Brookfield Property Partners will acquire Capital Automotive for $4.3 billion, according to a source familiar with the deal.
McLean, Va.-based Capital Automotive provides real estate financing for dealers to acquire new locations and upgrade facilities.
The deal is expected to close in mid-October, and observers say it could have widespread implications for the auto industry.
“It’s a very large transaction for the industry,” said Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif. “It’s an indication of the credit quality of the auto retail industry and the fact that the market believes that auto dealerships have low credit risks.”
Kerrigan said the deal could have implications for dealership acquisition financing “to some degree” going forward.
“Whatever the yield was on this acquisition, it will have an effect on what dealership cap rates can be and the lower the cap rate, the higher the purchase price,” Kerrigan said.
Also, Capital Automotive is the only dedicated auto dealership real estate investment trust, a company that owns and operates income-producing real estate, she said.
“I’d be curious to see if their plans are to continue to grow this business or because it’s a great pool of properties, they milk the cash flow? It’ll be interesting to see the buyer’s plans,” Kerrigan said.
Capital Automotive and Brookfield Property Partners declined to comment. DRA Advisors, which owns Capital Automotive, could not be reached for comment.
Kerrigan said the high price paid for Capital Automotive is indicative of the low yield investment environment.
DRA Advisors, a real estate investment firm, bought Capital Automotive in 2005 in a deal valued at $3.4 billion, Kerrigan said. In nine years, the value of Capital Advisors has climbed 26 percent to the planned $4.3 billion purchase price.
The purchase price includes the assumption of all existing debt, as well as debt facilities of $400 million to fund the transaction, Reuters reported.
Capital Automotive will launch new debt after the Sept. 1 Labor Day holiday, and also will seek approval from existing lenders to allow a change of control, Reuters said.
Capital Automotive intends to issue $300 million of asset-backed securities and $100 million of new loans under its second-lien credit facility, Reuters said.