In the current economy, many people are focusing on the challenges facing those wishing to buy or sell convenience stores and other retail petroleum properties. Despite the challenges, though, there are some unique opportunities that may disappear as the economic climate improves.
NRC Realty Advisors is involved in the buying, selling, and financing of retail petroleum properties nationwide. In the course of our business, we are seeing a number of trends that offer rather unusual opportunities for those who are in a position to take advantage of them. In this article, I’ll focus on the “buy side” of the equation. In the next issue of NPN, I’ll look at some of the unique current opportunities from the “sell side”.
Majors continue to divest. There is some really good real estate on the market. Virtually all of the major oil companies continue to exit the direct retail market, preferring instead to market through jobbers and chain retailers. We see some slight slowing of this trend, as some sales have not attracted offers at the level the seller was expecting and some others have had difficulty closing. However, we do not see a dramatic pullback. In virtually all of the sales we’re involved in, the sellers are pleased with the bids they’re receiving. Once the majors have completed this transition, the opportunity to pick up these prime properties will be gone. A second aspect of this trend is that, when all of the majors are divesting, none of them are competing to buy each others’ properties. (Not that they would anyway – many of the divestitures are tied to supply agreements with the divesting major.) Nevertheless, it means less competition from those with deep pockets for the properties that are being divested.
There are a lot of properties on the market. In addition to stations being sold off by the majors, there are a lot of other retail petroleum properties on the market. Many of them are on the market because their owners or operators are in financial distress, either because of poor returns from operations or an unsustainable debt structure – both related to the current economy. The bottom line is that there is a wide variety of properties on the market right now – and likely more in the near future – for buyers to choose from.
Financing is more difficult to obtain than ever. Financing for the petroleum industry has been difficult for several years, but in the current climate it is tougher than ever. Several national lenders who were in this space are no longer in the marketplace. Compared to a few years ago, lenders are much less willing to make funds available for either building new c-stores or buying existing properties. If your competitor can’t get the loan, he can’t compete for those prime properties that are on the market. This situation presents a golden opportunity for those who have ready cash and are less reliant on the equity or debt markets for funding.
Financing is particularly difficult for the “big deals.” In today’s lending climate, we are finding that there just isn’t anyone out there willing to make loans for the $100 million acquisition, and it’s almost impossible, given the withdrawal of most national lenders from the industry, to put together a lending consortium of that magnitude. In this climate, we are finding that sellers are being forced to break their packages into smaller pieces. Financing down at the $1 million to $25 million level is much more available. This provides great opportunities on the buy side for smaller companies, who normally couldn’t touch some of the prime properties that have been available. We’re seeing this in sales by the majors, for example, but also in larger divestitures by or liquidation sales of independent chains.
Values are lower than they were a couple of years ago. Back in 2007, we were seeing retail petroleum properties selling in the range of four to six times EBITDA. Today, values are generally one full multiple lower than they were. It is often said that the value of a piece of property is how much someone is willing to lend for its purchase, and the drop in multiples appears to be directly related to the lending environment. Will it go down further? I doubt it. At least comparatively speaking, now is a golden opportunity to pick up some real bargains in the retail petroleum sector.
Is now the time to buy? While I don’t have a crystal ball, and so I can’t say for sure that values won’t come down further, I really sense that we are at or near – or perhaps even past – the bottom of the market for retail petroleum properties. For those who have the ready cash, or who can get the kind of financing necessary, there are some great opportunities out there to pick up some prime properties – the kinds of opportunities that may not still be around in a couple of years.
Ruben is Managing Partner with NRC Realty Advisors, LLC (www.nrc.com), based in the firm’s Scottsdale, Arizona office. The company has been involved in the purchase, sale, and/or financing of more than 10,000 properties since its inception in 1989.