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Monday, September 26, 2022

Federal EV Charging Funds Could Boost Overlooked Property Type: Gas Stations

Source: Bisnow
By Tim Carroll, News Editor

When Bertha Benz made the world's first road trip in an automobile 134 years ago, one of the tricky points of the voyage was finding a place to refuel. Luckily, chemists at the pharmacy carried ligroin, a lab solvent made of petroleum, which propelled Benz and her children on their 110-mile trip in Carl Benz's grand invention.

Electric vehicle proponents hope the rollout of the $5B National Electric Vehicle Infrastructure program will make it a little easier for EV drivers in the U.S. to charge than it was for Benz to refuel in 1888 Germany.

And like during the Benz road trip, EV drivers should soon get an assist from an existing property type — this time, gas stations, which experts said could get a boost in business with the installation of chargers.

Decades ago, gas stations simply sold gas before eventually incorporating convenience offerings, car washes, food, ATMs and lottery sales, said NRC Realty & Capital Advisors Executive Managing Director Evan Gladstone, whose company represents sellers of convenience stores and gas stations.

All of those additions have made the properties more appealing as an investment, and the added amenity of EV chargers could similarly boost owners of filling stations.

"The more sources of income that a convenience store can generate, the bigger the bottom line," Gladstone told Bisnow. "And certainly the biggest cost probably in an EV charger is the permitting and installation. So once it's in there, if we had a set of stores that had EV charging stations, it would absolutely be a great selling point."

It takes generally 20 to 30 minutes to charge a vehicle up to an 80% full battery with fast charging, four to six times as long as a five-minute gas tank fill-up.

"EV charging is going to be a destination," said Sheryl Ponds, founder and CEO of the Washington, D.C.-based charging solution company Dai Technologies Corp. "And people are going to be there for at least 15 or 20 minutes, which is a whole lot longer than gasoline at the pump."

Gas stations have been a popular niche commercial real estate asset class for years because of their diversified revenue streams, with more than $2B in annual transaction in the years leading up to the pandemic, according to a CCIM report. EV charging figures to boost the appeal.

"From the perspective of a business owner of one of those locations, that is more time for somebody to spend in their facility, grabbing maybe more food than they would typically have because they have time to actually wait and eat rather than trying to drive on the road," said Hadley Tallackson, a policy analyst at nonpartisan energy and climate think tank Energy Innovation. "So I would say there's a really strong case for these more convenience-oriented restaurants as well."

The Federal Highway Administration earlier this month approved 35 states' NEVI proposals, which are expected to result in EV charging access across 53,000 miles of U.S. highways. As the FHWA finalizes the remaining states' proposals by the end of the month, service station operators are eager to offer what for many is a new way to refuel.

"I don't think we're far away from having a lot more traffic expecting that kind of amenity at our truck stop," said Raina Shoemaker, who co-owns and operates two travel centers in Lincoln, Nebraska. "And I also think that we're a part of the chicken-and-the-egg scenario, that you need more EV drivers to have the chargers, but EV drivers need to see more EV chargers to really buy into getting more EV vehicles."

Since for now most charging is done at home, neighborhood gas stations and convenience stores could see a short-term hit to their attractiveness as investment properties, Gladstone said.

"You're going to charge at home at night," he said. "From that perspective, there'll be less visits to convenience stores because you're not going to fuel up with gas."

But Gladstone said he expects charge times will continue to decrease, which would increase the convenience of trips to the gas or charging station down the street instead of relying solely on home charging. And he said he expects convenience stores and gas stations to adapt, co-branding with fast-food chains or offering a more full-service commissary with fresh sandwiches, coffee and other quick options to draw in motorists on the go.

As EV adoption becomes the norm — with California banning the sale of new gas-powered vehicles by 2035 and major manufacturers and nations planning to phase out gas- and diesel-fueled car sales on a similar timeline — longer trips will necessitate charging on the road.

The NEVI program takes a step toward relieving a worry that some EV owners experience, one that people with internal combustion engines usually don't have.

"The goal of the NEVI program is to really build out an infrastructure of EV charging that has covered every 50 miles of distance along the national highway system to alleviate that range anxiety," Tallackson said.

The NEVI program, a product of the Infrastructure Investment and Jobs Act, was created with the goal of building a national network of 500,000 EV chargers by 2030. That level of availability along the nation's interstate highway system has the potential to affect consumers' attitudes.

"In general, people's vehicle purchase choices are informed by their peak needs," said Don MacKenzie, an associate professor of civil and environmental engineering who leads the University of Washington's Sustainable Transportation Lab. "People are still likely to want to see charging available on the highway before they commit to making that EV purchase."

The NEVI program provides a subsidy of 80% of the cost of chargers, leaving 20% of a considerable expense to business owners.

Shoemaker is looking into installing chargers through the NEVI program, which calls for four charging plugs capable of delivering 150 kilowatts per port simultaneously. She said the all-in cost of four chargers with battery backups — which would help keep down the costs of demand charges, fees utilities charge based on the peak power drawn during any 15-minute interval in a billing period — would likely be about $500K.

With NEVI funding, she would be on the hook for about $100K.

There are logistical issues as well. The charging plugs wouldn't take the place of gas pumps, in part because it isn't a good idea to have electricity near highly flammable gasoline. So service station and convenience owners have to find space away from pumps, and that usually means giving up what might otherwise be well-used parking spaces that may not see consistent use as charging stalls until EV adoption really takes off.

But Shoemaker said it is still an attractive investment while the subsidies are available.

"Just because Nebraska might be behind on trends, it doesn't mean they don't ever catch up to them," she said. "So I think the kick-start funds available from the government are definitely really helpful because you think about it, if I wait another five, 10 years, then I may not have any money back to install these."

Travel stop chains are already getting in on the act. In 2020, Love's Travel Stops, which has 530 locations in 41 states, according to its website, partnered with Electrify America to roll out charging stations at seven locations in six states. Love's now offers EV charging at 20 locations nationwide, Kim Okafor, general manager of zero emissions for Love's alternative fuel company, Trillium, said in an emailed response to Bisnow.

In July, Pilot Flying J announced a partnership with General Motors Co. and EVgo to build a network of 2,000 chargers at up to 500 travel centers. Pilot Flying J plans to have the network up and running in the next four or five years, Vice President of Strategy and Business Development John Tully said in an email. Pilot Flying J has 750 locations in 44 states and six Canadian provinces.

Private equity players are getting into the game as well, with real estate giants Starwood Capital Group and Related Cos. partnering on a joint venture called Radial Power to sell charging stations, among other clean energy products, to fellow real estate owners.

Vehicle manufacturers don't want to get left out either. Tesla has 35,000 Superchargers and boasts on its website that it "owns and operates the largest global, fast charging network in the world." But other manufacturers are working to expand access to charging for EV drivers that don't use their proprietary charging systems.

Rivian is building out its Adventure Network, a smattering of 3,500 fast chargers planned across the U.S. that is up and running in California and Colorado so far. But it also is working on a 10,000-charger network of Rivian Waypoints — Level 2 chargers, which can bring an EV to full charge in a few hours, accessible to all EVs.

"Rivian supports the idea of ‘if you build it, they will come' — meaning if EV-chargers are publicly ubiquitous, then EV adoption [will] rise," Senior Director of Energy and Charging Solutions Trent Warnke wrote in an email. "An increase in public funding and attention on the importance of EV-charging has transformational potential to fill gaps in the charging ecosystem, enabling charging on long road trips, outdoor adventures, and in rural communities. As such, funding will not just improve the charging experience — it will enable EV ownership for all Americans."

DaiTechCorp.'s Ponds said funding helps put a spotlight on EV adoption and nudge developers in the EV direction.

"Every time the president, coupled with an announcement from the Department of Energy or the Department of Transportation, [says something] related to sustainability and/or the infrastructure, I get a lot more inquiries," she said. "So my potential clients are moving with a lot more urgency, even if they're starting from zero."

MacKenzie said quantifying the impact of a national EV charging network on potential EV adoption isn't an easy task. But the $1B allocated annually for EV charging infrastructure over the next five years, plus a total of $2.5B for a discretionary grant program, may not be enough.

To enable EVs to account for 100% of light-duty vehicle sales by 2030 and 100% of medium- and heavy-duty vehicle sales by 2035, the cost of building infrastructure would be $2.6B annually through 2035 for light-duty fast charging, according to a 2021 report from the Goldman School of Public Policy at the University of California, Berkeley.

That figure doesn't include $1.1B annually for Level 2 chargers, nor $3.6B every year for heavy-duty truck infrastructure build-out and $390M annually for medium-duty public charging investments.

"The funding acknowledges that it's really just a drop in the bucket," said Ryan McKinnon, the spokesman for the Charge Ahead Partnership, a coalition of businesses and associations in the electric vehicle charging business. Even though it's $7.5B — it's a lot of money — it's not presented as if this is the solution."

As the state governments go about awarding EV charging infrastructure contracts with the funds they have now, there is money to be made on the real estate the infrastructure inhabits because there is money to be made on the business that charging supports.

"The typical margin in the convenience store inside is 30%," NRC's Gladstone said. "That's a pretty high margin."So the idea is the stickiness of getting that customer in the store and buying stuff while you're gassing up or while you're charging your vehicle. That's the model."

To see a list of convenience stores and gas stations for sale, click here.