Dealer Showrooms Are Being Reborn

July 2, 2010

If you were looking for a place to locate a business, plenty of parking and high visibility on a well travelled road would probably be on your priority list. You might even need as much as 30 acres. The possibility of filling your wish list may seem dim until you mine the depths of the former homes of the nearly 4,000 car dealers that have closed since 2006.

A New York Times article pointed out that while not the hottest market in real estate, the sale, lease and retrofitting of former car dealerships is a formidable economic force. Since early last year 2,300 locations have closed, which is a reflection of the 40 percent plunge in new car sales which precipitated the bankruptcies of Ford and Chrysler.

One of the first steps that the federal government required was the dissolution of franchise agreements with many dealerships that had long histories with the two car companies. This in turn put acres of asphalt and a wealth of buildings with panoramic views of the adjacent boulevards on the market.

Some of the same buildings that were perfect for watching dad and the family pull up to look for new wheels, were found to serve the needs of schools, restaurants and grocery stores. Even if other locations are better served by the wrecking ball and the commensurate rehab, it doesn’t change the size or location of the site. What was once a great spot for selling Buick LeSabres can work just as well for a CVS Caremark drugstore.

The dimension of this portion of the real estate market does merit consideration. In the last five quarters 649 dealerships have changed hands and are being used in other ways. In the first quarter of 2010, 152 settlements generated $300 million in sales. Individual sales ranged from $500,000 to $9 million with most deals running between $1 million and $3 million.

The sales are not without their own set of problems. There is the brownfield issue. After years and sometimes generations of use as a car dealership, contaminates may show up when the sites are subjected to environmental testing. Other times car dealerships operate under zoning regulations that are not suited to other uses, which are hurdles that can both delay the sale and drive the cost of the transfer up.

[New York Times]

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