Find Clients at the Carwash

Brokers looking for a property-type specialty may find success with carwash financing

By Robert Roman, president, RJR Enterprises

The current recession is forcing many real estate and mortgage professionals to get more creative to find clients and complete transactions. One way that some mortgage brokers are finding opportunity is by specializing in niche property types. and carwash properties are one profitable niche that brokers may find value in exploring.

a key to success in closing commercial loans is knowledge of the asset. indeed, when considering the carwash industry, knowing the key facts can help you break into the field and succeed.

To best help their clients find financing, it is essential that brokers who wish to specialize in carwash properties first understand the market this niche serves. Today’s motorists look for convenience (e.g., location and process speed), value and quality service for their auto-cleaning needs. The recession has sensitized consumers to price, and many are more concerned about safety because of higher vehicle-repair and -replacement costs.

Furthermore, some experts believe that washing cars at home is declining because of environmental concerns and freshwater restrictions. Carwashes are considered a safer environmental choice than washing at home. in fact, numerous organizations, including the international Carwash association, have studied the environmental impact of carwashes and their water usage (see reports at tinyurl.com/SGcarwash).

The recession has created a mixed bag for carwash-owners. in less-affected areas, some carwash operators are experiencing some of their better years. in other areas, operators have seen volumes drop significantly because motorists have less money to spend.

in addition, tight credit markets and tougher underwriting standards have left many investors sitting on the sidelines. experts believe this combination of factors is leading to pent-up consumer demand and new opportunities for raw-land development, purchase transactions and redevelopment of existing carwash sites.

58 percent to 62 percent. as with development costs, operating costs also depend on the type of carwash your client wishes to purchase. For example, a full-service wash that provides valet services will have greater operating costs than a self-service carwash because of the full-service facility’s need for full-time staff.

Once your clients understand the costs to develop and operate a carwash, you can help them determine what constitutes a “good” carwash. Simply stated, a good carwash investment is one that produces sufficient volumes and revenue and that provides the owner with an adequate return on investment. in many cases, sales volume and return on investment depend on the type of carwash.

When looking to finance carwash properties, the trade area and physical characteristics also are important factors. The most-successful carwashes are located in areas that have plenty of homes, adequate traffic flow and few competitors. Surrounding development should include complementary retail businesses that can attracts business for the carwash.

also, a good carwash site typically has excellent visibility, easy access from a highway, adequate perimeter lighting, and

plenty of room for navigation, parking and vehicle stacking.

The property’s facility and grounds also should be presentable. This means having manicured landscaping, clean and functional bathrooms, transparent windows, no black- or green-algae buildup on equipment or bay walls, and no pit odor.

in most cases, your clients would benefit from having the property inspected by a qualified carwash consultant or equipment distributor to assess the building’s integrity and the equipment’s adequacy and working order.

carwash offers a nonessential service. as such, the owner or operator brings much to the table in terms of creating goodwill. it is the carwash business’s intangible nature that dilutes the usefulness of relying on capitalization rates to calculate the property value.

With this in mind, a qualified carwash consultant or specialized appraiser who has a thorough understanding of the industry and the intricacies of individual carwash markets is again beneficial for determining value.

Costs and characteristics

When working with a carwash-owner or someone who wishes to purchase and develop a carwash, brokers can help their clients understand the costs involved.

The cost to develop a new carwash, including land, varies considerably and has risen by 25 percent in the past decade and depends on the type of carwash.

in terms of their operating expenses, most carwashes (in particular, self-service and exterior conveyors) have a gross net of

Robert Roman is president of RJR Enterprises, a carwash-consulting firm, and vice president of Bubble Wash Buildings LLC. He can be reached at (727) 723-9474 or rjrcarwashplan@yahoo.com. Visit www.carwashplan.com or www. bubblewashbuildings.com for more information.

Valuing the property

Determining the value of a new carwash often is not difficult. Professional appraisers are well-versed in the practice of using comparable sales and industry standards to value a carwash relative to the actual cost of purchasing the land and equipment and erecting a building.

One common approach is that a carwash property is worth some multiple of average monthly gross sales plus the cost of land and the estimated replacement cost of the building, fixtures and equipment. another approach is that a carwash is worth some multiple of net operating income.

Carwashes are similar to other small-balance commercial properties. Trade boundaries are fairly small — typically a three-mile radius — and the market requires adequate household incomes and population. Unlike stores that sell commodities like gasoline, food or merchandise that consumers must buy daily, however, a

Attracting lenders

another key to success with carwash properties is how brokers communicate, package and present their clients’ deals to lenders.

Broker reports to lenders often include traffic counts and demographic-ring studies but little or no analysis of other factors that affect store performance. although buyers typically must perform their own due diligence, brokers and sellers who make the extra effort and expense to put the carwash in the best light possible will have a better chance of drawing lenders into negotiations.

Brokers can help by preparing high-quality reports and marketing materials about the property. a professionally prepared sales brochure or portfolio can be a good selling tool if it contains the right information.