By Alysha Webb, Editor & Publisher
Capital Automotive Real Estate Services, Inc. completed $212 million in dealership real estate investments in 2016, up slightly from 2015’s $206 million. As part of that investment, CARS added six new clients in 2016. Those new clients are what help make the firm’s outlook for 2017 very positive. And that is good news for the dealership buy sell market.
CARS, based in McLean, Va., provides capital to dealers through sale-leaseback of existing real estate and financing for facility upgrades and relocations. It also aids in succession planning by allowing dealers to take equity out of the business to begin planning for a subsequent change in ownership.
Willie Beck of Capital Automotive
Bringing in new clients “means they are active in the buy sell market,” Willie Beck, SVP and director of acquisitions at CARS tells Automotive Buy Sell Report. “It means they anticipate more buy sell activity. Once they make [the decision to work with CARS], it is self-fulfilling.”
At the end of 2016, CARS’ portfolio was valued at $4.8 billion, with properties in the U.S. and Canada.
Also in 2016, CARS launched Capital Automotive Financial, which provides equity financing to well-qualified dealers and dealership managers to acquire a dealership or expand a platform.
CAF is a full-service solution provider, with CARS supplying the real estate portion of the buy sell. It has worked through a few deals with CAF that would have offered an incremental real estate opportunity for CARS, says Beck. CAF hasn’t closed a deal yet, but “we expect that will happen this year,” he says. That will be affirming.
“Closing a deal will validate our belief that there is a need for that capital and structure, which provides the contractual right for the dealer operator to acquire 100% ownership,” says Beck.
The average private dealer client for CARS has 13 franchises, but it is also working with groups with as few as one or two franchises that are buying. They eventually plan to grow to the average size, says Beck.
The brand, location, financial strength, and management team’s depth all come into play when CARS evaluates a deal.
Blue skies but a few clouds
The new vehicle market is expected to be quite healthy in 2017 – CARS figures between 17.1 and 17.8 million units will be sold, based upon published estimates.
“If we are in that range, it will be another terrific year,” says Beck.
Indeed, CARS has hired a third vice president of acquisitions to handle an expected expanded volume of work in 2017.
There are a few potential risks on the horizon, however. If dealers must cut profit margins to keep up that level of sales, dealership profits could go down, he says. But dealers cut a lot of costs during the industry downturn and can adjust cost structures very quickly now, says Beck.
Interest rates are another risk factor. There will likely be several interest rate hikes in 2017. As rates rise, the blue-sky value of dealerships could be reduced because the costs of blue sky loans will increase. The rise in rates can also negatively impact earnings as floor planning costs rise, he says.
Of course, that may spur some buyers and sellers who have been sitting on the fence to make a move.
Overall, “we are excited for 2017 and beyond,” says Beck. “Our clients continue to be in great shape and our metrics for our clients continue to be at record highs.”
