Real Estate Blue Sky — The Hidden Value for Dealers

Real Estate Blue Sky — The Hidden Value for Dealers

‘Real Estate Blue Sky’ is a term coined by Legacy Automotive Capital (LAC) to describe the intangible value that a New Car dealership property holds in addition to its physical attributes or based on the comparable sales of similar properties typically used in the appraisal process. New Car dealership properties are unique in that the true value of the real estate comes from various sources beyond the physical appraisal such as the “Shadow Credit” of the Brand, the value of the “goodwill”, and the pedigree/financial stability of the operator. These factors are widely ignored by the broader marketplace in Buy/Sell transactions resulting in New Car dealership real estate trading on average for far less than it is worth.

This hidden value that many dealers are leaving on the table today is what Legacy calls Real Estate Blue Sky.

In a Buy/Sell or a sale leaseback transaction the rental income that is paid by New Car dealers is often discounted or undervalued because of the arm’s length relationship that exists between the Operating company (The Dealer – OP Co) and the real estate entity (Prop Co) to which rent is paid. Legacy believes that this tenancy should be valued as is the custom in all other commercial real estate verticals. Furthermore, dealership tenancy is “sticky”, long-term and “no-touch” and in no way should be discounted or undervalued. In fact, Legacy believes that New Car dealer tenancy is buoyed by the franchise system, the backing of the OEMs, the adherence to brand standards and oversight of the captives and is some of the most valuable tenancy available in any marketplace.

This is why no one pays more than Legacy does for New Car Dealership real estate.