Tesla's Showrooms Attract Real Estate Investors Seeking to Cash in on the Brand Cachet
Tesla enthusiasts may have swamped the luxury electric car maker with reservations to buy its new Model 3, but purchasing a piece of Tesla real estate can be even trickier.
Few such properties hit the market, and only about a half-dozen are for sale now. It’s a market that typically attracts a niche buyer.
“Whoever is buying a Tesla dealership is likely going to be a wealthy individual or a car person,” said Barry Wolfe, senior managing director of investments for Marcus & Millichap. “You’re buying the brand more than the real estate.”
The properties tend to be net-lease deals, in which Tesla pays most of the property’s operating expenses. Landlords collect rent on what's left to generate an annual return on investment, known as the capitalization rate.
In the most recent deal for a Tesla sales and service center, an individual investor paid $5.5 million for a five-year-old Tesla-leased property in the Nashville, Tennessee, suburb of Brentwood. That works out to be about a 6.82% cap rate, or projected rate of return.
The property had been on the market for six months and eventually sold at a discount from the original $5.77 million asking price.
No loan was recorded in the property records, which means the deal likely involved all cash.
Though at a discount, the seller, another individual investor, still got a gain. The investor had bought the property four years ago for $4.5 million.
“There was always a lot of interest” in the property because of the brand, said Simon Mattox, a broker with CBRE that had the listing.
There's also some uncertainty. Elon Musk, Tesla’s founder and CEO, cooled interest in Tesla leased properties in March when he announced the company would close most dealerships and focus on selling the cars over the internet. Musk reversed himself about a week later, stating the company would close some and reopen others based on an analysis of store sales volume. Telsa has about 124 locations around the country, many of which are not freestanding locations.
That back-and-forth left some real estate investors wondering how committed the company is to bricks and mortar. There’s also the question of the company’s financial health.
“Tesla’s properties are hard to sell due to the fact that the company loses money and their stock is down 25% this year,” said Randy Blankstein, president of The Boulder Group, a net-lease firm based in Wilmette, Illinois.
Not all buyers are just buying a brand. Some may be genuinely interested in the real estate.
Cincinnati, Ohio-based Prep Property Group paid $6.8 million for a Tesla sales and service center in Wexford, Pennsylvania, in January. For Prep Property, the deal is an outlier, since many of its net-lease investments follow the more traditional route of buying properties leased to retailers such as CVS, Dollar Tree, Advance Auto Parts and Dollar General.
In June, Honolulu-based Kam Development bought the Tesla sales and service center in Highland Park, Illinois, for $8.75 million. It was never listed for sale. Spencer Henderson, a broker with net-lease firm B + E that represented Kam, said the property met all of the buyer’s investment criteria. They called the owner, Berger Asset Management, about selling, and Berger said yes.
Good real estate may have been the big draw for Los Angeles-based Balboa Retail Partners paying $39.8 million for a Tesla sales and service center in the heart of San Francisco. It, too, represented a gain for the seller who had paid $30 million for the property in 2015.
Balboa owns some 3 million square feet around the country, much of it in its home state. If Tesla goes away, it has a retail property sitting in a region with a vacancy rate of 2.4%, according to CoStar data, the lowest in the country among big metropolitan areas.
