2023 State of The Union — Real Estate Blue Sky

2023 State of The Union — Real Estate Blue Sky

First and foremost, I would like to acknowledge and thank all our Dealer Partners for what was a remarkable 2022. Legacy Automotive Capital (Legacy) successfully launched its latest real estate fund in May with a specific charter of buying the real estate associated with New Car franchised dealerships. Over the past seven (7) months we’ve had the opportunity and privilege to work with some of the most progressive Dealer groups in the country, maximizing the value of their real estate and through our unique perspective as Dealer Principals and Auto industry veterans, providing capital optionality that previously didn’t exist in the Buy/Sell space…for Dealers, by Dealers.

A Pillar of our investment philosophy is the entrepreneurship, tenacity and resilience of the Dealer body which fuels our business and will continue to drive growth for Legacy and its customers in 2023 and beyond. While the industry continues to evolve and electrify, we are undoubtably “long” on the necessity of the franchise new car Dealership model and believe in the long-term strength of the franchise system despite what Wall Street might have the broader public believe.

New Car franchised Dealers are the final and most crucial connection point to communities, families and most specifically the drivers that they serve. Dealerships are critical outposts where customers are afforded a massive convenience along their way to purchasing, taking delivery, securing financing and servicing their vehicles. The importance of last mile logistics, point of purchase and, perhaps, most significantly, the service center go-between for Customers and the Factory cannot be understated and should never be devalued.

Where else can you find a Car Wash, a Bank, an Internet Cafe, a Showroom, a State-of-the-Art Service Center and an Insurance Agency under one roof? The answer is most likely on the major thoroughfare in your hometown, at a four-way lighted intersection with ample parking and friendly faces waiting to help at all hours of the day, six or seven days a week.

This is what New Car dealers have “built” and what we at Legacy believe they should be properly compensated for. So how does Legacy impact this ecosystem? We’re all familiar with the concept of “Blue Sky”. Dealers and advisors trade in this currency every day and its importance has never been greater than over the last few years as both profits and valuation multiples of earnings have grown. However, in most Buy/Sells there is little focus placed on what we call the REAL ESTATE BLUE SKY. This is where Legacy comes in.

From Legacy’s point of view, a generic appraisal in no way accurately identifies the true value of the unique real estate that underlies a franchised New Car dealership. However, until now, Dealers have accepted appraised value as fair market value and have ignored the REAL ESTATE BLUE SKY that they have created, in most cases, over many years of ownership and adherence to Brand standards and Image Compliance. New Car dealership real estate is unique and should be treated as such.

To existing Dealers through sale-leaseback, or prospective Dealers via Buy-Sell acquisition financing, Legacy’s program offers the opportunity to extract the maximum value of their real estate regardless of what the appraised value may be. We are more interested in you as an Operator; your sales effectiveness, fixed coverage ratio, UIO and operational efficiency than we are in what the vacant building down the street sold for three years ago.

The New Car business has never been healthier and therefore the tenancy that dealers offer has never been more attractive to us. This fact is ignored during the discussion of a Buy/Sell and, on average, dealership real estate assets trade at a 20-40% discount to Legacy’s self-determined ‘fair market value’. This equates to an average of $2 – $5 Million Dollars of additional funds to the Dealer per rooftop!

Legacy believes that New Car dealerships have long been fundamentally strong real estate assets hiding in plain sight with super ‘sticky’ tenancy. In a Buy/Sell, these assets have always traded as part of a “package deal” at a valuation based solely on appraised value thereby leaving 20-40% of the real estate asset’s true value on the table. The sum of the parts is greater than the whole! This 20-40% margin provides tremendous flexibility in the capital stack, and can, in many cases, represent the equity needed in the entirety of a Buy/Sell.

Legacy enters 2023 with ~$1.5 Billion Dollars to deploy into the New Car dealership marketplace. The market has already shown signs of correction and new market fundamentals will underline the importance of extracting maximum value from all aspects of the business… especially Real Estate.

Legacy is a Real Estate company founded by Dealers that at its core believes in the franchised New Car Dealership system. Our goal in 2023 and beyond is to support the Dealer Network as a financial catalyst for growth and an option for all Dealers to identify and experience the true value of the REAL ESTATE BLUE SKY they have created in their businesses.

Happy Holidays from Legacy Automotive Capital!

Secret Sauce Interview with Todd Marcelle

CBRE Fast Five: Secret Sauce Interview

LAC’s own Todd Marcelle was interviewed by Karly Iacono of CBRE Fast Five to discuss how dealers can unlock the true value of their real estate with Legacy Automotive Capital.

Take a look at the video below to hear and see this video in full.

Automotive News Spotlight with CIO Todd Marcelle

Automotive News Spotlight

Legacy Automotive Capital was in Automotive News this week where CIO Todd Marcelle shared his view on the growing demand for sale/leaseback capital and how dealers are maximizing real estate values.

To view the full article, click here. Not a member with Automotive News? No problem, we provided the article written by Marc Spizzirri in full below.

Guest commentary: Dealerships face uncertain times, but real estate endures

Real estate remains the only constant in this mix of uncertainty, and many dealers are starting to take notice.

As a result of chip shortages, supply chain challenges and pent-up demand, 2021 saw historic dealership profits. J.D. Power reported more than $5,000 in profit per new vehicle in December 2021 — more than triple what dealerships made in new-vehicle sales for the same period in 2019.

2022 has continued strong. According to Kelley Blue Book, average U.S. new-vehicle transaction prices reached a near-record $48,094 in September, slightly less than the previous high of $48,240 in August.

Throughout the late 1990s and into the recession that began in 2008, I owned and managed dealerships in Southern California. The years prior to the recession were remarkable — an economic period characterized by good feelings and a sense it was only going to get better. We felt invincible.

In good times, it is easy to get complacent when it comes to expense control and dealership management. The economic crisis of 2008 left some dealers unprepared for the challenges they faced.

It was a tough lesson for some, a stark reminder that taking your eye off the ball in inventory management and expense control can prove catastrophic. Talking to dealers now, it’s obvious many are watching the shifting winds carefully and trying to identify next steps. Especially for those looking to continue their growth objectives, decisions can be difficult. Putting a value on a dealership in today’s market can be mystifying.

Stormy skies

Some reports indicated 2022 would likely be the most profitable year ever for dealerships, but storm clouds are gathering. Dealerships are faced with extraordinary financial challenges and uncertainty following record-breaking years. Inflation, interest rates and the Consumer Price Index are all testing new highs monthly, creating headwinds for consumers and making dealerships more costly to operate.

At the same time, car manufacturers are placing unprecedented demands on dealerships as they scramble to respond to evolving market challenges. In September, Buick offered to buy out any U.S. dealer who does not wish to make the infrastructure investments needed to upgrade. Ford Motor Co. is offering dealers the option to become electric vehicle-certified under one of two programs — with investments of $500,000 or $1.2 million.

There’s never been a time of less predictability.

The overlooked asset?

Real estate remains the only constant in this mix of uncertainty, and many dealers are starting to take notice. While the sale lease-back model is generating greater interest, it’s not a new concept. It’s a strategy that has been successfully employed in nearly every industry for decades. Companies including Taco Bell and FedEx are taking advantage of the flexibility — pulling equity out of their real estate and using the capital to reinvest in expansion and other financial priorities. Legacy Automotive Capital, which came into the business in 2019, is solely focused on specialized sale lease-back capital for the automotive retail industry.

It could not come at a better time. According to Legacy, most dealers, on average, make three times more on operating companies than they do on real estate. “This is an area overlooked by owners and operators,” said Todd Marcelle, chief investment officer at Legacy. “The most well-run groups like Penske, Asbury and others all leverage sale lease-backs to financially engineer more profitable buy-sells and reduce balance sheet risk.”

By conducting sale lease-back transactions, dealers can extract up to 140 percent of the value of the real estate on buy-sells, or to de-risk their current holdings, Marcelle added.

The timing and uncertainty of the market make this opportunity ideal. Whether they want to drive expansion, raise capital or simply take chips off the table, sale lease-back offers flexibility and empowerment. It allows dealers to maintain control of their property while extracting cash, which is very attractive in today’s marketplace as they search for liquidity or weigh estate planning and exit strategies.

Legacy executives state that from an estate planning standpoint, a sale lease-back may allow the dealer to redistribute equity locked up in the real estate among multiple family members without disturbing dealership operations. Should the dealer desire to sell the real estate and operations, a higher overall value may be realized by selling these entities separately. Monetizing real estate also allows dealers to diversify their family’s exposure from the automotive industry.

No one knows what the next 24 to 36 months will bring, but the one thing that offers some sense of stability is the real estate piece of the puzzle. It is the only constant.

Acquisition Announcement – Subaru Dealer

Acquisition Announcement – Subaru Dealer

Legacy Automotive Capital finalizes a sale/leaseback with a regional dealer group through its acquisition of a Subaru dealership property in the Northeast US. The acquisition adds another property to Legacy’s growing dealership portfolio.

 

“I recently worked with Legacy on multiple transactions and was pleased with the professionalism and efficiency of their process. The company was true to their word, acted quickly, and allowed me to successfully execute on our business and personal goals while minimizing the day-to-day activities of running the business. We hope we can work with Legacy in the future and recommend their program to any dealers looking to expand or recapitalize their holdings.”

— Lundgren Automotive Group

Acquisition Announcement – Honda Portfolio

Acquisition Announcement – Honda Portfolio

Legacy Automotive Capital re-capitalizes a regional dealer group through its acquisition of 2 Honda dealership properties in the Northeast US. The acquisition adds 2 properties to Legacy’s growing dealership portfolio.

 

“I recently worked with Legacy on multiple transactions and was pleased with the professionalism and efficiency of their process. The company was true to their word, acted quickly, and allowed me to successfully execute on our business and personal goals while minimizing the day-to-day activities of running the business. We hope we can work with Legacy in the future and recommend their program to any dealers looking to expand or recapitalize their holdings.”

— Lundgren Automotive Group

Legacy Automotive Capital Raises $500 Million

Legacy Automotive raises $500 million

Legacy Automotive Capital is aiming to deploy $500 million over the next 36 months by assisting dealers in acquiring property in buy-sell transactions or providing them capital via a dealership sale-leaseback.

An investment firm, led by the co-founders and an investor of a business sold to Reynolds and Reynolds Co., aims to spend $500 million over the next three years by assisting dealers in acquiring property in buy-sell transactions or providing capital via sale-leasebacks of dealerships.

Legacy Automotive Capital, founded in 2019 by Ben Catanese, Todd Marcelle and TJ Doyle and based in Exton, Pa., in suburban Philadelphia, has an additional $1 billion in funding commitments that could come later.

“We believe that we can represent the real estate component of the capital stack in a buy-sell transaction,” Catanese, Legacy’s CEO, told Automotive News. “That’s really where we think we can be helpful, where we currently are being helpful to dealers.”

To read the full article, click here.