Hello-
I have an opportunity through a relationship I have been nurturing for some time. There is a 2 bay, self-serve drive thru car wash in a secondary market. The business itself is turnkey and passive. In place is a 1099 employee that works for a car wash equipment business who manages the site as a side gig. Asking price is $1.2m. All the equipment was replaced approx. 2 years ago. SDE in 2019 was $140k, and in 2020, it looks as if it will be $126k. As everyone knows, the pandemic put quite the damper on commuting traffic. Additionally, the vending and vacuums have been closed most of the year.
Location is optimal, in a rapidly developing area, but near one of the most prestigious neighborhoods in the city. Commercial property values are increasing rapidly, with limited supply of developable land. I believe it is unlikely that we would see one of the newer concept conveyer/full service washes come in anywhere near this location, as land acquisition costs would likely be prohibitive and there are also likely higher and better uses for the land.
As I evaluate, some of the positives are new equipment, ideal location, opportunities for SBA financing with favorable terms during the pandemic. Some of the negatives are uncertainty on "normal year" productivity of new equipment, valuation seems somewhat high, however, I am talking with a commercial broker on normalizing valuation by separating business from property based on property cap rates in the area.
What are some other things I am missing that I should consider??
Deal Opinion - 2 Bay Drive Thru Car Wash
by a searcher from East Carolina University
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I share you concerns about the current manager. There is a service contract in place with the chemical distributor/equipment maintenance provider, and this manager knows them well. However, if I found him to be unreliable, I have a few contacts that I have worked with for years that would easily be able to take over management of the site.
In my view, the investment doesn’t have much upside, other than inflation, so at the end of the day, it becomes a good cash flowing real estate play. Based on my estimates of pandemic 2020 revenue, staying static, leaving all capital in the deal, the loan would payoff in approximately 10 years. At which time, the equipment will be ending its current lifecycle. At that point, I would own the property free and clear and could decide to replace again the equipment and start over, albeit with a lower equipment loan to amortize. I believe there is a possibility for higher revenues once the pandemic passes, however, much of this will be dependent upon economic conditions.
Again, I really appreciate the insight of a former owner/operator!