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CarMax on the road to end hotel era

Western New York’s homegrown auto dealerships are about to get some new national competition in the battle for used-car sales.

CarMax Inc., a national used-car company with 146 dealerships across the country, is planning to build its first Buffalo-area superstore in the heart of one of the region’s biggest commercial districts. But it’s going to have to knock down a longtime Amherst hotel and get a zoning change to do it.

The Richmond, Va.-based chain has put the Holiday Inn Buffalo-Amherst under contract at 1881 Niagara Falls Blvd., immediately north of the exit ramp from the Youngmann Highway. Officials did not disclose the purchase price or closing date, but a spokeswoman for the publicly traded company confirmed the sale agreement.

“CarMax has identified the Buffalo metro area as an area that fits into our current growth plan,” said CarMax spokeswoman Michelle Ellwood. “We are under contract on this property.”

But she cautioned that “it can often take two to three years to complete approvals and construction once we move forward on any location to officially open a store.”

She didn’t elaborate on specific plans for the property, but the large hotel would likely be razed and replaced with a smaller showroom, while most of the land would be used for parking cars. The property would need to be rezoned to permit a dealership, but the company is already working on that with Damon Morey LLP attorney Jeffery D. Palumbo, although no formal application has been filed as yet with the Town of Amherst.

The expected demise of that Holiday Inn marks an ignominious end to a nearly 50-year history as a hotel, but one that has struggled in more recent years. The two-story, 199-room hotel has been owned by Visions Hotels LLC only since last summer. That’s when the Corning-based hospitality firm bought it for $4.3 million at a foreclosure auction from special commercial mortgage servicing firm CWCapital, which had taken control of a prior mortgage that was in default by the previous owner.

According to Henderson, Tenn.-based hotel research firm STR Inc., Buffalo-area hotels last year averaged 63.8 percent occupancy, with an average daily rate of $99.93.

The hotel is located on a 6.05-acre lot, and includes an indoor heated pool, fitness center, banquet and conference facility, smaller meeting rooms and the Boulevard Bar & Grill. It was originally built in 1967, expanded in 1970, and renovated in 2011. The lot has 343 parking spaces right now as a hotel, with ample parking for buses, recreational vehicles and trucks, according to the website of London-based InterContinental Hotels Group, which owns the Holiday Inn brand.

“If you tear down that hotel, you’ve got a great piece of ground right off the highway,” said Robert P. Strell, owner and president of MBA Consulting & Evaluation Co., a commercial real estate advisory firm. “It’s worth some money.”

Visions Chief Financial Officer Minesh Patel said the hotel company has been happy with the performance of the Holiday Inn, and was not looking to sell it before CarMax entered the picture. He cited the location in Amherst, next to major highways, as attractive, but declined to elaborate on specific details of how well the property has done. He would not comment further on the possible sale. “It’s in due diligence,” he said. “It’s a pending transaction, so we need to see how things shake out.”

Founded in 1993, CarMax is the nation’s largest used-car retailer, with a chain of locations in 74 markets nationwide, including its closest stores in Rochester and Cleveland. Like Rochester-based AuctionDirect USA, which had opened a location on Transit Road in Clarence in 2011 but closed last summer, CarMax stresses what Ellwood called a “fair and transparent” buying process, with low prices and a “no-haggle, no-hassle experience.” But where the smaller AuctionDirect threw in the towel locally after finding it difficult to compete with new-car sales through the established local dealerships like West Herr, Northtown, Paddock and others, CarMax is hoping to leverage its much larger size, experience and reputation to achieve more success.

To date, the company has sold more than 5 million cars and appraised more than 20 million for purchase, and currently has more than 50,000 available online at its website. During the 12 months that ended in February, the company sold 582,282 used cars and 376,186 wholesale vehicles at in-store auctions.

Craig P. Schreiber, a co-owner of Northtown Automotive Cos., said he believes the entry of CarMax will “raise the bar for everyone.”

“They’re obviously a very well-respected company,” Schreiber said. “They’re great marketers.”

Used car sales are big business for franchised new-car dealers. West Herr Automotive Group, which is one of the largest dealer groups in the country, sold more than 15,000 used cars last year, compared with more than 24,000 new retail units sold, according to Automotive News data.

And Avi Steinlauf, CEO of car shopping website Edmunds.com, said 2015 will likely be the best year for used-car sales since 2007. “It would be only natural that CarMax, being as big as they are and as aggressive as they are, would look to Buffalo as an attractive market to bring their offerings to the marketplace,” he said.

Frank Downing Jr., president of Towne Automotive Group, noted that AutoNation, another major national dealer group, once had a presence here, too. AutoNation bought a Ford dealership in 1997 that it later sold to another dealer.

“For one reason or another, the nationals have not done well in Buffalo in the past,” Downing said. “But CarMax is a strong brand and they will be strong competitors in the market no doubt.”

Still, Paul Stasiak, president of the Niagara Frontier Automotive Dealers Association, said he didn’t think there will be much anxiety among Buffalo-area dealers over CarMax’s arrival, citing the experience of Auction Direct.

“One advantage our dealers have is the history and the legacy of the dealers,” Stasiak said. “They bend over backwards to service the customer.”

Schreiber said he believes that locally based dealers will still have an edge on used-car sales because they acquire so many of their vehicles through trade-ins. CarMax, in contrast, builds up its inventory through buying at auctions, where they often have to compete on price for the best vehicles, he said.

That difference, Schreiber said, could give local dealers an advantage on sale price.

email: jepstein@buffnews.com and mglynn@buffnews.com