I Feel Good: Walgreens and the Evolution of the Modern Pharmacy

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Spencer Levy 
Remember the American drugstore? A neighborhood shop that carried everything from cold remedies to beauty products, and maybe even an old timey soda fountain or candy counter. I certainly do. But now we're going to get to know a company that's been taking the institution of the drugstore into the future. You know the name because just about every American has one of their 10,000 stores within a few miles of their home. On this episode, Walgreens. 

Chris Noble 
It's a large portfolio. It's been evolving and we've been really optimizing the footprint over the last several years as we pivot our business. 

Spencer Levy 
That's Chris Noble, group Vice President of Properties for Walgreens. Chris is responsible for the company's real estate in the U.S. and beyond, as well as architecture, design, engineering, construction, facilities and more. It's a role that he took over this year, although he's worked at Walgreens for 20 years plus. 

Maury Vanden Eykel
Walgreens gets a tremendous amount of investor feedback. So, great client and great brand to be in the market with. 

Spencer Levy 
And that's Maury Vanden Eykel, a Senior Vice President at CBRE’s Corporate Capital Markets Group. Murray covers property types and markets throughout the United States with a focus on single tenant net lease sales. And one particular topic we'll get into during our discussion of Walgreens’ business, namely sale leaseback transactions. Coming up, we travel to the company's Chicago headquarters for a conversation about a retailer that's innovating in the pharmacy and health care space, as well as in its approach to real estate. Walgreens. I'm Spencer Levy, and that's right now on The Weekly Take. 

Spencer Levy
Welcome to The Weekly Take, and this week we are joined by our friends at Walgreens. Chris Noble, thank you so much for joining. 

Chris Noble 
Thanks for having me. It's great to be here. 


Spencer Levy 
Great to have you, Chris. And then we're joined by our colleague and friend, Maury Vanden Eykel. Maury, thanks for joining the show. 

Maury Vanden Eykel 
Thanks, Spencer. Appreciate you having me. 

Spencer Levy
Great having you here, and here is a beautiful place. This is a beautiful building, Chris, and congratulations on bringing some of Walgreens corporate offices down here to the old post office in Chicago. What a beautiful building. 

Chris Noble 
Yeah, no, it's an excellent space. You know, our team did a phenomenal job designing it and building it out, and it's really excellent to be here. 

Spencer Levy
Yeah, it's super cool. So, Chris, Walgreens, if not the largest, is one of the top two largest pharmacies in North America. Tell us just a little bit about your footprint. Just tell the audience how big it is, retail stores, that sort of thing. 

Chris Noble 
Sure. Yeah. In total, the property portfolio is about 10,000 properties in aggregate. We've got just under 9000 operating retail drugstores. Beyond that, we've got distribution centers, field offices, stores that we call idle properties that we no longer operate but still occupy in some way. Overall, it's a large portfolio. It's been evolving and we've been really optimizing the footprint over the last several years as we pivot our business really closer to health care, which I think we'll talk more about. But in the aggregate, call it 9000 stores today. 

Spencer Levy
And of those, you say you have some that are leased, some that are owned and some that might be dark. 

Chris Noble 
Yeah, I would say, call it, you know, round numbers, 1000 dark, 1000 owned and 8000 leased. 

Spencer Levy 
Interesting. So, Maury, you handle some of the capital markets work for Walgreens and others doing sale leaseback. Just tell us a little bit about some of the work you're doing. 

Maury Vanden Eykel 
Sure. So we've had the privilege of working with Chris and his team now the last three years, predominantly focused on retail sale leasebacks. Chris, what do you think in total? How many have we done? Got to be, it's got to be about 1000 stores at this point here over the last few years. 

Chris Noble 
That might be a little bit high, but it sure feels that way. 

Maury Vanden Eykel
I was going to say it's got to be pretty close here. But that has been, for the most part, the retail focus of the last three years. And we just launched the first of the industrial distribution centers here about a month ago. As always, Walgreens gets a tremendous amount of investor feedback. So, great client and great brand to be in the market with. 

Spencer Levy
Well, certainly not only advantageous, but maybe necessary to be a brand as strong as Walgreens right now because the markets are choppy. That's a nice way to put a 200 basis point spike in interest rates, a negative inflation report, among other things. But tell us about how that's going in the marketplace for you, Chris, given how volatile it's been in the last six, eight months. 

Chris Noble 
It's become more challenging, given the volatility and interest rates, just macro economically. It's been a more difficult environment. I think where Walgreens has benefited is the fact that we've got a very resilient business. Throughout COVID, we were an essential business that continued to operate. Really found a way to build a new business as a result of the pandemic through some of our work around COVID testing, and then what became COVID vaccination, that's really become a big part of our business. So I think through a really turbulent time, Walgreens has really shown stability, value. You know, we've obviously, investment grade credit rating. And I think relative to a lot of other folks, it's been a pretty, pretty decent right here. But certainly over the last 3 to 6 months, it's been choppier, as you said, than it had been prior. 

Maury Vanden Eykel 
The long term desirability of the Walgreens assets in the capital markets is really bolstered by the investment grade credit rating, the length of the lease terms and at this point too, really the quality of the real estate that Walgreens has controlled for the last few decades, if not longer. You're talking about hard corner locations. You're talking about excellent demographic profiles and everything that has really gone into their development of their footprint. That has without a doubt maintained interest from institutional investors across the country that still flock to pharmacies and drugstores as investment initiatives as part of their business. I mean, that is without a doubt something that we can see here over the last few years. Pre-COVID, post-pandemic. Walgreens assets are valued much higher today, despite even the interest rate spikes than where we were three years ago. So I think that's a real testament to Walgreens and their brand, their credit, all things considered. 

Spencer Levy 
Now, when we talk about a Walgreens store, a new store today, there's really two aspects to it. One of them is the structure of the lease, which is a little wonky, but we have a real estate audience here. But we're going to have to get into that, just a touch. But the other is the store itself and its size, its footprint. So let's talk about both. Given where we are in the marketplace from an interest rate perspective, we're hearing a lot of landlords asking for higher rent bumps, maybe even shorter term leases. So let's start on the lease side. What's changed in the last nine months? 

Chris Noble
From a Walgreens point of view, I don't think there's really been a lot that's changed in terms of how we approach leasing. I think everything that Maury touched on, you know, there's a lot of demand for Walgreens leased assets in the marketplace. We've certainly been able to leverage that demand and how we structure leases, and that's continued for a very long time. Today, similar to in the past, if we enter into a lease for a new location, first of all, it's usually going to be a new construction. So it's going to be built by a developer rather than moving into an existing space owned by an existing landlord. Generally, that's going to be a 10 to 15 year firm term commitment with another 50 or 60 years worth of options beyond that. Sometimes the rent is flat for the entire duration, including all of the options. I'd say maybe over the course of the past couple of years where we've moved a little bit, is adding some pretty nominal escalations in the lease, once we get beyond that firm term, maybe 5% every five or ten years, just as a little something. But for the most part it's a pretty fixed rate lease. 

Spencer Levy 
I just want to repeat something you just said. Make sure I heard it right, that you may have a 10 to 15 year base lease, but you have 50, five-o, to 60 years of options beyond that. That's quite extraordinary. We do see that sometimes in the grocery sector where the grocery stores will have that many options 10, 20, 30 years down the road. But tell us about why you have that level of option control for that length of time. 

Chris Noble  
I'll say from being in my seat, I think I would say I inherited it, right, candidly. I think when I look back, even back to really the early to mid nineties when Walgreens really started to move out of grocery anchored in line space to new freestanding drugstores. There was tremendous demand at that point as well from the investor community. And really what we were able to do was structure leases that allowed a developer to get financing. And most of the time once they built the store, they would turn around and sell it to an investor. And I kind of inherited a legacy where Walgreens has always gotten 50, 60, 70 year leases. Most of the time they were flat or had really minimal bumps. And that's something I think the market just got comfortable with and we've been able to continue to benefit from. 

Maury Vanden Eykel
It is something the market really did get comfortable with. We still get, we still get pushed from investors to be able to include annual escalators, fair market renewal options. It's just really not something that we've given on. And to be honest, to date, we really haven't had to. And I think it is something that will stick around here, for at least the near and long term. 

Spencer Levy 
So when you're pricing out these deals, what are the investors looking at? Are they looking at Walgreens corporate bonds and trying to get a spread over that? What is, sort of, the base for their analysis of doing a Walgreens long term lease? 

Maury Vanden Eykel 
I think the first thing they look at is obviously the investment grade, triple B credit rating. We've got somewhere ten plus, I would say 13 to 15 years on average lease terms. And really the credit coupled with the lease terms is what most investors are pricing off of. When they go into a one off transaction, you're going to look at everything from local area demographic profiles. You're going to look at the underlying real estate quality, traffic counts, population. All of those factors really come into play on the one off. And it also comes into play, too, when you look at reported store sales. Obviously it is something that most investors would like to get. They don't always get access to by any means, but that is all part of the pricing matrix. 



Spencer Levy
Sure. In terms of the pricing, what is the spread? So let's assume you are in the best location, the best demographics, the best potential sales. And then you were in a one that's good, but it doesn't have the same. Is there going to be a 50 basis points difference in value? Was it more than that? Less? 

Maury Vanden Eykel 
I think it does come down to the lease term that is going to be very heavily scrutinized. I think when you do look at the better, the best quality real estate today with a, we'll just call it an average or above average remaining lease term, that's still five, five and a half cap if not substantially better. However, you look back six months to a year ago, that probably would have been mid fours if not low fours, so. 

Spencer Levy 
So you're looking at 100 plus or minus basis point move, given that interest rates have moved up… 

Maury Vanden Eykel 
I think we're seeing about 75 basis points. I mean, I can say from three years ago, our very first portfolio to where we transacted our last portfolio, Walgreens is still pricing more aggressively than it was three years ago. 

Spencer Levy 
So let's stay on the lease for just a moment. What is the optimal lease term? At which point does it start to devalue the asset? Is it seven years? 

Maury Vanden Eykel
The ideal lease term has gotten longer over the past, we'll call it decade. I think way back when ten years was deemed to be a long term lease. Now, investors push for 12, 13, 15 years, maybe even up to 20 years. We don't see a lot better pricing going from 15 to 20, but definitely going from 10 to 12 up to 15, you will see incremental pricing that is beneficial. 

Spencer Levy 
So let's go to the physical real estate now. First, I'm going to go back to a comment you made, Chris, regarding most of your new opens or new stores, new builds, versus a retrofit of an older store. So I guess my first question is going to be why? And then my second question is going to go inside the store itself. But let's start with retrofits. What's the pros and cons of that versus a new build? 

Chris Noble 
I think with a new build, the biggest thing that we landed on was just the ability to control the quality, right. Consistency of the brand and how we show up for customers. The consistency of the layout from an operational sense, really making sure that we're optimizing the space for our employees and the pharmacy. Many of our stores do incredibly high volume, so making sure that the layout is exactly right to facilitate that volume in a very efficient way is important. A couple of years ago, we started really focusing on a much smaller format than what we had done in the past. A typical, historical Walgreens stores about 15,000 square feet, freestanding main and main. As we've continued to evolve as a business, we really wanted to try out a, really a pharmacy only format. So instead of what we call the front end of the business where you've got seasonal merchandise and beauty and a lot of other products, this is really 2500 square feet, pharmacy only, with maybe some vitamins and a really limited offering in the front of the store. When we started that, we tried going into existing, kind of, secondary use space and shopping centers, things like that. And part of the issue is that once you open up walls, you're not quite sure what you're going to find. And it became difficult to deliver a consistent quality output on a timeline that worked for us and at a budget that really worked. So one of the beauties of new build is that we can predict in a much better way what we're getting and what it's going to cost and how long it's going to take. Also, from a site selection point of view, you get to pick your location. 

Maury Vanden Eykel 
Chris, just along those lines, when you, when you look at your portfolio historically, it is hard corners, main and main. What do you say? Maybe, acre and a half to two acres on average. What are you looking at for the smaller stores? 

Chris Noble 
Yeah. So it's definitely a smaller parcel size. I would say an acre or less can work. Really, the model here is a 2500 square foot building with a single drive thru for the pharmacy. Maybe 15 to 20 parking spaces. So you can fit that on a lot of different.... 

Maury Vanden Eykel 
Are hard corners still important?

Chris Noble
I would say that's one thing that's maybe changed in our business, is the importance of main and main. So I think as we built our current portfolio, just given the nature of the pharmacy business, we built a lot of the stores at a time when the pharmacy business itself and how your prescriptions were paid for was evolving dramatically from what used to be what I would call a cash pay business, where you walk in, you pay for your prescription and you walk out, to it being paid for through your broader insurance coverage. When that happened, now, all of a sudden, you were probably going to pay five bucks or ten bucks for your script regardless of where you went. So convenience became really the differentiator among pharmacies to win. So Walgreens really saw that early and really took a leading approach to building out this footprint that was incredibly convenient. At the time, convenience was really defined as the ability to pull in, get in and out quickly and be on my way. So we were going after those main and main corners. We were often buying out businesses, buying out restaurants, tearing them down to really get exactly what we needed. Today it's a bit different. You know, today I think that a lot of the tailwinds that existed within the pharmacy business during those earlier years have gone away. And candidly, there's a lot more cost pressure broadly in the health care sector, specifically in pharmacy, that has really forced us to make a lot of choices about, how do we run the business? And I think one of the things we found is that today it probably doesn't make sense to pay up for that main and main location. We can do quite well, and candidly, we can do better financially on the bottom line by going to some of these, what am I called B sites, or maybe one or two parcels off the main corner where we can pay maybe a third of the occupancy cost, still do great pharmacy business and maybe let go of some of that front end business that just that business has evolved significantly over the years. 

Spencer Levy 
Well, I mentioned earlier in the show that I've been in the real estate business almost 30 years, but I didn't mention that I've kind of been in the pharmacy business for 45. And why is that? Because my grandpa, Harry Gershweir, graduated from the Fordham Pharmaceutical School in 1933, and I used to go on sales calls with him to many of your properties, to Duane Reade, which is a Walgreen acquisition, and others. And what's interesting about the way, Chris, you're looking at the stores today, the smaller format stores and maybe it's pharmacy plus vitamins, that's kind of what the old school stores were. So are we back to the future? 

Chris Noble 
Maybe in some ways, I don't think you're going to see soda counters anytime soon, and milkshakes. 

Spencer Levy
That’d be cool, though.

Chris Noble
It would be cool, but I don't think we're going to see that anytime soon. I think in some ways there's some truth to that. I think in other ways it's really a different business entirely. So Walgreens as a company had been for a while, but really over the last couple of years has really pivoted to become a healthcare company rather than a convenience oriented drugstore of the past, which was really focused on the convenience business in a lot of ways. I think as we look forward, we're seeing some of the really big shifts happening within the broader health care sector, and we've really seen that we can play a leading role in being a leading health care provider in the country. As you mentioned earlier, we're everywhere. Like we're within 5 minutes of most people in the country. We're there in the markets. We're already in a lot of medically underserved communities. You know, we're there, and we, I think, through COVID, we've really proven that we can really have an impact on health care. So that's really where the business is going for the future. 

Spencer Levy 
Well what we've definitely seen in the medical office building business, with the big health care systems, they've fragmented as well to get closer to the end consumer. But you were already there. And so certainly you could see how it's going to provide an indispensable need given what we just went through or unfortunately, we're still going through to some degree with the pandemic. But nevertheless, we saw its value straight up. 

Maury Vanden Eykel 
Chris, does Village Medical play into that initiative as well? 

Chris Noble 
Yeah, I was actually just going to go there. Thanks, Maury. So yeah, in addition to our pharmacies that are everywhere, we've also made some really strategic investments in other health care providers, Village Medical being one of them, where we're actually building and operating primary care physician practices inside our existing stores. So we've got I think we'll have about 200 of these operational before the end of this calendar year. 

Maury Vanden Eykel 
What do you think the average square footage is of those, within the stores? 

Chris Noble 
It's about 3500 square feet that we're carving out within the existing footprint of the store, really building out a beautiful primary care practice, and then kind of resetting the remainder of our store to be relevant for what we think the future of the business holds. 

Maury Vanden Eykel 
Yeah, I've started to see them show up in the photos and it'll be an interesting progression to see how they roll out. 

Spencer Levy
One of our prior guests was a grocer of a farmer's market named Sprouts, and what they said was that their distribution centers needed to be within 250 miles of a store or they're just not going to open it. Do you have any metrics like that, Chris, that you look at? 

Chris Noble 
Not really, just given the national footprint that we already have in place, given the national distribution footprint, I think we've got pretty good distribution center coverage anywhere we would be thinking about adding a new store. So I think we almost just take that as a given. 

Spencer Levy 
So labor availability clearly plays into retail, but let's start on the industrial side. How much does that make a difference in your site selection? 

Chris Noble 
Candidly, you know, that's not a factor that's come up significantly when we talk about distribution space. Having said that, we haven't been opening new stores in a really significant way for quite a while now, so we haven't added new distribution centers for quite a while. What we have been adding, though, over the last few years are what we call micro fulfillment centers, which are kind of highly advanced robotic, you know, automated facilities where we're actually fulfilling prescriptions in a centralized environment, leveraging this technology to do it at a very low cost, and then shipping those back to our retail stores to be dispensed kind of the next day. So really the idea there, part of it is how do you pull more work out of the pharmacy to create capacity so that you can use less labor, but not to really reduce labor, but to free up labor to be reinvested in higher value things, such as COVID testing, COVID vaccinations, things like that. As we look at where to put those micro fulfillment centers, it's certainly part of the overall selection process that the team is going to operate those, is looking at. But again, we're looking at building, I think, 19 of those across the country. So the logical places that we're putting them, there's a pretty good pool of labor, I think, to tap into there. 

Spencer Levy 
Well, think about that for a second. So you have a traditional pharmaceutical function, maybe a pharmacist that is behind the counter, that is filling prescriptions and the actual act of that is very time consuming. It's very precise and it takes a long time. But if you can figure out an automated way to do that function, think about what it frees them up to do in terms of injections and other forms of health care provision that are higher value add, and that requires somebody like a pharmacist to do. 

Chris Noble 
Sure. I think it also allows them to practice at the higher end of their profession. I think that pharmacists are incredibly capable, incredibly well-educated and incredibly accessible to the public. Like how many health care providers can you just walk in and show up and ask a question without an appointment? Right. There's a lot of things that pharmacists can do. And I think as a company, we've really highlighted a lot of those over the last couple of years. So I think this effort is just one more way to continue to allow them to practice at the high level of the profession. 
Spencer Levy 
So we're doing this episode today from Chicago. Maury, you're a Chicagoan. Make the case for Chicago. 

Maury Vanden Eykel 
I think what a lot of it comes down to is it's a very accessible city. I think it's a good size. It's obviously smaller than New York City. I think it's a beautiful city on a lake. I think that Chicago has a good Midwestern vibe that comes with friendly people, a very invigorating business community. And there's plenty of tourist traffic. There's there's great destinations to go here. Born and raised here, I think it's a wonderful city through and through. 

Spencer Levy 
Chris, same question to you. Chicago, Walgreens could be anywhere you've been here forever. Tell us about the pros and cons of Chicago. 

Chris Noble 
Maury hit a lot of them. When you think about labor pools, you've mentioned earlier, I mean, Chicago has got a great just pool of really highly capable, highly talented people. When I think about it, you know, our decision to put the office here in the city, you've got great public transit, multiple options to get here. You've got the lakefront, which is fantastic. You've got some top tier educational institutions here. I mean, there's really a lot going for it. 

Spencer Levy 
So let's talk now about ESG for just a moment, right. And ESG is a big topic. We could have a whole episode on. We've had multiple episodes on the topic. But I want to hear it both from an occupier perspective, how this changes your site selection, how you put your stores together, how much more important has this become in the last several years? So first from you Chris.

Chris Noble
Sure. Yeah. From a site selection angle, I would say it's not a huge variable. We're trying to serve communities all over the country. I don't think that plays, where it does play in is the design, right? Making sure we're using efficient energy fixtures and designing in a way that really allows us to be as efficient as we can that way. Where I think it really is a bigger component for us is our existing 9000 retail stores. We're making a lot of investments in things like energy management systems, changing old light fixtures to LED fixtures that are much more efficient and things like that. I think that's probably the biggest area of focus for us right now. 

Maury Vanden Eykel
I think a lot of that goes for what investors are looking for as well. I mean, obviously, it is a question that comes up. Are the light fixtures replaced with LED? If it's an office building, does it have any type of LEED certification? Those are the big questions that investors will ask, because I think I've really noticed over the last probably ten years or so, it has become much more important to investors for their underwriting. And it's just an additional we'll just call it an investment highlight. 

Spencer Levy 
Let's talk now about return to office. Chris, I think you're space, correct me if I'm wrong, opened in March of 2020. Is that correct?

Maury Vanden Eykel 
Great timing, yes. 

Spencer Levy 
Perfect timing. Perfect timing. That's why the space looks brand new. But we did tour your space and it's spectacular and it's a model for a lot of people on the terms, the large floor plates and the diversity of different workstations and areas to work and how to work. Activity based learning. But how's it going? How's it going in terms of return to the office, both here in downtown Chicago and also your much larger Deerfield location, which I believe you said 1.4 million square feet. And you have a couple hundred thousand feet here. 

Chris Noble 
Correct, yeah. Yeah. Overall, I would say it's going well. We've taken what I would consider to be a pretty soft approach. I think rather than dictating a certain number of days per week that somebody needs to come to the office, really, our leadership has taken what they call a leader led approach. And so really that means work with your respective manager to figure out what you think works best for you and the team that you're part of. There's certainly what we would call moments that matter to be together in person. That could be everything from a strategy whiteboarding session where you kind of need to be together to brainstorm and get some ideas flowing. It could be team meetings to kind of recognize and celebrate achievements. We've got a lot of really long term employees. You know, if you can recognize somebody who's given 20, 30 years to the company in person and shake their hand, it's a meaningful moment. So it's really more about how do you find the right balance? As a company, we're still kind of feeling our way into it. I think some people would say we're missing some of the energy that comes from having everybody together in the office, and I think there's some truth to that. At the same time, what we've seen is our overall employee engagement scores have gone up over the last couple of years. I think people have really appreciated the flexibility that they've been given to try to curate an approach that works for them. Another thing I'll say is over the past couple of years, just within my own little world in our real estate team, we kind of have been rebuilding this team for a couple of years, and we hired maybe ten or 11 folks over the last couple of years. And Walgreens as a company is incredibly committed to diversity. And through COVID, because we weren't coming into an office, we got to recruit from the entire nation for talent rather than, you know, who are the people that live within 30 miles of our office in Deerfield. That really opened us up to some tremendous talent. And we've hired people that live in L.A. and Dallas and New York and kind of all over the country, which has really helped in our broader commitment to diversity and really living up to what we really want to achieve as a company. 

Spencer Levy 
Let's stay with the office thing for just a moment, Maury, because I think that we've talked at great length about Walgreens credit and how attractive it is to investors. But I think that it's one thing to have a standalone retail store. It's another thing to be an office building or in an office building. And I think it's not disparaging to say that office has the biggest question marks today. How are the corporate capital markets dealing with the same tenants in an office environment versus retail? How is that impacting pricing and demand for that product? 

Maury Vanden Eykel 
I think demand for office buildings across the country has, I'll just say lagged the other asset classes without a doubt. I think you've got to look at these office buildings really individually within a portfolio and say, how critical is it? What's the occupancy? What has this occupier done to get employees back to the office? Does their long term corporate culture require them to be in an office? I think you look at a building and you need to look at its location. Is it by public transportation? What amenities does it offer? The day of the 500,000 square foot suburban office campus that everyone has to drive to and is not near the labor pool that they want to attract. I think those properties are going to have a challenging time in the years ahead. I think properties like what we're in today here at the old post office with a basketball court on the roof and tennis courts and pickleball courts, I think that's what people want to come back to. I mean, I really do think that there is an appeal when you walk in and you're hit in the face by a multitude of amenities. I think that's the way to get people back to the office in some regard. 

Spencer Levy 
Chris, I'd like your final thoughts on what you'd like your audience to know about Walgreens and your real estate strategy. 

Chris Noble 
Overall, I guess I would just end by saying, you know, we've got a very large portfolio. We've got a great team of people actively managing it. As a company, we've been going through a process to really optimize our capital, optimize our investments. You know, for us in our space, what that's meant is things like sale leaseback. We've been slowly but continuously unlocking capital that we really had trapped in real estate that we freed up to be able to reinvest in some of these more strategic investments that generate much higher returns. I think that just from a fundamental financial point of view makes a lot of sense. So we've been doing that. As it relates to our retail footprint. There's a lot of stores that we're proactively trying to enter into lease renegotiations with landlords. Sometimes that's what I call the win-win discussion. It's a good store for us. We want to be there. They want us there. Really, the question just becomes how do we create value together and how do we share in that? In other situations, frankly, it's more of a win lose discussion where we're in a position that either we need to dramatically reduce our occupancy cost to make the store viable, or we need to strongly consider relocating down the street, maybe to one of these smaller format stores like we talked about, or in a worst case scenario, just close the store and hopefully support that patient base with other nearby stores. So a lot of work going on on all of those fronts. Never a dull moment, but I like to think that the way we approach the marketplace is we're pretty forthright, we're pretty honest with where we are and where we need to get to. And overall, I think that's worked out well for us. 

Spencer Levy 
Maury, I think there are several members of our audience who probably aren't as familiar with what is a sale leaseback and why do our corporate occupiers and landlords consider that financing option versus bonds versus other forms of financing for their real estate? Why don’t you just give us a sale leaseback 101 tutorial? 

Maury Vanden Eykel
Sure. So sale leaseback 101. You basically take a corporate owned and occupied asset and determine the long term strategy for this asset, whether it be a long term core location, maybe more of a medium term location or a short term or potentially vacant asset sale. Sale leasebacks offer a wide range of optionality. You can pick a market rent, you can look at various escalation structures, typically in single tenant, in the single tenant space, you look at net leases, which is basically a company such as Walgreens entering into a lease that is extremely similar to if they were in an owned position still at that time. They're still responsible for all repair, all maintenance, all replacement of capital items. They still pay real estate taxes directly. All operating expenses are still paid directly. It really is an efficient way for a corporate occupier to redeploy capital that is sitting in an owned asset. 

Chris Noble 
Maury hit on it. Fundamentally, we talked about our leases earlier. Whether we're in a lease or an ownership position, Walgreens retains very, very long term control of property. So really, as we went through the analysis, we determined that the operating control was critical, but the actual ownership of the real estate itself was a little bit less critical. We're able to achieve owner like position through a long term lease. So really that led us down a path where we looked at this multibillion dollar portfolio that we owned of owned real estate and said, are we the best owners of this? As you guys know, there's a lot of REITs, a lot of private, high net worth investors and many other types of investors that are willing to accept relatively low returns on the ownership of that real estate. So rather than having billions of dollars of capital tied up, we determined that we could free up that capital. But I would say recycle it into much higher yielding investments that were more core to the strategy of the business and where we wanted to take it. So it was really, from my point of view, just that recycling process to generate incremental yield on assets that were otherwise just a little bit, just kind of sitting on our balance sheet. 

Spencer Levy
Great. Well, Chris, thank you very much for coming to the show today and thanks for all that Walgreens did during the pandemic. And then of course, the most important question, which is The Untouchables versus Ferris Bueller's Day Off versus the Blues Brothers or other Chicago movie? 

Chris Noble 
I'll answer that one first. I'll go Ferris Bueller. That's definitely my speed. 

Spencer Levy 
Maury, The Untouchables, The Blues Brothers, Ferris Bueller's Day Off or other Chicago movie? And then final thoughts on corporate capital markets and what you want our listeners to know. 

Maury Vanden Eykel 
I have to say Ferris Bueller too. We've agreed on a lot here, Chris. 

Spencer Levy 
But Maury, corporate capital markets, sale leasebacks. What do we want our listeners to know about the marketplace today and to some of our occupiers out there, in addition to Walgreens, what they should be thinking about if they're considering this as an option. 

Maury Vanden Eykel 
I think the marketplace for sale leasebacks is still very much in demand. There's plentiful capital out there actively seeking. Everything from Walgreens’s investment grade credit to smaller credit profiles. There's a lot of different capital markets solutions out there that range with lease term, with rent profiles, occupancy and space planning for the future. I think that the offerings within the sale leaseback space are really endless and I mean, I think there's a lot of different solutions that we can come up with. 

Spencer Levy 
Well, thanks so much for joining the show today, Maury. And so on behalf of The Weekly Take, I first want to thank our friend, our client, Chris Noble, Group Vice President, Real Estate for Walgreens, running real estate for Walgreens in the Americas. Thank you so much for joining the show, Chris. 

Chris Noble 
And thanks for having me. It's been great to be here. 

Spencer Levy 
And then our colleague and friend, Maury Vanden Eykel, Senior Vice President at CBRE and one of the leaders of our Corporate Capital Markets Practice. Thank you for joining the show, Maury. 

Maury Vanden Eykel
Thanks for having me today. 

Spencer Levy
For more on Walgreens and our show, please visit our Website: CBRE.com/TheWeeklyTake. We'll be back in Chicago soon, welcoming an investor from overseas for a conversation about international capital flows, and where U.S. real estate is positioned on the world's capital radar. So stay tuned for lots of interesting insights on that program with a lot more in the weeks to come. For now, don't forget to share the show as well as subscribe, rate and review us wherever you listen. I'm Spencer Levy. Be smart. Be safe. Be well.