Buy/Sell - Current Market Trends in Car Wash Ownership.
By Mark W. Gerhart
This is an unprecedented time in the car wash industry. New product development and improved manufacturing techniques are at an all-time high, and ease of product market casting and deployment has never been greater. In addition, car wash customer satisfaction has never been higher. Granted: low interest rates, generous credit terms, and the boom in the economy introduced by lower energy prices have made car wash owners and operators more revenue and profit than previously. Americans continue to have high per capita car and light truck ownership and this has fueled more car wash opportunities than ever.
People ask me every day, “How is the car wash market these days?” I reply enthusiastically that the market is outstanding. Regardless of whether you are a car wash owner/operator or a buyer, the car wash property ownership market is good. Car wash ownership holds as much appeal today as it has at any time in the past, with more potential buyers in the market than ever before. Typically, a well-run car wash with a high traffic count, easy access, proper signage, and proficient service will sell much faster and at a better price than the car wash operation that has been neglected, has poor service or service selection, or neglected maintenance. The seller and buyer determine the value through negotiation at the time of the sale.
Buyers are looking to satisfy their short- and long-term income goals: short-term daily profits of the operation, and longer-term the eventual sale and exit from the car wash property ownership and operations. Many buyers come from within the car wash industry, but there is no one buyer for a car wash property. However, regardless of the type of car wash service involved (self service, express, or full service), the buyers are usually experienced business people who are looking to expand their operations. Most have other commercial-property investment experience and are looking for something different. Whether it’s a different business model or an alternative type of investment, buyers buy car wash properties because they offer them something that satisfies a need. Many have other automotive properties, often other car washes, and these add to their property portfolio goals.
Sellers are interested in what their car wash will sell for. They want to know what types of locations are for sale, the sales those sites currently generate, whether the properties were recently upgraded, and what services are offered on site. In short, they want to know how their offerings stack up against other properties in competing for a buyer. The answer is: it depends. Buyers have different reasons for wanting to buy a car wash property, just as the sellers decide, for different reasons, to sell.
For the seller, the motivation is usually profit. However, it could be any number of unrelated reasons. Some sell because of divorce, sickness, retirement, the need to refinance the car wash, or other reasons. Some sell because they are simply burned out by the car wash operations. These are the easy properties to find: poorly maintained facilities, broken equipment, and trash that seldom gets emptied are dead giveaways. Bankruptcy, while it was quite prevalent in our industry several years ago, is now a far less frequent occurrence.
The types of car washes that are selling are the ones that are priced right. The buyer and seller determine the right price when the property ownership is transferred. Whatever the value is in a particular market, the pricing element is one of the most important considerations for the sale. But it is not the only one. Terms and conditions of the sale can also play an important part in both buyer and seller motivation.
Most buyers and sellers new to the sale of a car wash property frequently do not have any specific idea how to begin pricing the property. Commercial real estate brokers who specialize in the sale of car washes and other automotive-use properties should be consulted. Generally, they will be able to provide sales volume and pricing information on similar properties they, and perhaps others, have sold recently.
Pricing the property and, eventually, the buyer’s appraisal report, begins with researching other recent sales of similar properties in the same market: same age, same type of operation, similar equipment selection and functionality, similar property size, similar business size, etc. This is known as a comparable sales analysis. This helps determine what other similar car wash properties recently sold for in the market (usually within the past two to four years). If there are no, or too few, comparable car wash property sales in the market, then a search outside of this market may be necessary.
If there are new car washes in the market area, the price elements for everything that went into building it, including the land, building, equipment, installation, etc., are known absolutely. These numbers, less depreciation, can be used for valuation of the car wash that is for sale, too. This is known as replacement cost method of valuation. It is part of the pricing mix. It generally does not include business value, which must be valued separately.
The business value is a separate type of valuation for an operating commercial property. This includes: profits and losses of the business that is for sale, equipment, leases and options, licenses, trademarks and logos, and other property rights. It is simple really: businesses that show higher profits have more value than those that don’t and, when compared with other similar business sales in the market area, help determine the business value. An audit of the business records may be advantageous to the buyer to aid in determining their accuracy and providing insight into the value of the business operations. Business value must be equal to the value of the real property assets. If it is greater, the overage is called “blue sky” or goodwill value. This is part of the total value of the car wash property including land, building, equipment, and business value. An exception is leased properties, where the lease is valued in place of owned real property.
The number of available car washes for sale in a particular market has much to do with what is happening in the local economy, whether commercial property ownership is on the upswing, and if values are increasing in the market. If values are decreasing or the market is flooded with similar businesses for sale, then desire for ownership tends to decrease, causing the asking price to decrease in order to make a sale. Currently, the market is in on an upswing and looks to continue in that direction. There is currently strong interest in car wash property ownership, with more buyers entering the market each day. This is a terrific time to own a car wash property and a great time to make a profit.
Mark W. Gerhart is a licensed real estate broker in the state of Colorado, focused on car wash and automotive-use property sales.