What is a 1031 exchange in real estate?

A 1031 exchange (named after IRS Section 1031) allows real estate investors to defer capital gains taxes by reinvesting the proceeds from a sold investment property into a 'like-kind' replacement property. Key rules: (1) The replacement property must be identified within 45 days of closing the relinquished property; (2) The exchange must close within 180 days; (3) To defer all capital gains, the replacement property must be equal or greater in value and you must reinvest all net equity; (4) A qualified intermediary (QI) must hold the proceeds — you cannot touch the money. 1031 exchanges work for any investment real estate: residential rentals, commercial buildings, vacant land, NNN leases. Primary residence and fix-and-flips do not qualify. The tax deferral compounds over time — investors use serial 1031 exchanges to build wealth over decades, ultimately stepping up the cost basis at death, eliminating the deferred gain for heirs.

What is a triple net (NNN) lease?

A triple net (NNN) lease is a commercial real estate lease structure where the tenant pays the three 'nets' in addition to base rent: (1) Property taxes — the tenant pays the real estate taxes on the property; (2) Building insurance — the tenant maintains and pays for property insurance; (3) Maintenance/CAM — the tenant is responsible for maintenance, repairs, and common area maintenance. NNN leases are common in retail (fast food, dollar stores, pharmacies, auto parts) and industrial properties. From an investor's perspective, NNN leases are attractive because they provide passive, predictable income with minimal landlord responsibilities — making them ideal for 1031 exchange buyers seeking management-free ownership. Cap rates for investment-grade NNN properties (McDonald's, Dollar General, CVS, AutoZone) typically range from 4.5-6.5%. Lease terms are usually 10-25 years with rent escalations of 5-10% every 5 years or 1-2% annually.

What is a cap rate in commercial real estate?

Cap rate (capitalization rate) is the primary metric for valuing income-producing commercial real estate. Formula: Cap Rate = Net Operating Income (NOI) ÷ Property Value. Example: A property with $100,000 NOI selling for $1,500,000 has a 6.67% cap rate. NOI = Gross rental income minus operating expenses (taxes, insurance, maintenance, management) — before debt service. Cap rates reflect risk: lower cap rates = lower risk, higher prices (Class A multifamily in major markets: 4-5%); higher cap rates = higher risk, lower prices (secondary markets, older buildings: 7-9%). Cap rates move inversely with interest rates — when interest rates rise, cap rates tend to rise (prices fall). For 1031 exchange buyers: the spread between cap rate and borrowing rate (debt yield spread) determines cash-on-cash returns; a 6% cap rate with 7% mortgage rates creates negative leverage. Current (2026) NNN market: investment-grade single-tenant net lease properties trade at 5-6.5% cap rates depending on tenant credit, lease term, and location.

CVS NNN
lease analysis.

CVS is one of the two largest drugstore NNN tenant profiles in the U.S., alongside Walgreens. CVS Health's vertical integration (with Aetna and Caremark) differentiates its parent credit profile from pure retail pharmacy chains. Individual store leases are signed by CVS Pharmacy, Inc. with variable corporate guarantee language — read the specific lease carefully.

GM By Glen Gomez-Meade~7 min read Published Apr 23, 2026

Read this first

Credit ratings, cap-rate bands, lease structures, and corporate strategy shift constantly. Every figure on this page — credit profile, capitalization rate range, prototype size, lease term — may be stale by the time you read it. The tenant's credit can change between rating-agency reviews; cap rates move with interest rates and market sentiment monthly.

The Upleg makes no representation that any specific number, rating, or lease characteristic is current or correct for any particular CVS property you are evaluating. Pull current credit reports, verify the actual lease document, and confirm market cap rates with a working CRE broker before you bid. The Upleg, its author, and its parent disclaim all liability for any outcome resulting from reliance on this content.

Quick reference · CVS

Legal entity: CVS Pharmacy, Inc.
Parent: CVS Health Corporation (CVS)
Credit profile: Investment-grade (BBB). CVS Health is vertically integrated (Aetna insurance, retail pharmacy, PBM).
Typical lease: Absolute NNN, corporate guarantee from CVS Pharmacy, Inc.
Typical term: 25 years initial with renewal options (often 4–6 option periods of 5 years each).
Rent bumps: Varies — some leases flat through primary term, others with modest increases. Bumps at option exercise are typical.
Prototype size: ~10,800–13,200 SF on a 1.3–2.0 acre hard-corner site.
Cap rate band: 5.50–6.50% (2026)

About CVS as a NNN tenant

Like Walgreens, CVS has been rationalizing its footprint. Underperforming stores are consolidated or closed; prime-location stores continue performing. Investors should distinguish between long-term corporate-leased CVS properties and those approaching option-exercise decisions.

How CVS structures its NNN leases

CVS NNN leases are typically absolute net — tenant pays taxes, insurance, CAM, and all capital items. Some older CVS leases retain modest landlord obligations; always read the actual lease. Rent structure varies more than Walgreens; some legacy CVS leases include modest annual bumps.

Store specs and site profile

Prototype CVS stores range from 10,800 SF (smaller urban infill) to 13,200 SF (suburban standalone with drive-through). Drive-through pharmacy is standard. Dedicated parking typically 45–65 spaces.

Red flags on a CVS NNN deal

Short remaining primary term (under 6 years) in a tertiary or declining market
Darkened store still paying rent — verify tenant intent at next option exercise
Basis materially above per-SF replacement cost
Competing pharmacy within immediate trade area
Recent CVS Health portfolio rationalization affecting regional stores

What to underwrite before buying a CVS property

Remaining primary term and option schedule
Corporate guarantee specifics
Trade-area demographics and pharmacy competition density
Store prototype and site configuration
Basis vs. local replacement cost and recent comparable sales

Frequently asked questions

Is CVS a credit tenant?

Yes. CVS Pharmacy, Inc. is a wholly-owned subsidiary of CVS Health Corporation, which carries investment-grade ratings. CVS leases carry corporate credit quality that is near equivalent to Walgreens in most respects.

What cap rate do CVS NNN properties trade at?

In 2026, CVS NNN with long remaining primary term in primary markets trades at roughly 5.50–6.25% cap rates. Tertiary or short-term stores trade wider, typically 6.75–8.00%+.

Does CVS's vertical integration with Aetna affect store-level CRE credit?

Indirectly. CVS Health's integrated business model produces more diversified consolidated cash flow, which supports the parent credit profile. Store-level lease risk is still driven primarily by CVS Pharmacy, Inc.'s operating obligations.

How does a CVS lease differ from a Walgreens lease?

Both are commonly absolute NNN with long primary terms and multiple 5-year options. CVS leases have more variability in rent structure (some with modest bumps); Walgreens leases are more often flat through primary term. Specific terms always control — read the lease.

Using CVS in a 1031 exchange

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Author

Glen Gomez-Meade

Glen writes The Upleg. More about Glen →

Disclaimer

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