WASHINGTON -- Getting approval of a loan from the Small Business Administration (SBA) to purchase a gas station just got a little more difficult, and jobber contract lawyer Bob Bassman said the change could force the major oil companies to alter the way they sell their stores.
This spring, the SBA instituted a change to its rules for 504 loansthe most frequently requested loans for gasoline station purchasesthat will not allow funding for properties with deed restrictions that limit the gasoline brand sold at a site.
Jim Hammersley, [image-nocss] director of the loans program division of the SBA, told CSP Daily News such restrictions have recently been showing up on deeds frequently, particularly in property sales by major oil companies. The bulk of the cases our field people were seeing had something like this in them, he said. Essentially what it said was, if any petroleum-based product you can think of is going to be sold at this location, it must be [a single] brand. Yet there was nothing in there where the counterparty would say, We will not put a similar location within X miles.' So they could open up one across the street.
He continued, And if a gasoline/convenience store does not make it, there's limited use for the collateral other than as a gasoline station. So we had significant concerns about the deed being restricted. So we just decided it was not in the best interest of SBA to be involved in projects like that.
Hammersley added that including such restrictions is still legal, but property sold as such will not be bought with SBA funding. [Some sellers] have put a covenant in there that if the SBA should end up owning the property, they would not enforce the deed restriction, Hammersley said. But the problem with that is, like any lender, we don't really want to own a gasoline station.
Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), was surprised to here such restrictions were being placed on station properties, and said he completely understood the SBA's decision to ban loans for those sites.
Essentially what their saying is [a deed restriction could say] if you buy this land, you agree it will always be this brand,' which is a problem, he told CSP Daily News. I don't blame the SBA [for making that change]. What would have to happen is a marketer or whoever owns the land may have to go to court and get the court's permission to vacate the deed restriction if so desired.
That's exactly the case, according to attorney Bassman of Bassman, Mitchell & Alfano. He told CSP Daily News such deed restrictions are just one waymost of the others being financial agreementsmajor oil companies go about ensuring their brands remain on gas station properties.
The main reason majors were in marketing on their [own] properties was to have an assurance that their brand would be on corners for the public to see, he said. And so they have decided. We can tie this stuff up with paperwork to assure our brand is there. We don't have to own it, and we can get this property off our books to get a better return on capital employed because there will be less capital employed'.
Bassman said following the SBA change, those companies will have to find other routes to secure those properties. It could reverberate up the chain to where the majors have to change what they do, he said. But for all the markets that have already been sold, and there have been a lot of them in the last four or five years, it's going to be interesting to see what a major might do when a jobber says, I need to sell the station to this dealer because the SBA won't give me a loan.'
Hammersley said the SBA granted 1,567 loans for $886 million in 2005 for the purchase of gas stations with c-stores. Bassman said that's a significant number for the industry. The people who are probably going to wrestle with this, he said, are the majors and the jobber who just bought all this [property].
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