CEO buys Speedway Industrial Park for $53 million

David Strow

Friday, Jan. 14, 2000 | 11:06 a.m.

After a year of fruitless efforts to sell the Las Vegas Motor Speedway Industrial Park, North Carolina-based Speedway Motorsports Inc. said Thursday it sold the property to its chief executive for $53 million.

The deal gives Bruton Smith control of the 1.4 million-square-foot warehouse park and 280 acres of undeveloped land, located directly across from the Las Vegas Motor Speedway on Interstate 15. Concord, N.C.-based Speedway Motorsports acquired the property when it bought the Las Vegas Speedway complex in Dec. 1998 for $212.4 million.

The industrial park, one of the largest in the Las Vegas Valley, has struggled in its leasing efforts since opening in 1996, making it difficult for Speedway Motorsports to find buyers, analysts said. The park now has 620,000 square feet leased, a 45 percent occupancy rate.

"While it's a minor positive impact from an economic standpoint ... it's a much bigger psychological positive for the investment community, for those who wanted it off the book and out of the way," said analyst Tom Thomson, who covers Speedway Motorsports for First Union Securities of Richmond, Va. Thomson had estimated the property would lose $3 million in 2000, about half of its loss in 1999.

Continued losses at the property had dragged down Speedway's earnings -- in November, the company took an unexpected loss of $4.8 million, and blamed, in part, a $1 million loss from the industrial park.

A Speedway earnings warning -- issued a few days before the earnings were announced -- caused the stock to plunge from $45 to below $30 in a single day, and the stock has yet to recover.

Breck Wheeler, analyst with J.C. Bradford in Nashville, Tenn., said the company had initially hoped to fetch as much as $65 million for the industrial park. But a decline among stocks of real estate investment trusts dried up the pool of buyers, she said, and the property's low leasing rate made it even more difficult to find interested parties.

"There was not a buyer ready to step in at that level, so the fair market value was lowered," Wheeler said. "It certainly helps if you have a ton of buyers frothing over the property. But (REITs) are not in an acquiring mode at this time. That was a large factor.

"The market didn't want to see Speedway own this property long-term, so this is a very reasonable alternative for the company."

Speedway hadn't been able to get any bids above $30 million for the property, Wheeler said.

The industrial park was built by casino magnates Ralph Engelstad and Bill Bennett in 1996 as part of the 1,500-acre Speedway complex. Citing a lack of experience in the race car industry, the two sold off the property in 1998, netting a profit of $40 million to $45 million.

The acquisition was a strategic buy for Speedway, which owns five other tracks, including the Atlanta Motor Speedway and Lowe's Motor Speedway in Charlotte, N.C. Speedway had to buy the Las Vegas industrial park to get the track, but had immediately initiated efforts to unload the property.

In May, the company retained Lee & Associates to try to increase occupancy at the property and dropped its lease rates. The park still focuses on leasing space to motor sports-related companies, but Lee & Associates has also sought out manufacturing, warehousing and service clients.

That effort has been succeeding. Six months ago, the property had 440,000 square feet leased, a 31 percent occupancy rate, Thomson said. Since then, at least 180,000 square feet of space has been leased out, and a broker said the property will soon go over the 50 percent occupancy mark.

"Leasing is very brisk out there right now," said Scott Owens, an associate with Lee & Associates. "We have a number of larger transactions pending right now, in the 60,000 to 90,000-square-foot range. That will help jump the total occupancy.

"I don't think it would be unreasonable to say within 12 months we'd be near capacity."

Still, Speedway couldn't afford to continue absorbing losses while the property worked on reaching full occupancy, Thomson said.

"This is an asset that needs to be leased up, and you rely on real estate agents to do that for you," Thomson said. "(Smith) has experts in the Las Vegas market working to lease it up for him.

"I would imagine as soon as it's totally leased, and he can sell it for a reasonable price, he would do so. I doubt he would keep it."