There are thousands of these kinds of stores across the U.S. Starbucks is opening more stores than McDonalds and Subway combined. In 2022, it looks like they may be on pace to open about 2,000 of them around the world with half of them in the U.S. roughly. I see sales of these buildings highlighting that they are NNN – triple net lease – with Starbucks as the tenant. It seems almost like a no brainer for some investors who fit a certain profile on their return needs and risk appetitive – or lack thereof.
But are these buildings good candidates for cost segregation? Absolutely they are! First of all while they can be a bit sparse on the inside, the finishing that they do have is quite nice. That’s where you’ll pick up your 5 year class life property. Then they often have good-sized parking lots, sidewalks, maybe an outdoor patio, lighting etc. That’s all going to be 15 year class life property and it will be significant.
I see a lot of these properties come across my LinkedIn stream with many of them now priced at about $2MM to $2.5MM. They are often placed in locations with high visibility and traffic so the land values are high. But normally we see the building basis on these once we deduct the land value come in at $1.4-$1.8MM. For ease of our discussion, let’s call it $1.5MM. What’s your tax savings?
Estimated Increased Accumulated Depreciation:
5 Year Class Life Property: 14% or $210,000
15 Year Class Life Property: 7% or $105,000
Total reclassified property eligible for 100% Bonus Deprecation: $315,000
Estimated Tax Savings at 32% tax rate: $100,800
Ballpark cost on a building like this might be around $6k +/- giving you a 25:1 return….that’s 2,500% return on your investment in the study.
Does cost segregation work for Starbucks buildings? I would say so!