Auctioneer sizes up why fuel stations are becoming increasingly popular at real estate auctions. There is an apparent trend in the market for entrepreneurial players to invest in active and closed fuel station sites on a national level, as witnessed by the recent appearance of many of these properties on the auction floor. Whilst this movement and opportunity it brings to corporates and individuals is positive, the question being asked is: why are they being sold? Seasoned auctioneer Ariella Kuper of the Alliance Group offers some insights.
There is a commercial realignment of either the major players' property portfolios or a refocus of their operational strategies. Alliance confirms they have taken and confirmed over R75 million to auction in this sector since August 2008, including active and closed retail fuel sites and depots. Clients include the fuel icons Engen, Shell, BP and Chevron.
Each fuel company appears to have its own focus, often stemming from directives of their international head offices. Some value their retail sites as key in their activities, whilst others place more emphasis on the supply at the refinery level. For example, CoRo (Company Owned, Retail Operated) used to be the preferred model for some fuel companies where they wholly owned the site and had a retailer manage it as a tenant. In the current economic environment, with rationalisation and an emphasis on specialisation, several fuel companies prefer to give retailers the opportunity to own and run their own site whilst protecting the brand through stringent clauses in the lease agreement that prevent other fuel suppliers from benefitting from the site or equipment.
Alternatively, if the site shows poor performance and is no longer considered a viable investment, the fuel companies are closing them after the necessary environmental clean-up and removal of all underground equipment and residue. Once environmentally compliant, the sites are offered to the market for alternative usage on condition that they are not re-opened or used as a competitor site, often for up to 20 or 25 years.
Whilst this may sound a somewhat stringent condition of sale, the opportunities being afforded to property and fuel retailers is vast. The palpable energy on the auction floor, is testimony to this. Auctions have proven most successful in attracting a wide spread of bidders on a national level and the result is that both buyer and seller benefit as a stronger price is achieved.
A recent example was a closed site in Bloemfontein that had been inactive for some years, tying up capital for the seller. It had also become abandoned and derelict. After a sharp burst of marketing, the site was auctioned off to a local businessman who is converting it into a taxi rank, given its ideal location. The value to him far exceeded that of the supplier's. Another example is a recent auction of a closed depot in Queenstown, where the successful purchaser intends to re-open the site as the returns for him are considered viable, as compared to those required to remain on the supplier's balance sheet.
Bringing active and closed sites to the auction floor has therefore created an ideal investment opportunity for diverse interests. Investors can expect a solid stream of new sites coming under the hammer in the coming yea