In May of 2022, I had the opportunity to work on the acquisition of a Rite Aid property located in Salisbury, MD.
This particular location was an attractive investment for several reasons, notably its strategic position within the market. The property is located just a half mile to the north of Salisbury University, which has an enrollment of over 7,000 undergraduate students. Additionally, this Rite Aid site is positioned less than a half mile to the south of the Peninsula General Hospital FCU.
This deal had several hurdles to overcome. For one, it was a very short-term lease that we purchased as-is from the seller. Secondly, several tenant announcements regarding the health of the business and plans to close stores throughout the deal complicated the process. Finally, during our due diligence period, we discovered the property required a Phase II environmental report as the site was flagged for possible contamination.
We acquired this Rite Aid property with approximately 7 months remaining on the lease term with no indication from the tenant of their intention to remain at the site. The deal had previously been under contract with another buyer that fell through for this reason. Ocean Block Capital was comfortable taking on this risk and acquired the property as is, fully prepared for a scenario where we would have to redevelop a vacant building.
Additionally, during our due diligence period, Rite Aid announced they would be closing 145 locations. This came weeks before the expiration of our due diligence period and placed added pressure on the calculated business risk we were already taking on. Despite never receiving confirmation whether or not our store was on the closure list, we decided to move forward with the deal.
The final hurdle we had to overcome became apparent when we received our Phase I environmental report during our due diligence period. This report indicated that there were previous underground storage tanks at the property and strongly recommended a Phase II environmental report be conducted, including a Ground Penetrating Radar (GPR) Report, to test the soil and confirm the tanks had been removed. The results from the Phase II environmental report showed that the property was in fact clean and ultimately gave Ocean Block the confidence to close on the asset.
This deal was one of Ocean Block Capital’s most creative and opportunistic acquisitions to date. The level of risk from the short-term lease, a tenant announcing store closures, and the requirement of a Phase II environmental report, were all considerations during the process. In the end, through our extensive diligence process, we determined the potential upside outweighed the risks and were comfortable closing on the deal.
We would like to thank the sellers Brandon Hanna, Mike Gaggo, Dante Hargis, and the rest of the team at Encore Real Estate Investment Services for their professionalism and flexibility in assisting us with navigating this challenging, opportunistic deal.