Louisiana dealer Matt Bowers warns against sale-leasebacks: ‘There is a misalignment’

Matt Bowers, dealer principal of Matt Bowers Auto Group has a message for auto dealers considering sale-leaseback deals: think twice before signing. 

The Louisiana dealer's recent social media post about his own regrettable experience set off a heated industry debate that caught the attention of Car Dealership Guy, who invited Bowers on Daily Dealer Live to share his story.

Here's how these deals typically work: A dealership sells its real estate to an investment company and then leases it back. The arrangement lets dealers unlock equity from their property while keeping operational control (at least in theory).

For new dealers or those looking to expand, it sounds perfect. Dealers get a cash infusion to acquire more stores without giving up their location.

Yes but, on yesterday’s live broadcast, Bowers explained to hosts Yossi Levi and Sam D'Arc that his particular headache involves the sale-leaseback of a store built for a minor brand selling around 400 cars yearly. Today, that same franchise moves 1,200 new vehicles annually but is still cramped into a facility with just 10 service bays on 3.5 acres with zero room to expand.

• Despite the property no longer meeting business needs, Bowers is stuck until the lease expires… 8 years from now.

• At that point, he'll need to relocate to accommodate the brand's current volume.

Zooming out: While Bowers acknowledges his situation is atypical, he takes a bigger issue with emerging dealers who use sale-leasebacks to leverage limited capital for rapid expansion.

Between the lines: Not everyone agrees with Bowers. The LinkedIn post sparked plenty of pushback from real estate professionals who insist these deals can work when structured properly.

• Several leasing executives argue that sale-leasebacks make sense when rents are sustainable, exit options are flexible, and lease terms preserve operational control.

• Some think the problem isn't the concept itself but poor execution.

• And dealers too often end up with rigid terms because they either take what's offered or lack advisors who understand the dealership real estate market.

So, Bowers offered an alternative that worked for him when he started out without much capital: dealer-to-dealer arrangements.

• He explained that established dealers make better landlords because they understand the business fundamentals. 

• They know their investment only works if the operating dealer succeeds, which some institutional investors seem to forget, he said.

• While careful not to paint everyone with the same brush, Bowers believes there's a fundamental misalignment between dealers and some institutional sale-leaseback companies.

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