But Home Depot has land, and lots of it. In its most recent annual report, the company said it owns 89 percent of its 2,274 stores chainwide (including stores in Canada, Mexico and Puerto Rico). That’s 212 million square feet of real estate — not including parking lots and garden sales areas. The value of Home Depot’s land assets totaled $8.3 billion, the report said, and building assets are $17 billion.
LaFerle’s real estate team decided one way to generate income is to sell excess acreage. He thinks the chain can attract restaurants or retailers that compliment its morning contractor business, such as fast food restaurants that sell breakfast or auto maintenance shops.
Such retailers would also appeal to Home Depot’s regular customer base, LaFerle told The Atlanta Journal-Constitution.
“Our customers also own their own homes, take care of their cars and typically have pets,” he said. “We’re actively going out and seeking end users directly, rather than developers who would seek to tie up the properties.”
Most parcels for sale are a half-acre or more. Some front roads and have good visibility, like one that recently sold at a Kentucky store.
Colin McGranahan, a senior analyst with Bernstein Research, said parking lots were designed for expected peak volumes. Bernstein and its affiliates own more than 1 percent of the outstanding common stock of Home Depot.
“I imagine what they found is they built excess parking capacity relative to what the real peak is at these stores,” McGranahan said.
McGranahan said he isn’t aware of other retail chains trying the idea, but he called it “a neat, innovative strategy.”
Few big box stores have as much parking as a Home Depot, he noted. Home Depot typically buys about 12 to 15 acres per store, he said, at an average cost of $500,000 per acre. He estimated Home Depot could sell the acreage for about that much, and raise tens of millions of dollars with the asset sales.
To be sure, it’s a bad time to sell just about anything on the real estate market. And many retailers are retrenching. Metro Atlanta’s retail vacancy rate crept to 10.7 percent in the third quarter, almost double the rate in 2002.
Kirk Williams, associate director for retail services in the Atlanta office of Cushman & Wakefield, a real estate services firm, said Home Depot essentially is doing what a large shopping center does — ring the perimeter with fast food chains and retailers.
“If you think of Home Depot as its own shopping center, which it really is, it is already the draw,” said Williams.
Despite the general retail slowdown, chains that are still expanding — such as Chick-fil-A, Arby’s and El Pollo Loco — may jump at the chance to be near a Home Depot store, he said.
“It’s a good strategy,” he said. “It’s no different from a power center anchored by a Target or Kohl’s, with small tenants like Sally Beauty Supply as a co-tenant.”
One potential obstacle: local government approval may be needed to subdivide the parking lots and add more retail.
LaFerle said he argues that selling the parcels is a “win-win” for municipalities because additional tenants add jobs and produce sales and property tax revenues.