Capital Automotive, better known as CARS, provides real estate capital to dealers through the acquisition and leaseback of automotive real estate. In October of this year it was acquired by Brookfield Property Partners, a diversified real estate company.
Brookfield, which has investments around the globe, has increased CARS’ 2015 investment objective to $250 million. With Brookfield’s backing, CARS has broadened its international investment horizons.
William Beck, senior vice president and director of acquisitions at CARS, spoke with Automotive Buy Sell Report about being acquired by Brookfield and expanding into Canada and beyond.
“The acquisition will allow us to grow not only in the U.S. but potentially in other markets around the world,” said Beck.
He expects CARS will grow with its existing clients as well as through new investments in both buy sell activity and funding new facility construction.
CARS is Brookfield’s first automotive real estate acquisition, and it shows that Brookfield “has a lot of confidence in the quality of the real estate,” said Beck.
Dealerships sit on some of the best real estate around, he pointed out. So not only are dealerships making record profits, but the locations would be good for other businesses as well.
First Canada, then the world?
CARS recently announced it would acquire Phaeton Automotive Group in Ontario, Canada. It is CARS’ first international move since it exited the Canadian market in 2007, during what Beck called the “great recession” of the automotive dealership business.
“Phaeton is for the moment our only property (in Canada); we are in the midst of negotiations for more,” said Beck.
Brookfield is dual-based in Toronto and New York and has much expertise in the Canadian market so the move into Canada is very “synergistic,” he added.
As for how the Canada dealership real estate market compares to the U.S., in general the dealerships in Canada are smaller, said Beck. The volumes are also less than in the U.S. The Canadian light vehicle market is forecast to grow to close to 1.8 million units this year.
But, the prices are comparatively higher because of the land values, facility size requirements, and possibly the cost of construction, he said. CARS is currently researching Canadian construction costs, added Beck.
Canada has around 3,300 dealerships, and one publicly-owned dealership group, AutoCanada. But, said Beck, there are a number of very large privately-owned groups. Both AutoCanada and the privately-owned groups are expanding, he said. “Consolidation seems to be accelerating,” said Beck.
As for the drivers behind the consolidation, AutoCanada has been aggressively acquiring dealerships and has demonstrated it can add value with scale and efficiency, said Beck. That model has worked in the U.S. and “now there is an appetite for larger groups in Canada,” he said. “It is a shift in philosophy for dealers to be multi-brand and multi-location.”
Canada has, like the U.S., seen robust automotive sales in 2014 and dealers are very profitable, said Beck. The buy sell activity continues to heat up and “there is an opportunity for us with groups that want to continue to sell and need capital, and also with groups working through their estate plans.”
CARS Canadian business is conducted in Canadian dollars. To the extent that CARS isn’t hedged, it does face some exchange rate risk, said Beck, “but part of our strategy to reduce risks is to be appropriately hedged.”
As for what other international markets CARS is eyeing, Beck was, not unexpectedly, circumspect. “Brookfield is in a number of countries,” he said. “Right now we are looking at those countries to see if they would be a good fit with the expertise we bring.”
