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Legacy’s growth highlighted in Automotive News

Legacy Automotive Capital grows in real estate partnerships with dealers

Investment firm expects to have deployed more than half of its original $500M in starting capital by end of year and has another $1 billion fund available.

Dennis & Co. Auto Group completed two dealership sale-leasebacks with Legacy Automotive Capital this year to quickly free up millions of dollars in funding for the growing group to use to aid future acquisitions.

By not sitting on the stores’ real estate, “we’re able to focus on our primary business: car dealerships and selling cars,” CEO Brian Dennis told Automotive News. “The ability to sell these properties and become a tenant rather than a landholder has freed up capital to continue our growth.”

A typical sale-leaseback involves a dealer selling the dealership real estate and the buyer immediately leasing the property back to the dealer.

And it’s at the heart of Legacy Automotive of Exton, Pa., which said in 2022 that it planned to spend $500 million over three years by providing capital for dealership sale-leasebacks or assisting dealers in acquiring property in buy-sell transactions.

“We’ve been pretty aggressive deploying capital,” Legacy Automotive Chief Investment Officer Todd Marcelle told Automotive News.

He estimates the firm by the end of this year will have spent about $276 million and that it could get through its initial fund about six to nine months earlier than expected. Legacy Automotive also has a second fund worth $1 billion from a “family office” that’s now ready for use if needed, Marcelle said.

The company hopes to have $1.5 billion in assets by 2027, he added.

Legacy Automotive’s business has picked up as more dealers learn about it amid tighter lending environments from banks and higher interest rates, said Marcelle, who co-founded the group with Ben Catanese and TJ Doyle.

Dealers “have been coming to us because we invest all cash,” Marcelle said. “We’re not dependent on interest rates. We’re anywhere from 50 to 150, 200 basis points better than traditional lenders, so it’s a significant difference from a cost of capital standpoint.”

$18 million typically

Marcelle said he couldn’t share specific figures on how many deals Legacy Automotive has completed, nor at what cost, but he said a deal typically costs about $18 million. The firm has made dealership property purchases across the country.

Marcelle said even more funding could be raised from the unidentified family office.

“The family would like to keep investing with us and automotive retail,” Marcelle said.

Marcelle: “We invest all cash.”

But Marcelle doesn’t expect Legacy Automotive to tap the billion-dollar fund this year. It would likely take a deal worth hundreds of millions of dollars, the kind that may be executed by a public auto retailer, he said.

Marcelle said Legacy has not yet closed any deals with a public dealership group, but he said the firm is in “active discussions” with at least one public retailer that he declined to identify.
Legacy Automotive also helps replace traditional lending from banks, as was the case in a deal this summer.

The company on June 1 purchased the real estate for Mission Viejo Infiniti in California from automotive retailer Brett Oubre and his store partner, Lonnie Bennett.

Oubre, who said he owns six other franchised dealerships, said Legacy’s funding helped him complete the acquisition of the store Infiniti awarded.

Owning the dealership property is “very similar to having frozen capital in the parts department, having frozen capital in your used-car curtailments and other areas of the dealership,” Oubre said. “You basically have frozen capital in your real estate that you can’t deploy for a return.”

Some banks also have begun to contact the company in what Marcelle described as “syndicate” deals, where banks looks for a firm like Legacy Automotive to invest in deals with higher price tags.

And some dealers have inquired about Legacy Automotive partnering and investing in actual dealerships, similar to what a company such as Franchise Equity Partners may do, but it hasn’t yet, Marcelle said. That could come, but for now, Legacy’s buy-sell involvement is with the real estate.

“You couldn’t ask for a better landlord,” Dennis said. “As far as the terms of the lease, they’re very standard, no surprises. It was a quick and easy closing; they really know the industry.”

Dennis & Co. opted to sell properties to Legacy Automotive that house its Kia of West Nyack store in New York, which it acquired in 2016, and a Chrysler-Jeep-Dodge-Ram dealership in Clifton Park, N.Y., which it purchased in August 2022 from James Zappone.

 

‘A little more aggressive’

Dennis said he understands that some dealers prefer to own their land and buildings, but in his opinion, sale-leasebacks offer a favorable way for dealers hungry to grow and “find efficiencies of scale and generate that cash.”

“We have the opportunity to purchase operating companies for dealerships,” Dennis said. “It’s a little more aggressive, but it’s important for dealers that are looking to continue to grow to leverage that cash flow, that cash and equity, rather than sit on it for a long term.”

For Dennis, it’s about having more options. His group operates a dozen franchised dealerships and is in negotiations to acquire another store.

Dennis said he is considering using some of the money he gleaned from the property sales to Legacy Automotive to help with the pending acquisition.

“Legacy provided us an opportunity to release capital and generate liquidity that supports our acquisitions, but it isn’t critical — it just made it easier,” Dennis said.

Contact Todd Marcelle at todd@legacyautocapital.com to receive a free assessment of your real estate.

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