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Multi-profit Centers

Lube developers

October 11, 2010
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Suppose someone comes up to you at the AOCA Convention and Fast Lube Expo this March and says, “Hello, my name is Backfire Ben. I specialize in developing multi-unit, single-tenant, build-to-suit buildings for the aftermarket auto care industry.”

More than likely your first reaction is to ask yourself, “Who is this nut ball and how did he get in here?” But, before you call security to have Ben thrown out, stop for just a moment and think about what Ben just said to you.

Breaking it down
Let’s break down Ben’s statement so that both of you are on the same page. (After all, Ben implied he was a big time real estate developer, maybe he’ll buy the drinks later.) Bottom line, here is what Ben is really saying:

He said, “multi-unit,” meaning more than one. In this case, more than one oil and lube shop. Many franchisees and independent operators own and operate more than one oil and lube facility. If you operate two or more lube shops, you are a multi-unit operator.

Ben is also saying that he has the resources to build one or more oil and lube shops to meet a specific client’s needs. Multi-unit development programs typically include specific building design guidelines that attempt to eliminate questions about the size of the building, number of work bays, layout of the customers lounge and parking requirements.

Next, Ben said, “single-tenant,” implying that only one tenant occupies the entire facility. On the flip side, if you share a common party wall with the Backfire Bar and Grill, then you occupy a multi-tenant building.

And last but not least, Ben said, “build-to-suit.” If the building you occupy was built specifically for you as an oil and lube shop, then the building is considered to have been built to suit your specific needs and no other. By comparison, if the building you occupy was originally built as an auto paint shop and you changed its use to oil and lube, then your building is considered a conversion.

So what Ben is really saying is that he’s in the business of financing and building oil and lube facilities based on pre-approved, proto-typical plans and specifications. Your facility will be designed to accommodate your preferred equipment, service bay configuration, customer needs and employee requirements. Most importantly, it will be a building that has been optimized for your use. One of Ben’s key objectives in this process is to take the guesswork out of the real estate side of your business and allow you to focus on profits instead of problems.

The majority of the work it takes to complete a build-to-suit project can be summarized into four basic parts:
  1. Market analysis and site selection;
  2. Due diligence and purchase agreement;
  3. Permitting and construction; and
  4. Completion and turnover.
Market analysis and site selection
If you decide to hire a developer like Ben, you should understand his responsibilities. He must first understand the market condition in your selected area. The information Ben needs is usually obtained through a market analysis. The market analysis typically includes area demographics like average area income, traffic counts and competition of similar businesses in the area.

Ben is responsible for assisting you in finding a building site that meets specific economic and operational thresholds. The ideal site must be well located, big enough, but not too big, properly zoned, accessible, have adequate site utilities and most of all, it must be cheap.

Due diligence and purchase agreement
In addition to finding the perfect site at the cheapest price, Ben must proceed to diligently investigate every detail concerning the property. Ben hires an attorney to perform a title search, a geotechnical engineer to confirm that the soil conditions will support the new building, an environmental engineer to determine if the property was previously used to store WMD’s (weapons of mass destruction) or worse, UST’s (underground storage tanks).

After verifying zoning, utilities, any special development requirements, city, state, federal ordinances and regulations, Ben decides to take the ultimate risk and buy the property.

Ben then proceeds to write a purchase agreement and present it to the seller and begin to whisper the Developer’s Prayer of Hope: “Please Lord, I hope I make some money this time.”

Sometime later, after the purchase agreement has been “lawyered to death” by everyone’s attorney, it is finally executed and the fun begins.

Permitting and construction
Since Ben has years of experience in developing single-tenant, build-to-suit projects, he knows that the real work is about to begin. Ben climbs into the back of his 12-year-old SUV and rummages through crumpled hamburger wrappers, paint samples and empty coffee cups until he finds an old set of plans that closely resemble the new project he has in mind.

Ben knows that the best way to expedite the building permit process is to show up at the local permit office with a complete set of plans and specifications that meet all the local building codes and ordinances. Ben hires XYZ Architects to prepare a site specific set of plans that are sure to impress the city officials.

A few weeks later, the plans are complete and Ben takes his new building plans to the local permitting office. The person behind the permit applications counter greets Ben with a look of boredom and disinterest and tells Ben that, “permitting takes four weeks, if everything is perfect.”

Because this is not Ben’s first rodeo, he mentally adds another six weeks to the permitting timeline and crosses his fingers in hopes that he will actually get a permit in his lifetime. As Ben leaves the permit office he begins to chant the Developer’s First Mantra, “I think I can, I think I can, I think I can….”

Now that permitting is underway, Ben calls Shining Star General Contracting who, based on his client’s recommendation, is purported to be professional, caring and has great prices. Four weeks later Ben finally gets the Shining Star cost estimate. He immediately gets out the phone book and starts looking for general contractors that could care less about professionalism and compassion and instead advertise that they have “The Cheapest Price in Town.”

While letting his fingers do the walking Ben begins to chant the Developer’s Second Mantra, “I thought I could, I thought I could, I thought I could…”

By an act of divine intervention Ben ultimately gets his building permit and Price Rite Construction Company is given a Notice to Proceed. After three weeks of rain, snow and general confusion, Price Rite Construction finally proceeds.

The weeks fly by and before you know it it’s time to start moving in furniture, fixtures and equipment (better known as FF&E).

The day comes when Price Rite Construction notifies Ben that they have substantially completed their work. Ben schedules an on site meeting with Mr. Price Rite and Mr. Building Inspector and a Certificate of Occupancy (CO), certifying that the building has been built according to the permitted plans and specifications, is issued to Ben. Ben jumps for joy. Ben notifies his client that he can now open for business. Ben’s client jumps for joy.

And then Ben begins to whisper the Developer’s Prayer of Success: “Lord, please help my client to be successful in his new business so that he can pay the rent on time.”

So, what does it all mean?
The build-to-suit process can be extremely time consuming and frustrating to the layman. Guys like Backfire Ben take the burden of finding the right building site, financing and construction off your shoulders so that you can focus on operations and profitability.

With a facility designed to meet your specific needs there is no wasted space, all your new equipment fits as advertised, your profit margins are optimized and you have immediate brand awareness. So if you should run across a Ben sometime, it might be worth your while to hear what he has to say. And who knows, Ben might even buy your dinner.

Tom Duncan has been in the real estate development and commercial property management profession for over 25 years. He is a Development Consultant for KMO Development Group, Inc. in Tulsa, OK.