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Detroit's Capital Drive

While Detroit's Big Three were pleading for federal loans on Capitol Hill in the waning weeks of 2008 to avoid a collapse of the domestic automotive industry, General Motors was busy behind the scenes expanding a plan to sell and lease back its commercial real estate as a potential source of capital. “It's no secret that we're trying to maximize our liquidity position,” says Dan Flores, a GM corporate spokesman.

Plummeting sales, attributed to a lack of available credit for consumers, have left GM in dire need of operating capital. U.S. auto sales were down 37% in November from a year earlier, according to research firm Autodata Corp.

GM experienced an even greater decline of 41% over the same period. In December, the company announced it would produce 250,000 fewer vehicles in the first quarter of 2009 by idling 30% of its North American assembly operations.

Automakers are understandably interested in monetizing their real estate in today's cash-strapped global marketplace, but the strategies employed to meet that goal vary from company to company. Ford Motor Co. is selling unused assets and even leasing out some of its facilities while GM seeks sale-leaseback buyers.

GM's 5.5 million sq. ft. Renaissance Center headquarters in Detroit has been up for sale since last spring, when the company paid off $626 million in financing to own the property outright. GM declines to put a dollar value on the property, which it purchased for more than $70 million in 1996. The company has completed at least $500 million in improvements to the asset and pumped another $500 million into the surrounding area, including the Detroit Riverwalk.

Since it announced the Renaissance Center purchase in May 2008, GM has investigated ways to access its equity in the buildings, Flores says. Talks with the Detroit Police & Fire Retirement System failed to produce a deal. Then in December, Michigan state Sen. Hansen Clarke said the state's pension fund should consider buying the property as a sale-leaseback. A few days after learning of Clarke's suggestion, Flores said GM was open to the idea.

“GM is willing to discuss and explore a variety of potential financing arrangements with the State of Michigan related to the GM Renaissance Center,” he says. “We are looking for ways to tap into the equity of the building.”

Raising cash overseas

Across the Atlantic, GM has retained full-service real estate services firm Jones Lang LaSalle to identify buyers for GM's office buildings, warehouses and land. There are no manufacturing sites on the table, says Denis Chick, a spokesman for the company's United Kingdom and Ireland division. The company declines to estimate the size or value of those holdings.

“This all started in the U.S. and has spread to Europe,” Chick says. “We have several properties here in the U.K. that could raise cash to support the business in these troubled times, [including] our U.K. headquarters in Luton, our parts warehouse in Luton and our company vehicle storage site in Luton.”

Other assets that could be sold include an engineering and test center in Millbrook, Bedfordshire Additional properties are also being assessed for sales potential.

Ford, Detroit's second-largest automaker, isn't projecting a near-term liquidity crisis and expects to turn a profit in 2011, according to congressional testimony from president and CEO Alan Mulally in December. Even so, Ford has been selling unused real estate.

In June 2008, Ford announced it had sold its St. Louis Assembly Plant in Hazelwood, Mo., to Panattoni Development Co. The Sacramento-based commercial real estate developer plans to demolish the existing structure and build approximately 2.6 million sq. ft. of warehouse, distribution and light manufacturing space on the 155-acre site.

A few days later, Ford completed the sale of its Atlanta Assembly Plant in Hapeville, Ga., to Jacoby Development. The developer plans to convert the 122-acre property adjacent to Hartsfield-Jackson Atlanta International Airport into an aviation-intensive business district that is expected to include office, retail, restaurant, hotel and airport parking.

Financial terms of Ford's real estate sales were undisclosed. A key difference from GM's sale-leaseback strategy is that Ford's plants had been closed for some time before the sales. The St. Louis Assembly Plant had been idled since March 2006 and the Atlanta plant closed in October of that same year.

“We are always evaluating our real estate portfolio to ensure we are delivering the best value to the company,” says Phil Horlock, chairman of Ford Land. “Our primary focus is on selling our closed manufacturing facilities and other surplus properties, and we are actively marketing these.”

In a departure from its real estate sales model, Ford leased its former stamping plant in Maumee, Ohio, to Maumee Authority Stamping in 2008. Ford had negotiated a sale of the 800,000 sq. ft. property, but when the local company was unable to secure financing, the parties worked out a lease instead.

All avenues open

Conventional asset sales may prove to be a more viable strategy than sale-leasebacks in 2009 due to a new mindset among investors that shuns single-tenant properties. Investors closed about $6.3 billion in sale-leasebacks in 2008, down 55% from the previous year. That's down nearly as much as overall transaction volume, which declined roughly 65% in the same period, says Dan Fasulo, managing director at Real Capital Analytics.

“For several years, everyone wanted the one home-run tenant, but now everyone wants the security of a variety of tenants,” Fasulo says, explaining why sale-leasebacks are out of favor with investors. “At least over the short term, until all the skeletons are out of all the closets, you're definitely going to see owners more interested in buildings with a multitude of tenants in different industries.”

Ford continues to market office buildings, dealerships and closed manufacturing plants for sale, including properties in Wixom, Ypsilanti and Utica, Michigan; Norfolk, Va.; and Batavia, Ohio. None of Ford's current offerings is likely to result in a sale-leaseback, says Horlock.

“We are happy to consider any offer presented to us,” he says, “although sale-leaseback is generally not our preferred option when we plan on fully occupying a property for the long term.”

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