The closure of nearly 2,000 Chrysler and General Motors auto dealerships across the country, which has caused hardship for many former franchisees, is presenting a windfall of marketing opportunities for commercial real estate brokers including Los Angeles-based CB Richard Ellis (CBRE).
In the past 12 months, CBRE has sold more than 50 vacated auto dealership properties and the brokerage has ramped up its four-year-old automotive properties group, founded by Jodi Meade, director of the Western region of the automotive properties division. The Western division has joined forces with CBRE’s Detroit office at the heart of the U.S. auto industry, to tap into the flow of commercial properties entering the market.
So far, the plan is going like gangbusters. A look at CBRE’s auto-related Web listings shows 172 available properties, from a $6.9 million vacant dealership in City of Industry, Calif., with 36,708 sq. ft. of retail space, to a $1.9 million property in Edmond, Okla. with a 5,884 sq. ft. building.
Whether on the East Coast or the West, on the Gulf Coast in Naples, Fla., or up along the Great Lakes, plenty of properties are ready to be leased or purchased, and put to new uses. And the dealmaking could go on for months — well into 2010.
“Although one manufacturer may have closed hundreds of stores in one fell swoop, there are others that are staging the process and closing some immediately, but also phasing out [other dealerships] over the course of the next 12 or 18 months,” says Meade.
Auto manufacturers have notified the dealers of their timetable for upcoming closures or discontinued franchises, says Meade, but beyond the shutdowns announced earlier in 2009 and carried out, most manufacturers have not made their plans public. “In some cases they are not giving us this information,” says Meade. So it’s hard to know whether the number of vacated dealerships will remain close to 2,000 or climb to 3,000, she says.
Chrysler asked a bankruptcy court in May to allow it to break nearly 800 contracts with dealers as part of its downsizing, and General Motors said earlier it would drop about 2,600 dealers.
CBRE’s automotive properties group, launched in 2005, includes auto plant properties as well as dealerships, and provides services to manufacturers, dealers, investors and developers. The group recently broadened its offerings to include idle property management, appraisals, and other services, says Michael Gerard, senior managing director in CBRE’s Midwest region in Detroit.
CBRE currently manages more than 50 idle dealerships, and its appraisers have conducted more than 600 appraisals of dealerships in the last 12 months, says Gerard.
The dealership portfolio is split 50-50 between properties for lease and properties for sale, however, generally owners prefer to sell rather than lease, says Gerard. “But the credit markets are impacted [by the economy], so it’s very difficult today to borrow money for a new venture. So that’s why I think we’re going to see more leases than maybe what the sellers are seeking. “
Potential buyers for the properties include auto manufacturers looking for a specific type of asset, franchise dealers hunting for a bargain, purchasers that want to snap up and redevelop scarce property in key markets, and investors who want to hold the asset on behalf of an investment group.
As for what will become of the vacant properties, an estimated 0%-12% will return to the automotive industry as new vehicle dealerships. Another small percentage will remain within the industry in a related use, though not as dealerships. But the vast majority, those not in auto malls or auto parks, will be redeveloped for new uses.
Some former auto dealerships have been turned into retail strip centers, bus depots, and furniture stores. Others have been gutted and tunneled through to create car washes. “It’s amazing the creativity that is coming out of, in some cases, other people’s misfortune. There’s a lot of creativity coming out of that,” says Meade.
She works with city planning departments and commissions to make sure that the new use a buyer has in mind fits with a city’s master plan and zoning. At times, she accompanies a prospective developer to city planning meetings to assist as needed during the process.
Both Gerard and Meade expect the number of listings to rise as auto manufacturers announce more dealership and plant closings. “A lot more are coming,” says Meade.