Subprime auto lender and used car retailer Tricolor Holdings has filed for Chapter 7 bankruptcy protection in a Texas bankruptcy court in a move that could put some prime U.S. real estate up for grabs.
The company, with a headquarters in the Dallas area, is one of the nation's largest used car dealers with 64 locations spanning six U.S. states, including Texas, California, New Mexico, Illinois, Arizona and Nevada, through various brands. The Chapter 7 filing, filed Wednesday in the Northern District of Texas, means the company plans to liquidate its business, including its leased real estate.
Tricolor did not cite a reason behind its bankruptcy filing in its petition that claimed liabilities of between $1 billion and $10 billion — the same as its assets — with at least 25,000 creditors, including other dealerships and towing services companies.
In June, Tricolor said in a statement it had disbursed more than $5 billion in "affordable auto loans" to "underserved Hispanics" with limited access to mainstream financing.
In a Securities and Exchange Commission filing, Fifth Third Bank said it was facing an impairment charge of $200 million after it uncovered "alleged external fraudulent activity" at a commercial borrower associated with that borrower's asset-backed finance loan. A Fifth Third Bank spokesperson told CoStar News the borrower is Tricolor. Tricolor Holdings' website is no longer operational, and the company didn't respond to requests for comment from CoStar News.
JPMorgan could also face a similar impairment, a Barron's report said, citing an unnamed source. A JPMorgan Chase spokesperson declined to comment to CoStar News.
Financial troubles aside, the dissolution of Tricolor could put some prime property up for grabs, with vacant car dealerships offering up acreage that could help make way for a new redevelopment.
Taylor Starnes, a vice president for acquisitions for the central region of CapRock Partners, said redevelopment for infill real estate in certain markets — including the Dallas-Fort Worth region — is a hot commodity right now.
"There are not a lot of sizeable development tracts left in this market right now because we've grown so much," Starnes said. "It's a big misconception from outsiders. They see all this green and brown space and there's usually a reason those sites haven't been developed, with floodplain, environmental or topography issues."
Starnes is not involved with Tricolor's real estate portfolio or bankruptcy case but has about 15 years of experience with land deals and underwriting acquisitions for new industrial development deals.
"We are now seeing sizeable rent growth in Dallas-Fort Worth, where land pricing continues to go up and when you underwrite it, it makes economic sense to scrap an existing building and trade it as industrial dirt," he added.
In all, Tricolor has 64 leased dealerships in its real estate portfolio through its various brands, including Ganas and Ganas Ya!, according to their individual retail websites. On top of its dealerships, the company also leases a full floor of office space at 6021 Connection Drive in Irving, Texas, an office building owned by Piedmont Realty Trust.
The dealerships are owned by various landlords, including individual investors, automotive companies and family trusts. By filing for Chapter 7 bankruptcy protection, Tricolor is able to exit its real estate leases, potentially leaving landlords in the lurch.