Offering Memorandum PEP BOYS SCOTTSDALE 6828 E Thomas Rd Scottsdale, AZ 85251
NON-ENDORSEMENT AND DISCLAIMER NOTICE Confidentiality and Disclaimer The information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Marcus & Millichap and should not be made available to any other person or entity without the written consent of Marcus & Millichap. This Marketing Brochure has been prepared to provide summary, unverified information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. Marcus & Millichap has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB's or asbestos, the compliance with State and Federal regulations, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any tenant's plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable; however, Marcus & Millichap has not verified, and will not verify, any of the information contained herein, nor has Marcus & Millichap conducted any investigation regarding these matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of the information set forth herein. Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. Â 2017 Marcus & Millichap. All rights reserved. Non-Endorsement Notice Marcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any corporation's logo or name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or subsidiaries, or any agent, product, service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information about this listing to prospective customers. ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY. PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS. PEP BOYS SCOTTSDALE Scottsdale, AZ ACT ID Y0070417 2
NET LEASED DISCLAIMER Marcus & Millichap hereby advises all prospective purchasers of Net Leased property as follows: The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable. However, Marcus & Millichap has not and will not verify any of this information, nor has Marcus & Millichap conducted any investigation regarding these matters. Marcus & Millichap makes no guarantee, warranty or representation whatsoever about the accuracy or completeness of any information provided. As the Buyer of a net leased property, it is the Buyer s responsibility to independently confirm the accuracy and completeness of all material information before completing any purchase. This Marketing Brochure is not a substitute for your thorough due diligence investigation of this investment opportunity. Marcus & Millichap expressly denies any obligation to conduct a due diligence examination of this Property for Buyer. Any projections, opinions, assumptions or estimates used in this Marketing Brochure are for example only and do not represent the current or future performance of this property. The value of a net leased property to you depends on factors that should be evaluated by you and your tax, financial and legal advisors. Buyer and Buyer s tax, financial, legal, and construction advisors should conduct a careful, independent investigation of any net leased property to determine to your satisfaction with the suitability of the property for your needs. Like all real estate investments, this investment carries significant risks. Buyer and Buyer s legal and financial advisors must request and carefully review all legal and financial documents related to the property and tenant. While the tenant s past performance at this or other locations is an important consideration, it is not a guarantee of future success. Similarly, the lease rate for some properties, including newly-constructed facilities or newly-acquired locations, may be set based on a tenant s projected sales with little or no record of actual performance, or comparable rents for the area. Returns are not guaranteed; the tenant and any guarantors may fail to pay the lease rent or property taxes, or may fail to comply with other material terms of the lease; cash flow may be interrupted in partorin whole due to market, economic, environmental or other conditions. Regardless of tenant history and lease guarantees, Buyer is responsible for conducting his/her own investigation of all matters affecting the intrinsic value of the property and the value of any long-term lease, including the likelihood of locating a replacement tenant if the current tenant should default or abandon the property, and the lease terms that Buyer may be able to negotiate with a potential replacement tenant considering the location of the property, and Buyer s legal ability to make alternate use of the property. By accepting this Marketing Brochure you agree to release Marcus & Millichap Real Estate Investment Services and hold it harmless from any kind of claim, cost, expense, or liability arising out of your investigation and/or purchase of this net leased property. 3
EXECUTIVE SUMMARY OFFERING SUMMARY Price $1,938,545 Net Operating Income $106,620 Capitalization Rate Current 5.50% Price / SF $290.11 Rent / SF $15.96 Lease Type NN Gross Leasable Area 6,682 SF Year Built / Renovated 1981 Lot Size 0.71 acre(s) MAJOR EMPLOYERS OFFERING SUMMARY EMPLOYER # OF EMPLOYEES * Office of The President 6,500 Associated Insur Co For Excess 5,003 Asu Librarys 5,000 SALT RIVER PROJECT 4,336 Standard Aero Holdings Inc 3,500 Parks Scottsdale & Recreation 3,374 FINANCING Down Payment All Cash Net Cash Flow 5.50% / $106,620 Cash on Cash Return 5.50% Honorhealth 3,001 AVNET 2,800 City of Scottsdale Municipal P 2,771 Scottsdale Ecnmic Vtlty The Cy 2,410 Police Department 2,396 Chase Bankcard Services Inc 2,300 DEMOGRAPHICS 1-Miles 3-Miles 5-Miles 2017 Estimate Pop 17,420 106,134 250,225 2017 Census Pop 16,206 97,183 226,933 2017 Estimate HH 8,136 50,779 108,074 2017 Census HH 7,594 46,421 98,526 Median HH Income $49,686 $49,387 $44,911 Per Capita Income $33,186 $35,944 $32,008 Average HH Income $70,694 $74,965 $72,539 * # of Employees based on 5 mile radius 4 #
INVESTMENT OVERVIEW OFFERING SUMMARY The subject property is well-located along East Thomas Road between 68th Street and Scottsdale Road in the heart of South Scottsdale. Pep Boys recently assumed and extended the current lease, which now has just under 10 years of firm term remaining, 3% annual increases in years 1-5, a 10% Increase in Year 6, and a 10% increase in the one remaining five-year option period. The lease is an absolute triple net lease, subject only to a carve-out for repairing structural damage to slab and bearing walls and a thirty day right of first refusal to any purchase. Surrounding retailer's include Burger King, Domino's, Streets of New York, Valero, Shell, Chase, Panda Express, O'Reilly, Aaron's, Bowlmor, YouFit, Albertsons, Chipotle, Smashburger, Starbucks, Circle K McDonald's, Taco Bell, etc. The property has been kept in immaculate condition throughout its 10+ year operating history and recently underwent intensive maintenance and renovation. The roof was recoated, the parking lot and curbs were restriped and repaired, and the restrooms, lighting and shop space were brought up to code and refreshed. Pep Boys also recently converted the property to its updated branding with new paint and signage. Adjacent to the Greater Phoenix Area, Scottsdale is known as the Wests most Western town and was described in the New York Times as a desert version of Miamis South Beach. The tourism industry is Scottsdales primary employer, accounting for 39% of the citys workforce. The regions year-round warm weather and abundant sunshine is a major factor in Scottsdales tourism appeal. Scottsdale is home to one of the most visited malls in the country, Scottsdale Fashion Square, as well as the San Francisco Giants Training Center and SkySong. SkySong is Arizona State Universitys (ASU) 1.2 million SF mixed-use development located on a 42-acre campus in Scottsdale, three miles from ASUs Tempe campus. SkySongis home to a diverse business community that links technology, research, education and entrepreneurship to position ASU and Greater Phoenix as global leaders in the knowledge economy. INVESTMENT HIGHLIGHTS Strongest Pep Boys Guarantee - The Pep Boys - Manny, Moe & Jack of CA Recent Lease Extension and Property Remodel - Just Under Ten Years Remaining 3% Annual Increases in Years 1-5 - 10% Increases in Year 6 and in Option Visible To 38,000 +/- Cars Per Day Along E Thomas Rd and N 68th St Infill Location - 250k+ People in Five-Mile Radius Affluent South Scottsdale Location - $75k Average Income in Three-MIle Radius 5
PROPERTY PEP BOYS NAME PRICING AND TENANT VALUATION SUMMARY MATRIX The Pep Boys Manny, Moe and Jack of CA (a Carl Icahn Company) PARENT CREDIT RATING: C2 www.fdreports.com www.creditntell.com March 31, 2017 Address Parent General Information Phone (212) 702-4300 767 Fifth Avenue 47th Floor, New York, New York, 10153, United States Chairman President & CEO Chief Financial Officer Parent Key Personnel Carl Icahn Keith Cozz SungHwan Cho Store Base Store Count 1,000+ Headquarters 3111 West Allegheny Avenue, Philadelphia PA CEO Dan A. Ninivaggi Parent Financial Markets Stock Ticker IEP Current Price 57.40 as of 2/3/18 52 Week High/Low $59.91 / $47.06 Today the company operates more than 9,000 service bays in approximately 1,000 locations in 35 states and Puerto Rico. At the same time, in some of its traditional supercenters, the company has expanded to include Speed Shops within its retail stores, which cater to the growing number of car enthusiasts who have fun working on performance cars, like hot rods, muscle cars and off road trucks. In 2012, Pep Boys created a new service and retail customer experience, which it refers to as The Road Ahead. Similar to the experience found at some high end car dealerships, new Pep Boys stores feature customer lounges with amenities such as complimentary Wi Fi and flat screen TVs near its full service maintenance and repair shops, as well as the most diverse retail product assortment in the automotive aftermarket. With almost 20,000 friendly and knowledgeable associates living the legacy of Manny, Moe & Jack, Pep Boys vision is to be the best place to shop and care for your car. Since a 2016 acquisition, Pep Boys is owned by Icahn Automotive Group LLC, which was formed by its parent, Icahn Enterprises L.P., to invest in and operate businesses involved in aftermarket parts distribution and service. www.pepboys.com Fiscal Year Ended December 31, 2016 6#
PROPERTY PEP BOYS SCOTTSDALE NAME PRICING AND LOCATION VALUATION TENANT SUMMARY OVERVIEW MATRIX 6828 E Thomas Rd, Scottsdale, AZ 85251 Recently Extended 10 Year Lease National Brand Recognition Strongest California Entity Guarantee Strong South Scottsdale Location 10 Year Historical Occupancy as Auto Use Large Parcel and Building The subject property is well located in South Scottsdale and consists of a 6,682 sqft building on.71 acres. The Pep Boys - Manny, Moe & Jack of California recently signed an extended 10 year lease with increases. CLOSE PROXIMITY TO: 7#
PROPERTY PEP BOYS SCOTTSDALE NAME 6828 E Thomas Rd, Scottsdale, AZ 85251 PRICING REGIONAL AND LOCATION VALUATION TENANT AND LOCAL SUMMARY OVERVIEW MATRIX MAP 8#
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PROPERTY SUMMARY OFFERING SUMMARY NOTES: Current rent and price above are based on December 1, 2018 3% increase Seller to credit buyer amount of difference in rent between COE and December 1, 2018 11 #
PEP BOYS SURROUNDING PROPERTY PHOTOS 12
PHOENIX OVERVIEW MARKET OVERVIEW The Phoenix metro consists of Maricopa and Pinal counties, and it includes more than 30 incorporated and more than 30 unincorporated towns and cities. The region is hemmed in by mountains to the north and east. American Indian reservations to the east and south limit development in those directions, leaving the southeastern corridor and western half of the metro as the primary growth areas. The largest city is Phoenix, which encompasses about 520 square miles, is the capital city and boasts a population of nearly 1.6 million. Interstate 10 is a major trucking route directly connecting the region to Southern California, which is supporting a growing distribution industry. Various rail and air lines connect the metro nationally. METRO HIGHLIGHTS EMPLOYMENT GROWTH Job gains will increase faster than the national rate during the next five years, drawing new residents to the metro. HIGH-TECH MANUFACTURING BASE Intel Corp., Motorola Inc., Honeywell and others have large Phoenix operations, attracting additional companies serving these corporations. ACTIVE TOURISM INDUSTRY Warm winters and amenities including golf courses and resorts attract vacationers. 13
MARKET OVERVIEW ECONOMY Phoenix claims multiple Fortune 500 headquarters, including Freeport-McMoRan, Republic Services, Insight Enterprises, Avnet and PetSmart. The construction, high-tech manufacturing, healthcare and tourism industries dominate the Phoenix economy. Healthcare is a critical industry, with around 20 hospitals and the UA medical school located in the metro. Also, the Mayo Clinic has added multiple facilities located throughout the metro. MAJOR AREA EMPLOYERS Banner Health JPMorgan Chase & Co. Arizona State University Wells Fargo Intel Corp. Honeywell Aerospace Fry s American Airlines Bank of America Wal-Mart * Forecast SHARE OF 2016 TOTAL EMPLOYMENT 6% MANUFACTURING 17% PROFESSIONAL AND BUSINESS SERVICES 12% 11% 9% GOVERNMENT LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES 20% TRADE, TRANSPORTATION AND UTILITIES 6% CONSTRUCTION + 15% EDUCATION AND HEALTH SERVICES 2% INFORMATION 3% OTHER SERVICES 14
MARKET OVERVIEW DEMOGRAPHICS The metro is expected to add almost 500,000 people through 2021, resulting in the formation of nearly 170,000 households. A median home price of nearly $243,000 has afforded 62 percent of households to own a home, which is slightly below the national homeownership rate. Roughly 28 percent of people age 25 and older hold bachelor s degrees and 10 percent also obtained a graduate or professional degree. SPORTS 2016 Population by Age 7% 0-4 YEARS 21% 5-19 YEARS 7% 20-24 YEARS 27% 25-44 YEARS 24% 45-64 YEARS 14% 65+ YEARS EDUCATION 2016 POPULATION: 4.6M Growth 2016-2021*: 9.9% 2016 HOUSEHOLDS: 1.7M Growth 2016-2021*: 9.9% 2016 MEDIAN AGE: 36 U.S. Median: 37.7 2016 MEDIAN HOUSEHOLD INCOME: $54,200 U.S. Median: $54,500 QUALITY OF LIFE Phoenix offers a lower cost of living than other metros its size, a moderate climate and a variety of recreational and cultural options. In addition to outdoor activities, sports enthusiasts can enjoy one of the most complete lineups of major-league teams found in any city, including teams in all four major sports. The Cactus League holds spring training baseball throughout the Valley, and the area has numerous golf courses and tennis courts. Phoenix is home to the world-famous Heard Museum and Frank Lloyd Wright s Taliesin West. Music venues include Phoenix Symphony Hall and the Orpheum Theatre. Highereducation institutions include Arizona State University, Grand Canyon University and community colleges. ARTS & ENTERTAINMENT * Forecast Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody s Analytics; U.S. Census Bureau 15
PROPERTY PEP BOYS SCOTTSDALE NAME PRICING AND LOCATION VALUATION TENANT MARKETING DEMOGRAPHICS SUMMARY OVERVIEW MATRIX TEAM CREATED ON FEBRUARY 5, 2018 1 Miles 3 Miles 5 Miles POPULATION 2022 Projection 17,475 106,135 252,043 2017 Estimate 17,420 106,134 250,225 2010 Census 16,206 97,183 226,933 2000 Census 17,467 103,254 229,189 INCOME Average $70,694 $74,965 $72,539 Median $49,686 $49,387 $44,911 Per Capita $33,186 $35,944 $32,008 HOUSEHOLDS 2022 Projection 8,243 51,692 111,714 2017 Estimate 8,136 50,779 108,074 2010 Census 7,594 46,421 98,526 2000 Census 7,838 47,153 97,698 HOUSING 2017 $247,164 $256,584 $261,624 EMPLOYMENT 2017 Daytime Population 2017 Unemployment 2017 Median Time Traveled 18,221 143,512 427,196 2.98% 3.40% 4.54% 23 22 22 RACE & ETHNICITY White 80.00% 79.41% 72.35% Native American 0.22% 0.15% 0.20% African American 3.52% 3.57% 5.06% Asian/Pacific Islander 1.91% 2.51% 3.67% Source: 2015 Experian 16#
ACQUISITION FINANCING MARCUS & MILLICHAP CAPITAL CORPORATION CAPABILITIES MMCC our fully integrated, dedicated financing arm is committed to providing superior capital market expertise, precisely managed execution, and unparalleled access to capital sources providing the most competitive rates and terms. We leverage our prominent capital market relationships with commercial banks, life insurance companies, CMBS, private and public debt/equity funds, Fannie Mae, Freddie Mac and HUD to provide our clients with the greatest range of financing options. Our dedicated, knowledgeable experts understand the challenges of financing and work tirelessly to resolve all potential issues to the benefit of our clients. WHY MMCC? Optimum financing solutions to enhance value Our ability to enhance buyer pool by expanding finance options Our ability to enhance seller control Through buyer qualification support Our ability to manage buyers finance expectations Ability to monitor and manage buyer/lender progress, insuring timely, predictable closings Closed 1,651 debt and equity financings in 2016 National platform operating within the firm s brokerage offices $5.1 billion total national volume in 2016 Access to more capital sources than any other firm in the industry By relying on a world class set of debt/equity sources and presenting a tightly underwritten credit file 17