A new $490 million commercial mortgage-backed securities financing collateralized by Walgreens stores is coming to market amid a dramatic shakeout in the retail pharmacy sector that has seen competitor Rite Aid close all its stores following a second bankruptcy filing this year.

The upcoming SYCA 2025-WAG CMBS transaction, expected to close late next week, represents one of the largest single-asset pharmacy retail financings in recent years. The loan backs a portfolio of 207 standalone Walgreens pharmacies totaling 2.9 million square feet across 42 states and Puerto Rico.

The financing follows private equity firm Sycamore Partners’ completed take-private acquisition of Walgreens’ parent company, Walgreens Boots Alliance, in August. That deal was one of the biggest leveraged buyouts in recent memory, with an equity value of roughly $10 billion.

Now, Sycamore’s lenders are testing investor appetite for retail pharmacy exposure at a time when national chains such as Walgreens and CVS face mounting competition from big-box retailers and online pharmaceutical delivery services.

In CMBS deals, lenders seek to recoup their capital by selling the loan to institutional investors. So far, this year, lenders have successfully found investors for more than $12 billion in single-asset, single-borrower deals, according to CoStar data. That is almost three times more than in each of the past four years.

Sycamore did not immediately respond to a request for comment from CoStar News.

Not only have consumers cut back on spending, but drugstore chains are under financial pressure due to lower reimbursement rates from insurers, according to DBRS Morningstar, one of the bond-rating firms rating the CMBS offering, as well as retail juggernauts such as Walmart, Target and Amazon entering the pharmacy arena.

Despite pharmacy sales for Walgreens increasing by 11.8% in the third quarter, retail sales decreased 5.3% and comparable retail sales sank 2.4% year over year, DBRS Morningstar said.

In its analysis, however, DBRS Morningstar noted drugstores may exhibit steady growth because of an increased demand for prescriptions, particularly among older individuals.

And Rite Aid’s exit from the market likely plays into Sycamore’s hand, according to Randy Blankstein, president of The Boulder Group, which specializes in single-tenant properties.

“Rite Aid’s bankruptcy is a positive for Walgreens and CVS as it removed the weakest player in this sector and allowed them to both pick up customer and prescription market share,” Blankstein told CoStar News in an email. In addition, “Sycamore’s acquisition of Walgreens allows it to shed some of its worst-performing locations and make other cost-cutting moves outside of the spotlight of being a public company.”

Sycamore, which specializes in retail and consumer sector investments, manages about $11 billion in capital across 23 portfolio companies. The firm previously executed a similar take-private and business-sector split with Staples in 2017.

All the properties being financed under the new CMBS deal operate under a single master lease with a 15-year initial term, three five-year extension options and no termination rights for the tenant.

Wells Fargo and UBS originated the loan of which $390 million will be contributed to the CMBS deal. The remaining $100 million is expected to be placed in future securitizations. The five-year, interest-only loan carries a fixed rate of 7.25%.