The real estate component of a dealership is a significant factor in its overall valuation and attractiveness to potential buyers. Whether you own the property or lease it, having a clear understanding of its financial, legal and operational implications is essential to preparing for a sale.
This article will guide you through assessing your real estate situation, determining its impact on the transaction and positioning your dealership for a smooth transition.
Owning vs. leasing: Understanding your position
The first step in preparing for a sale is assessing the particulars surrounding owning or leasing the property where your dealership operates. Each scenario has different implications for both you and the buyer.
If you own the real estate:
- Appraisal and Market Value: Have you had a recent appraisal to determine its fair market value (FMV)?
- Property condition: Is the building and land well-maintained and compliant with zoning regulations?
- Financing considerations: If you have a mortgage, what are the terms and how does that affect a sale?
- Future plans: Do you plan to sell the property along with the dealership, or lease it to the buyer as a separate transaction?
[RELATED: Step 6 in preparing your dealership for a sale]
If you lease the real estate:
- Lease terms: How long is left on your lease, and are there renewal options?
- Purchase options: Does your lease include an option for the buyer to purchase the Property?
- Rental rates: Are you paying fair market rent (FMV), and how will this impact the buyer's financials?
- Lease transferability: Will the property owner approve a lease transfer or require renegotiation?
Determining fair market value of the property
A proper valuation of your dealership's real estate is critical in negotiations. If you haven't already, consider obtaining a professional appraisal to establish a clear understanding of its worth.
A reputable real estate appraisal firm with experience valuing dealerships is crucial. Here are some factors affecting valuation:
- Location and market demand: The desirability of the location and demand for commercial property in the area.
- Facility condition and compliance: The state of the building and adherence to manufacturer or municipal requirements.
- Income potential: If leasing, the rental income potential and return on investment for a buyer.
- Zoning and land use restrictions: Ensure the property's current use aligns with legal requirements for automotive sales and service.
How real estate impacts dealership valuation
A dealership's real estate is a major consideration in its overall valuation. Buyers will evaluate the total financial picture, including property-related expenses and obligations.
- Selling the property with the business: Can lead to a higher purchase price but requires proper financial structuring.
- Leasing the property to the buyer: Can provide long-term income, but lease terms must be competitive.
- Buyer's financing needs: Buyers may need to secure financing separately for the business and real estate, affecting their ability to close the deal.
Zoning, compliance and environmental factors
Before selling, ensure your dealership complies with local zoning laws and environmental regulations. Any issues could delay or complicate the sale.
- Zoning Laws: Confirm that your property is zoned appropriately for automotive sales and service.
- Environmental considerations: Check for any environmental liabilities, such as contamination from service bays or underground storage tanks.
- Environmental surveys: During most transactions, the buyer will require an initial Phase One Environmental Site Survey. Should the Phase One Survey identify potential environmental concerns, a more comprehensive Phase Two Survey will be conducted to determine the extent of any contamination. Subsequent to these findings, necessary remediation procedures will be implemented.
- Municipal regulations: Ensure compliance with parking, signage and other local ordinances that may impact operations.
Steps to optimize real estate for sale
Taking proactive steps to prepare your dealership's property can enhance its appeal to buyers and streamline the sales process.
- Update documentation: Ensure property records, lease agreements and compliance certificates are current.
- Make necessary repairs: Address any maintenance or facility issues that could lower the property's perceived value.
- Maximize curb appeal: Improve landscaping, signage and exterior maintenance to create a positive first impression.
- Engage professionals: Work with a real estate appraiser, attorney and dealership broker to prepare for a transaction.
In conclusion
Understanding the key details of your real estate is essential to maximizing your dealership's value and ensuring a seamless transaction. Whether you own or lease the property, taking proactive steps to evaluate its worth, ensure compliance and optimize its condition will make your dealership more attractive to buyers.
By thoroughly assessing your real estate position, you can confidently navigate the sale process and secure the best possible outcome for your business and future.
