Economy Drives Auto Real Estate Interest

DALLAS-Almost everyone knows the horrific toll that the Great Recession and its aftermath took on the automotive industry. Companies that didn't enter bankruptcy protection saw a decline in sales. And that trend, in turn, created another not-so-great trend; that of industry slowdown, especially when it came to automotive real estate.

"The year 2008 was one of contracting," explains Bill Bledsoe, investment associate with Henry S. Miller Brokerage in Dallas. "Manufacturers were taking franchises away from dealers, and that left a lot of properties vacant. Dealers went into hunker-down mode; they preserved capital and preserved a little profitability to appeal to the manufacturers."

What a difference five years makes. Dealership buildings vacated by the plunging economy have "been repositioned, scraped and rebuilt, or otherwise," Bledsoe says.  Furthermore, with lenders more comfortable with car buyers and employment inching upward, Bledsoe tells GlobeSt.com that construction and leasing in this sector is on an upward trend for the first time in several years. "The last two years have been very good for the new car dealers and independent used car dealers," Bledsoe says.

In recent weeks, in fact, Bledsoe represented Toyota of Dallas with its acquisition of the Vonco Medical building at 11480 Anaheim Dr. in Dallas; property that holds a 33,493-sauare-foot warehouse on approximately two acres. Toyota of Dallas will use the building to expand its body shop operations.  Bledsoe says he's seeing a lot of dealers leasing warehouse space both for body shop operations and for storage.

Meanwhile, at 1329 Chemical St., also in Dallas, Bledsoe represented BBC Motorsports in executing a lease for close to 60,000 square feet in a 70,000-square-foot warehouse in which it currently does business. BBC Motorsports is a wholesale/retail Internet auto seller.

But the demand for space isn't solely for Internet-only car sellers. "We're seeing a lot of dealers going into warehouses and starting Internet operations that are totally separate from new car dealerships," Bledsoe notes. "They're operating that component under a different name, and are trying to capture incremental business from customers who are shopping on the Internet."

This doesn't mean, however, that every single warehouse or plot of land is fair game for an auto dealership. Municipal zoning is critical, for one thing. If that weren't enough, "the dealer has to get approval from the Texas Department of Motor Vehicle and the auto manufacturer," Bledsoe explains. "Everyone has a trade area; an area of dominant influence, and they have to make sure they're not infringing on other dealer territories." On top of that, the dealer has to submit the desired location to competitors, who then have the opportunity to protest the move to TxDOT.

This is why, when it comes to automotive real estate, dealers tend to follow dealers and to set up shop in the same general area. In Dallas proper, the area along Lemon Avenue and Inwood, north of the CBD, tends to be a magnet for auto real estate, and there is demand in Grapevine, TX and at SH 121 and the North Dallas Tollway in Frisco.

Bledsoe believes that in 2013, there will be some more shifting around of prime locations for auto dealerships. He also thinks that the independent used car dealers will be seeing some shifting as well.

"A lot of municipalities aren't happy with the independent used car dealerships on their streets," Bledsoe observes, noting that suburban Dallas cities including Richardson and Farmers Branch have changed the laws that encourage independents to move into a warehouse. But this shouldn't be a bad thing for the independents.

Bledsoe says the municipalities are starting to work with rezoning to bring these businesses under one roof as a type of "auto-plex," a customer-oriented, retail-centric place. "It isn't that the municipalities don't want the businesses," he goes on to say. "They just don't want it on main thoroughfares, doing business out of ratty looking gas stations. They want to put them into areas that can be developed, designed for specific usage, and more conducive to the municipalities' look."