Car Dealerships Finding a New Life

Last Year’s Auto Dealership May Be This Year’s Grocery
By KEITH SCHNEIDER

WHITEHALL, Mich. — The Ford dealership in this town of 2,800 closed nearly two years ago, one more victim of the recession in a state that was among the hardest hit in the economic downturn. Yet the 30-acre site is once again filled with cars and trucks, as the home of a Save-A-Lot discount grocery store that opened in March.

Since early 2009, said Norm Miller, vice president of analytics for the CoStar Group, some 2,300 auto dealerships have closed around the country, as new car sales plunged more than 40 percent and the government, after taking ownership stakes in General Motors and Chrysler, forced them to end longstanding franchise contracts. The closings put 70 million square feet of buildings and land on the market, according to CoStar, a commercial real estate research company based in Bethesda, Md.

But in the last five quarters, Mr. Miller said, 649 of those shuttered dealerships found new owners and were put to new uses, including the sale of Whitehall Ford here for $1.1 million. In the first quarter of this year, 152 dealerships were sold for a combined total of $300 million, he said. Prices ranged from $500,000 to $9 million, Mr. Miller said, though most sales were for $1 million to $3 million.

The numbers, Mr. Miller said, represent only the first wave of real estate investment in a market segment that was blasted by the recession.

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“The good news is that there are steady sales. And there are some noticeable trends,” he said. “Schools are buying dealerships and converting them. Lumberyards are buying dealerships. Some are being turned into retail centers.

A number of the best properties are being purchased and redeveloped by other auto dealerships. Closed dealerships are selling at the rate of $200 million to $300 million per quarter.”

The steady pace of sales has not surprised real estate analysts or developers. The transactions represent a pent-up interest in redeveloping the best locations, what Len Bierbrier, president of Bierbrier Development in Lexington, Mass., called “A and B-type” real estate. He said the closed dealerships that were in demand typically offered what Whitehall Ford had here in Michigan: a midsize building and an ample, well-lighted paved parking area along a well-trafficked boulevard.

The Whitehall project, built by LCL Development Company of Belding, Mich., includes a $700,000, 9,000-square-foot addition with space for a Mexican restaurant and three other tenants, and parking for 80 vehicles. Constructing the supermarket cost $1.1 million after the old dealership was demolished.

“There is movement in the market,” said Mr. Bierbrier, who develops small retail centers in the Boston region. “There is competition for the best locations. But it isn’t as easy as you’d think to redevelop these properties.”

In many cases, auto dealerships are covered under zoning laws that restrict uses other than auto-related activities. “Changing uses, particularly here in New England, can take a long time,” he said.

Typically sellers or buyers also are compelled by lenders, as well as state and local regulators, to conduct environmental assessments and clean up chemical compounds and contaminants that seeped from repair shops and parking lots, driving up costs.

In other instances, closed dealerships in good locations span just a few acres, and either are priced too high or do not have enough land for the 25,000- to 50,000-square-foot developments that Mr. Bierbrier builds. He said that over the last year or so he had investigated several closed dealerships in towns along Route 128 outside Boston, and decided not to make an offer.

New uses for closed dealerships are as numerous as the properties. The shuttered 19.3-acre Sheehy Ford dealership along Route 60 in Powhatan, Va., is in the process of being developed under a lease-purchase contract by Weightpack Inc. for use as an office, showroom and light manufacturing and assembly site for its bottling machines.

Chain drug stores are snapping up dealerships because of their locations and ample parking space. In Arlington, Mass., CVS Caremark built a new store on the site of a Buick-Pontiac-GMC truck dealership.

So are schools. The Tulsa Technology Center, a technical school in Oklahoma, spent $3.51 million in March to convert a 31,557-square-foot building and 6.6-acre dealership site to new classroom space. Another school, the Steppingstone School for Gifted Education, paid $1 million to buy 6.5 acres and the 37,500-square-foot showroom and service building from a closed Chevrolet dealership in the Detroit area.

In some cases, automotive-related businesses are supplanting the dealerships. Driven Brands of Charlotte, N.C., the parent company of Maaco Paint and Body, Meineke Car Care Centers and Econo Lube N’ Tune & Brake, is recruiting disenfranchised auto dealers to open new franchises on their properties under one of its three auto service brands.

Under the company’s “Jump Start” program, dealers can buy a Driven Brands franchise for half the normal fee and the company will refund 75 percent of the franchise royalties the first year, 50 percent in the second and 25 percent in the third. A spokesman said 22 dealers in 10 states had accepted the offer, and that Driven Brands believed it could recruit 60 more in the next two years.

It is unclear how many of the closed auto dealerships will find new uses, real estate experts said. As recently as 2006, there were more than 22,000 new car and truck dealers in the country; today there are just over 18,000, according to the National Automobile Dealers Association. The shrinking numbers are consistent with the grim plunge in new-vehicle sales in the United States, which last year sank to 9.87 million, down from 17 million cars and trucks sold in 2005, according to manufacturers.

This year, auto analysts forecast, sales could recover to just under 12 million vehicles sold. Ford, where sales gained 22 percent in May, is recording profits. Chrysler and General Motors are paying back parts of the billions of dollars lent to them by the United States and Canada.

For more than a year, the old Ford dealership’s empty showroom and parking lot in Whitehall, on the eastern shore of Lake Michigan, were a daily reminder of the depths of the recession. Roughly 30 jobs at the dealer, many paying an average of about $40,000, were lost, as were the sales tax receipts that were higher than any other retail business in this community.

But more than 200 Whitehall residents stood in line at the March 29 opening of the Save-A-Lot, as much to take advantage of the promotional free products and prize drawings as to express some relief that a new business was starting.

John Leppink, the manager of LCL Development Company, said he negotiated the property sale at a 26 percent discount from the asking price, figuring that it would cost just $100,000 more to construct a new building than to remodel the old showroom and service center.

“Our market research showed that a new store would work well in that area,” Mr. Leppink said. “The car dealership is a good site. They fit the size of our buildings and the traffic to the store.”