Auto dealerships - BEV/Going Concern

[CANative]

Can we discuss extracting the BEV or going concern value from comparable sales of auto dealerships?

Interest to be value is Fee Simple (unencumbered.)

 

[Lost Cause]

OK, we've got the interest to be valued, but who is the intended user and what is the intended use? It'd be hard to discuss without that information...

 

[CBBoston]

Sure you could extract BEV just like a hotel. Of course finding the value of a individual property might be a bit harder to do. Many dealerships today my be owned by a single local or even national dealers so splitting out a single property is the trick. There must be resources the discuss valuing dealerships. Here in the NE there have been lots of sales of vacant dealerships so in makes it easier to figure out what the real estate is worth. Gotta believe that's the case in CA too.

 

[Michael S]

If you're lucky you may find someone involved in the sale who has some idea of what the allocation was between real estate and BEV. Try to find the CFO or similar person. I was researching auto dealership sales a couple of years ago and I got the CFO on the phone who was kind enough to spend 10 minutes digging out the appraisal they had used to allocate value to the real estate.

 

[CANative]

Of course this is for property tax appeal work. The tenant "bought" the property from the owner (it's more complicated than that.) The assessor enrolled that transaction value as the new value of the property. About $8 million. On one hand it seems too high, on the other there are a few sales that might justify that. But most do not.

It seems to me that a long term tenant may be motivated to pay more because of the business they've built up there and the prospect of having to relocate.

The same must be true of some of the high dollar sales.

For ad valorem you just value the land and improvements. So yes, it's like a hotel in many ways.

http://appraisersforum.com/showthread.php?t=171113

I read that thread. In it the OP is questioning the judgment of an appraiser that deducted 20% in the cost approach for "rebranding." Most argued this was ridiculous because they presumed "rebranding" only meant changing signs. One good argument said it was more involved because each car dealer had it's own requirements (based on the manufacturer.)

But I think it's even more complicated than that. More like a flagged hotel property where things like a well trained staff, a national booking system, etc, etc. represent intangible personal property that is considered part of the highest and best use.

Wouldn't the same apply to an auto dealership property?

 

[Ken B]

Let's just say that McDonalds is highly unlikely to simply change the signage and move into space built-to-suit for Burger King. However, Mike's Big Burger may not have any such problems.

 

[CANative]

Say one of the comps is 5 acres and has 50,000 sf in building area (show room offices, repair, parts). Sold for $1M. Was vacant. Say another comp was a Nissan Dealership, 5 acres, 50,000 sf in building area (show room, offices, repair, parts) and sold for $2M.

Would you say BEV was involved in the $2M sale?

*Numbers are just for illustration. The pricing/values I'm working at are much higher.

 

[Ken B]

You are asking the wrong people.

 

[CANative]

Who should I be asking?

 

[Michael S]

Say one of the comps is 5 acres and has 50,000 sf in building area (show room offices, repair, parts). Sold for $1M. Was vacant. Say another comp was a Nissan Dealership, 5 acres, 50,000 sf in building area (show room, offices, repair, parts) and sold for $2M.

Would you say BEV was involved in the $2M sale?

*Numbers are just for illustration. The pricing/values I'm working at are much higher.

There's probably a reason the first comp is vacant. The cuts to franchise dealers are a few years old and the industry has been doing quite well the last couple of years. If a dealership is still vacant today it probably has some issues. It might be in a poor location, the improvements might be too small or the wrong design to accomodate a certain franchisee. There might not be any brands left. A new Fiat dealership (very small, maybe 3,000 square feet) opened up here a couple of years ago but the only other new auto dealers are just relocations for existing franchisees and brands.

Here in New Mexico the auto dealers got a law passed saying that you couldn't have another dealer selling the same product line (Ford, Toyota, Volkswagen, etc.) within seven miles (it's a larger radius in more rural areas). Consequently there are three concentrations of auto dealers in Albuqueruqe. The old original auto row is in the southeast. Just over 7 miles to the northwest in a major retail area is the newer concentration of auto dealers. Finally some of the higher end brands (BMW, Mercedes, Lexus, etc.) have moved to locations along the I-25 freeway. 150,000 vehicles per day and they have the added bonus of overlapping both of the other auto dalership concentrations with their seven mile exclusion zone. So on the off chance somebody decided they wanted to start their own BMW dealership they'd have to find a new location on the edge of the city, far away from the synergy of the existing areas.