After a review of strategic alternatives in June 2024, Family Dollar finally announced the sale of its Family Dollar Business to a partnership of private equity companies Brigade Capital Management and Macellum Capital Management for just over $1 billion.
Now, investors will wait to see what happens next.
Those invested in Dollar Tree locations will likely find the company is “probably betting that they’ll go back to what they were pre the merger,” Jonathan Hipp, principal of U.S. capital markets and head of the U.S. net lease group of Avison Young, told GlobeSt.com.
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“It’s going to be interesting to see what they do with some of their locations. If you’re a landlord, it’s too early to tell what they’re going to do, but I’m sure a lot of landlords — both private and institutional — are wondering how this is going to affect them in the coming year.”
He thinks the new owners will “shutter some locations,” as it is normal for private equity companies to cut or reduce financial losses where they can.
When Sycamore Partners acquired Walgreens Boots Alliance, there was potential for significant changes in how Walgreens managed its real estate portfolio, as Trepp noted in a report. Sycamore might continue or accelerate Walgreens’ existing store rationalization plan, which involves closing underperforming locations. However, the acquisition could also substantially reduce Walgreens' real estate footprint, impacting landlords with leases nearing expiration.
Already, the pharmacy chain announced in October 2024 that it would close about 1,200 cashflow-negative and underperforming stores.
However, the situation for Family Dollar is different, as the discount retailer focuses on rural and lower-income urban areas.
“The business model for Family Dollar was not to go into affluent booming economic areas,” Hipp said. “It was the opposite. Typically, those are not the most sought-after retail locations for adaptive use.”
“I did see cap rates starting to increase on Family Dollars in the market, trying to entice buyers to step in,” he added. “It’s going to be a lot harder now because of the uncertainty out there that you could get an aggressive cap rate for one of the locations.”
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