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Car Dealership Closures Accelerate

While General Motors and Chrysler Corp. remain on financial life support and demand for cars and trucks wanes, the number of shuttered dealerships is piling up. Since 2005, 1,795 dealerships have closed, says the National Automobile Dealers Association (NADA).

This year, the industry projects a net of 900 closings, dropping the total number of dealerships to 19,075. The closures provide an opportunity for retailers, office developers and hotel operators to buy prime sites rarely available for sale.

“Most of those properties are valuable and there will be rather strong interest in them,” says Chuck Lanyard, president of the Goldstein Group, based in Fair Lawn, N.J. “As bad as things are, this economy is creating a lot of good opportunities for people as well.”

For instance, a year ago Rutherford, N.J.-based developer Eden Property Co. and partner Landmark Realty bought a 1.7-acre site in New Jersey from Ford Motor Co. In June, the site will re-open as a 28,350 sq. ft. shopping center.

With car sales slumping by double digits on a year-over-year basis at each of Detroit’s Big Three — General Motors, Ford and Chrysler — a new wave of dealership closures appears inevitable. Last year, vehicle sales in the U.S. declined by 18% to 13.2 million. In 2007, there were 16.1 million sales, according to NADA.

To maintain sales at the 2007 level, when each dealership sold an average of 750 cars, the industry would need to shutter at least 3,800 locations, reports Southfield, Mich.-based Grant Thornton. General Motors has announced closure of up to 2,146 dealerships by 2014. Ford and Chrysler are expected to follow suit.

The automotive real estate services group of Miami-based Colliers Abood Wood-Fay is working on 25 dealership dispositions and expects that figure to rise by 50% over the next few months, says Michael Fay, president. The team of Nelson Kramer, a vice president for CB Richard Ellis in Atlanta, has sold three dealerships in the past month and has listings for another eight.

How the dealership properties will be disposed of will vary. The assets can either be sold or leased, depending on the owner’s preference.

Sites in “auto malls,” which consolidate several dealer franchises, might be harder to sell, as their zoning use is often limited to auto sales by municipalities dependent on sales tax revenues, says Cheryl Bloodworth, a vice president with brokerage Grubb & Ellis in Newport Beach, Calif. Since few manufacturers are expanding, they could be vacant a while.

Stand-alone dealerships, which often boast locations on heavily trafficked thoroughfares with good frontage, easy vehicle access and flexible zoning, are highly desirable for retailers, says Scott Schafer, a managing director with Cushman & Wakefield in Buffalo, N.Y. Medical office buildings, hotels and storage facilities might also find the properties attractive.

Older dealership sites that contain car service facilities may suffer from environmental problems related to fuel spillage, which can take hundreds of thousands of dollars to clean up, Fay notes. However, many dealers carry environmental insurance and offer to pay for remediation.

With real estate investment at a standstill, dealership sites have been slow to move, says Schafer. In the fourth quarter of 2008, there were 73 land sales nationwide, a 72% decrease from the fourth quarter of 2007.

Dealerships boast some major advantages and many will eventually sell, says Kramer. “Historically, they’ve sold at a premium over other [property] types.”

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