Rite Aid is Bankrupt - Now What Happens to its Real Estate?

Rite Aid filed for Chapter 11 bankruptcy on October 15, 2023.

And while the Company is attempting to restructure, if it does emerge from bankruptcy it would do so as a smaller company with fewer stores.

In fact, RITE AID quickly filed a petition with the bankruptcy court to immediately reject over 300 of its store leases.

These former Rite Aid stores are generally in good locations -- visible, high traffic “main and main” intersections -- and many include a drive thru lane.

But with over 300 stores now immediately available for re-tenanting or adaptive reuse, what happens to the #drugstore real estate now that Rite Aid is gone?

Rite Aid traces its history back to a single drugstore that opened in Scranton, Pennsylvania back in 1962.

Over the years it added new locations and acquired other regional chains to expand its footprint and presence to over 4,500 stores.

Although Rite Aid sold approximately 2,000 drugstores to Walgreens in 2018 and closed several hundred others in recent years, the Company still operated 2,100 drugstores in 17 states at the time of its bankruptcy filing.

But unlike Walgreens and CVS that operate nationwide, Rite Aid stores are concentrated in a handful of states.

In fact, five states - New York, California, Pennsylvania, Michigan and Ohio - account for roughly three quarters of its 2,100 remaining drugstores.

Most Rite Aid stores are 10,000-15,000 square foot, freestanding units with relatively proportional frontage and depth.

The stores are located on 1.5 - 2 acre parcels, generally on premier "hard corners" - or signalized intersections with high traffic flow and good access.

They are typically set close to the street and feature prominent signage, a dedicated parking field, and a drive thru.

But even before its bankruptcy Rite Aid had been downsizing its real estate footprint.

Rite Aid has closed hundreds of drugstores in recent years - and just in the past month it closed at least 60 more.

The vast majority of these sites had leases that had been set to extend on for years. While some of these sites were subleased to other retailers, many others sat vacant – or “dark” – because Rite Aid was still obligated to pay its lease obligations even if it no longer operated.

However, the future rental obligations on the more than 300 leases that Rite Aid filed to reject shortly after its bankruptcy filing will now cease and Landlords will need to re-take possession of these former Rite Aid stores and try to re-tenant or redevelop them.

So with hundreds of former Rite Aid stores soon to be on the market - and many former Walgreens and CVS sites that have also been closed in recent years - what has been the most common re-use of a former drugstores?

Dollar stores - which occupy hundreds of former drugstores.

Why?

Dollar stores are aggressively expanding; over 7,000 have opened in just the past 5 years and dollar stores made up roughly one-third of all U.S. retail store openings in 2022.

Additionally, dollar stores target the same neighborhood and small town population that has historically been the focus of drugstore real estate.

And dozens of former Rite Aids have been converted into Dollar General , Family Dollar , and Dollar Tree Stores .

Health and urgent care clinics are also a popular drugstore re-use.

Like those operated by Oak Street Health which operates 169 medical centers in 21 states (and which, ironically, was acquired earlier in 2023 by Rite Aid competitor CVS Pharmacy ).

At least a dozen #OakStreetHealth sites are located in "2nd generation" #drugstore real estate, including some former Rite Aid stores like one of the Eckerd stores in Fayetteville, North Carolina that Rite Aid had closed shortly after it acquired the Eckerd chain.

Tenants in the fast growing plasma collection industry have been another common taker of former drugstore real estate.

Over the past seven years the number of plasma collection centers in the U.S. has more than doubled to over 1,000.

Many of these plasma centers have opened in former Rite Aid drugstores throughout the country, like this former Rite Aid in Westland, Michigan that was recently converted into Octapharma Plasma.

Converting a former freestanding Rite Aid to multi-tenant use is not common.

The cost to demise the space into multiple units is high and can result in oddly configured, difficult to lease suites. For instance, some tenant spaces may be too narrow and deep to attract tenants.

Additionally, most freestanding drugstores are on small land parcels and often have limited parking - which may be suitable for a single tenant drugstore use where customers have short stays or utilize the drive-thru but can be a problem when accommodating multiple tenants at the site.

But a few Rite Aids have been adapted into multi-tenant use - like this property in Cahaba Heights, Alabama.

In addition to more dollar store, health clinic and plasma center uses, there have also been more conventional re-tenantings into other forms of retail such as pet supplies and auto parts.

Like this former Rite Aid in Somerset, Kentucky that was transformed into a Feeders Pet Supply location that offers everything from pet supplies, to pet wash stations and even a full service grooming salon.

Or this former Rite Aid building in Conway, New Hampshire that was renovated and modified into an O'Reilly Auto Parts store.

Ultimately the Rite Aid real estate is likely to be attractive to companies like Dollar Tree Stores, Oak Street Health, and Octapharma Plasma, Inc. that have converted dozens of former drugstores and which rely on former drugstore real estate for a key part of their store growth strategy.

But the good locations and good real estate attributes of many of the former Rite Aid sites will also likely provide for other creative and unique "one-off" adaptive re-uses.

So opportunities abound for Landlords, real estate brokers, retailers and others seeking to re-tenant or repurpose these former Rite Aid stores.

They may just need to be creative!