing Walmart Neighborhood Market was in a prime location in Orange County, CA, and was joined by five prominent co-tenants, Auto Zone, Gold’s Gym, Carl’s Jr, Dollar Tree, and McDonald’s. On 3/24/22, Walmart Neighborhood Market closed its location despite its extremely dense surrounding population and limited retail competition. The site is now dark and is available for lease or sale. Walmart Neighborhood Market had only been operating from this location for ten years before going dark. Despite the great location, Walmart terminated the lease early, immediately affecting the landlord’s equity.

Strategy

The closing of this location was in no way a reflection of the company’s performance but rather a battle of odds between location, square footage, and tenant performance. Walmart leased multiple other properties nearby, including a property two miles from Disneyland, two supercenters within three miles, and another Neighborhood Market in Anaheim.

Highlighting the reason why a newly constructed location went dark is of importance. It’s a common misconception to say that “it can’t happen to my property.” Unfortunately, it’s happening to landlords in dense markets with over ten years left on the lease term. It’s difficult to comprehend why, but Walmart is willing to lose millions of dollars to not operate their neighborhood market. The shocking reality is that these locations aren’t performing. To avoid cannibalization and to maximize profits, Walmart is focusing on Supercenters and are expanding their traditional Walmart Discount Stores to a minimum of 185,000 square feet (where parking ratios permit). Walmart is relocating from 150,000 to 160,000 square foot layouts to new construction supercenters that are 200,000+ square feet.

Take Away

Given the challenging situation and to sell a property of this stature, it must be strategically marketed by highlighting the location’s high barriers to entry, anchor opportunity, and placement among high credit-rated co-tenants. It Is also important to outline that working with an agent that is hyper-specialization in the field will bring incredible value and will help with preserving investor equity and wealth.

Dark Walmart Neighborhood Markets – Currently ‘For Sale or Lease’

1. (Dark) Walmart Neighborhood Market – Chattanooga, TN: The property was built in 2016 and sold in 2017 for $12,412,553. Walmart since closed this Neighborhood Market and the purchaser placed the dark property on market more than 110 days ago for $9,200,000 at a 7.28% cap rate. As of July 21^st, the property is under contract.

1. Address: 4110 Shallowford Rd
2. Year Built: 2016
3. Annual Rent: $669,760
4. Building Size (SF): 41,868 SF
5. Current Rent PSF: $15.99
6. Remaining Lease: 28 Years
7. Original Sale Date: July 20, 2017
8. Original Sale Price: $12,412,553
9. Current Asking Price: $9,200,000
10. Current Asking Cap Rate: 28%
11. Number of Days On-Market: 110 Days

2. (Dark) Walmart Neighborhood Market – Richmond, VA: The property was built in 2015 and sold in 2017 for $12,091,444. Walmart has since closed this Neighborhood Market, and the purchaser placed the dark property on market more than 278 days ago for $9,999,999 with another brokerage firm. The brokerage firm was unable to close the transaction, and the property was relisted on June 21^st with a competing brokerage, this time asking $9,607,514.

1. Address: 7000 Iron Bridge Rd
2. Year Built: 2015
3. Annual Rent: $673,000
4. Building Size (SF): 41,117 SF
5. Current Rent PSF: $16.36
6. Remaining Lease: 7 Years
7. Original Sale Date: July 16, 2016
8. Original Sale Price: $12,091,444
9. Original Asking Price: $9,999,999 
10. Reduced Asking Price: $9,607,514
11. Current Asking Cap Rate: 73%
12. Number of Days On-Market: 278 Days

3. (Dark) Walmart Neighborhood Market – San Antonio, TX: The property was built in 2015 and sold in March 2016 for $11,200,000. Walmart has since closed this Neighborhood Market, and the purchaser placed the dark property on market “For Sale or Lease” without a purchase price more than 266 days ago.

1. Address: 3418 E Southcross Blvd
2. Year Built: 2015
3. Annual Rent: $576,800
4. Building Size (SF): 41,117 SF
5. Current Rent PSF: $14.02
6. Remaining Lease: 5 Years
7. Original Sale Date: 3/24/2016
8. Original Sale Price: $11,200,000
9. Current Asking Price: Unpriced
10. Current Asking Cap Rate: Unpriced
11. Number of Days On-Market: 246 Days

Sale Comps

1. Walmart Neighborhood Market – Tuscaloosa, AL: On July 14^th, 2020, this property sold for a 5.25% cap rate when the 10-Year Treasury was 0.63%.

1. Address: 4201 Hargrove Rd E
2. Year Built: 2015
3. Annual Rent: $528,525
4. Building Size (SF): 41,921 SF
5. Current Rent PSF: $12.61 per SF
6. Remaining Lease: 12 Years
7. Sale Date: 7/14/2020
8. Sale Price: $10,456,815
9. Cap Rate: 25%

2. Walmart Neighborhood Market – Shreveport, LA: On October 18, 2021, this property sold for a 5.16% cap rate when the 10-Year Treasury was 1.65%.

1. Address: 412 Bert Kouns Industrial Loop
2. Year Built: 2016
3. Annual Rent: $582,564
4. Building Size (SF):  41,921 SF
5. Current Rent PSF: $13.90 per SF
6. Remaining Lease: 10 Years
7. Sale Date: 10/18/2021
8. Sale Price: $11,290,000
9. Cap Rate:16%

3. Walmart Neighborhood Market – Chattanooga, TN: On August 8, 2021, this property sold for a 5.00% cap rate when the 10-Year Treasury was 0.76%.

1. Address: 8101 E Brainerd Rd
2. Year Built: 2015
3. Annual Rent: $636,461
4. Building Size (SF):  41,117 SF
5. Current Rent PSF: $15.48 per SF
6. Remaining Lease: 15 Years
7. Sale Date: 8/9/2021
8. Sale Price: $12,729,220
9. Cap Rate: 00%