Rare Automotive Asset Proves New Retail Model

The retail market is hard to pin down these days. In San Diego, we hear about slowing investment activity alongside rising prices, and now—to add to the enigma—the South Bay Autoplex in San Diego’s South Bay has traded hands for a whopping 176% return. A group of private investors operating under an LLC purchased the property in 2015 for $5.95 million and implemented a value-add strategy. The improvements, however, were largely management driven, with only $600,000 total investment into the property itself, including lease transactions. The property is an example that management has become integral to the success of a retail asset, along with location and tenant mix as crucial characteristics. The Heritage Group senior directors Dan McCarthy and Kyle Clark represented the seller in the deal, garnering half a dozen offers on the property, while Kidder Matthews’ Tom Holland and James Duncan represented the buyer. We sat down with Mark Hoekstra, managing director at the Heritage Group who led the operational changes at the property, to talk about the business plan, marketing process and how this property reinforces the new retail model.

GlobeSt.com: Why was this particular automotive property unique and why did it command so much interest?

Mark Hoekstra: The property is a five-building automotive service center. Many people would look at it and call it industrial, but when I looked at it, I thought that it was unique because it was located in a retail corridor. When cities and municipalities were master planning communities, they lumped automotive into retail. They quickly realized that automotive does not belong in retail because 75% of the dollars spent at the property is spent on labor, and you don’t get retail sales tax on labor. For that reason, cities quickly moved automotive to industrial to save retail-zoned properties for businesses that would generate retail sales tax. Any time that you can find an automotive repair shop in a retail-zoned property, buy it because they don’t exist any more. This property is located a half a block from one of the busiest intersections in Chula Vista, so many retail establishments are within walking distance. When customers drop their car off for a two-hour service, they can kill time eating or shopping.