Auto dealership turn into grocery

The Ford dealership of 2,800 in Whitehall,Michigan,closed nearly two years ago,one more victim of the recession in a state that...

The Ford dealership of 2,800 in Whitehall,Michigan,closed nearly two years ago,one more victim of the recession in a state that was among the hardest hit in the economic downturn. Yet the 30-acre site is once again filled with cars and trucks,as the home of a Save-A-Lot discount grocery store that opened in March.

Since early 2009,said Norm Miller,vice president of analytics for the CoStar Group,some 2,300 auto dealerships have closed around the country,as new car sales plunged more than 40 per cent and the government,after taking ownership stakes in General Motors and Chrysler,forced them to end longstanding franchise contracts. The closings put 70 mn sq ft of buildings and land on the market,according to CoStar,a commercial real estate research company based in Maryland.

But in the last five quarters,Miller said,649 of those shuttered dealerships found new owners and were put to new uses,including the sale of Whitehall Ford here for $1.1 million. In the first quarter of this year,152 dealerships were sold for a combined total of $300 million,he said. Prices ranged from $500,000 to $9 million,though most sales were for $1 million to $3 million. The numbers represent only the first wave of real estate investment in a market segment that was blasted by the recession.

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The good news is that there are steady sales. And there are some noticeable trends, Miller said. Schools are buying dealerships and converting them. Lumberyards are buying dealerships. Some are being turned into retail centers. A number of the best properties are being purchased and redeveloped by other auto dealerships. Closed dealerships are selling at the rate of $200 million to $300 million per quarter.

The steady pace of sales has not surprised real estate analysts or developers. The transactions represent a pent-up interest in redeveloping the best locations,what Len Bierbrier,president of Bierbrier Development in Lexington,Massachusetts,called A and B-type real estate. He said the closed dealerships that were in demand typically offered what Whitehall Ford had here in Michigan: a midsize building and an ample,well-lighted paved parking area along a well-trafficked boulevard.

The Whitehall project,built by LCL Development Company of Belding,Michigan,includes a $700,000,9,000-square-foot addition with space for a Mexican restaurant and three other tenants,and parking for 80 vehicles. Constructing the supermarket cost $1.1 million after the old dealership was demolished.

There is movement in the market, said Bierbrier,who develops small retail centers in the Boston region. In many cases,auto dealerships are covered under zoning laws that restrict uses other than auto-related activities. Changing uses,particularly here in New England,can take a long time, he said. Typically sellers or buyers also are compelled by lenders,as well as state and local regulators,to conduct environmental assessments and clean up chemical compounds and contaminants that seeped from repair shops and parking lots,driving up costs.

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In other instances,closed dealerships in good locations span just a few acres,and either are priced too high or do not have enough land for the 25,000- to 50,000-square-foot developments that Bierbrier builds. He said that over the last year or so he had investigated several closed dealerships in towns along Route 128 outside Boston,and decided not to make an offer.

New uses for closed dealerships are as numerous as the properties.