Commercial property ripe for development is hard to come by in the dense, built-out San Fernando Valley. That presents a dilemma for developers trying to capitalize on a growing demand for new housing and updated retail projects. But many are finding a viable solution on the land underneath rusty old cars. The 1- to 5-acre properties scattered across the Valley that once housed auto dealerships and used-car lots have emerged as coveted assets. Located along major boulevards in commercially zoned strips adjacent to public transportation, these lots are being bought up and built out with the kinds of infill retail and mixed-use projects that are impossible on smaller lots. In just the past few months, new developments adhering to this formula have been announced in Van Nuys, Northridge and Reseda. They follow many other conversions in recent years, as auto dealerships have migrated to freeway-adjacent supermalls and the land they leave behind has been transformed into shops, fast-food outlets and apartment complexes. The new use is a positive change, said Christopher Cedergren, president of Westwood auto market research and consulting firm Iceology. “Many times, these are old, dilapidated sites that sat for years neglected. And what exacerbated things was the recession,” he said. “It’s good news that these older sites are being redeveloped in terms of Los Angeles’ plan to add housing, especially along the Orange Line.” Revenue potential Of course, not every classic dealership is going the way of the bulldozer. One midcentury moderne architectural gem, Casa de Cadillac in Sherman Oaks, spent millions to restore its facilities and become a destination auto showroom rather than leave its half-century-old perch on Ventura Boulevard. (See photo essay, page 18.) But there’s no question that a rash of Valley landowners is eager to convert their automotive properties to new uses, said J. Richard Leyner, executive vice president at illi Commercial Real Estate in Encino. And there’s no mystery about their motivation. “The income from the car lots to the property owners is limited to what they can get from that one lease,” he said. But replacing one commercial tenant with five national retailers, or an apartment building with rents that go up annually, can double a property’s income potential. There’s also the opportunity to ditch what he calls the “aggravation factor” – the uncertainty that accompanies automobile sales, particularly with used cars. “In general, the people who sell used cars are not the most reliable members of society,” he said. “It’s the old stereotype: They’re here one year and gone the next.” Landlords figure they’d fare better by attracting retailers who are more likely to sign multiyear leases. For instance, Leyner points to the corner of Victory and Reseda boulevards in Tarzana. The space that once housed a used-car lot now sports a bustling McDonald’s restaurant adjacent to the Sherman Oaks Center for Enriched Studies, the largest magnet school in the Los Angeles Unified School District. “There are a lot of these properties around,” said Leyner, who is marketing a 25,700-square-foot auto lot at Remick Avenue and Osborne Street in Arleta. “The landlord has been collecting rent from used-car dealers but would like to see it converted into a national tenant. It’s more secure, with steady income and less concern,” he said. When such properties come up for sale, typically after the death of a family patriarch, they provide enough acreage and high-visibility locations for street-level retail projects with multifamily units on upper floors. “The city is very into doing mixed use,” Leyner said, noting that such projects are highly favored by city planners. Legacy ownership L.A. developer David Schwartzman, chief executive of Harridge Development Group, hopes to build a mixed-use project on the former Neill Lehr Cadillac dealership in Northridge. In March, his firm purchased the 3.3-acre site at 8350-8454 Reseda for $5.75 million from the family of H. Neill Lehr in Newport Beach. Lehr was a salesman at Helm Cadillac-Pontiac in San Fernando in the early 1960s, but when the owner of that dealership died, Lehr bought it and moved it to Northridge. The property, later occupied by Rydell Cadillac, is now leased to movie car-rental outfit Picture Car Warehouse. Next month, Schwartzman will submit plans to the city to transform the property into a four-story, transit-oriented development, with ground-floor retail and 80 apartment units facing Reseda Boulevard. On the eastern three-quarters of the site, he plans a small-lot residential subdivision with 60 homes. Finding Valley property that is large enough to accommodate that kind of development is not easy, Schwartzman said. “It’s very tough. I have two acquisition people that work for me that basically are out looking for sites full time.” The Lehr dealership acquisition was an off-market purchase that Schwartzman jumped on after it fell out of escrow with another developer. “We heard about it and went back on it in a day and snapped it up. We didn’t even negotiate on the price,” said Schwartzman, whose firm specializes in infill development and has completed a number of similar projects in the Valley. His employees scout auto dealerships even though they often come with environmental remediation challenges. “There are potential cleanup issues because they usually have repair and maintenance shops on site. So you’re removing underground gas tanks and dirt that may have been contaminated,” he said. But Schwartzman is not the only developer willing to fork out some extra cash for remediation in order to build on a strategically located former car lot. In May, a mixed-use, transit-oriented development plan was floated before a land-use committee of the Van Nuys Neighborhood Council for the 4.5-acre former Keyes Chevrolet at 6001 Van Nuys Blvd. The project, which is in preliminary stages, would feature 384 apartments and about 17,000 square feet of retail at the busy corner of Oxnard Street and Van Nuys, adjacent to the Orange Line busway. Keyes Automotive Group leased a showroom on the property, which is owned by a Pacoima family, off and on for many years, said Howard Tenenbaum, the firm’s vice president. But the dealership, one of Los Angeles County’s oldest and largest, no longer occupies the site, although it owns 10 other properties along Van Nuys Boulevard. “The value of the property now makes it such that the best use for it is probably something vertical,” Tenenbaum said. Late last year, L.A.-based developer Metric Holdings Corp. announced that it would build the WaterMark, a 254-unit apartment and retail complex in Reseda, at 6611-6625 Reseda, the former site of a Courtesy Dodge dealership. Metric purchased the land from the William Burns Family Trust two years ago for $5.25 million, according to real estate data provider CoStar Group Inc. But even when land can be secured, there’s no guarantee that it can be built out the way real estate investors hope, Schwartzman noted. The developer who was originally negotiating to buy the Lehr property in Northridge envisioned a far denser project of more than 300 units before the property fell out of escrow. “They did the numbers on the economics, the construction costs were so high, compared to rents in the Valley, that it didn’t make sense,” he said. Changing industry The exodus of auto showrooms from neighborhood corners to major highway and freeway corridors is nothing new, of course. It started more than three decades ago, when dealers first recognized they needed to be in high-traffic locations. That started the migration to automobile super-malls, such as Magic Mountain Parkway in Valencia and sites along Van Nuys Boulevard, the 101 freeway in Thousand Oaks and Calabasas, the 5 freeway in Burbank and Brand Boulevard in Glendale. Another factor has been consolidation. In the late 1990s, General Motors Co. spent more than $50 million buying out about a dozen lagging Valley dealerships and closing them, Iceology’s Cedergren said. A decade later, the U.S. financial crisis and ensuing recession was the death blow for many auto dealers, according to Kimberly McPhaul, marketing director for the California New Car Dealers Association in Sacramento. “The drastic downturn of new-vehicle sales in California during the last recession led to the closure of hundreds of franchised dealerships,” she said. One independent auto dealer who has spent 30 years in the business locally said that manufacturers today insist on dealers locating in auto malls – or closing their doors. “They’ll come in and say, ‘We’re raising the bar, so even if you think you’re getting by on your (sales) volume, you’re not cutting it anymore,” said the dealer, who asked not to be identified. Of course, it does make sense for dealerships to group in highly visible clusters, retail broker Leyner said. “If I were looking for a used car today, I’d go to a place where I could shop at 10 lots not just one,” he explained. Ironically, while former independent dealerships are becoming retail and residential developments across the Valley, for independent businesses near an auto mall, the best use is often car related. For example, Slevin Capital Development Inc. of Chicago purchased just last month the longtime home of Sperling Nursery at 24460 Calabasas Road for $1.3 million. It plans to put a Nissan dealership on the 10.5-acre site along the 101 in Calabasas Joe Sperling, who founded the nursery in 1971, died in 2013 and his family put the land up for sale. If the new dealership is approved, Calabasas will have its own auto mall, with Calabasas Nissan joining nearby Mercedes-Benz of Calabasas, Bob Smith BMW/Mini Cooper and Acura 101 West along the freeway corridor.
