ORANGE COUNTY, Calif. — According to www.globest.com, with so many benefits to be had, investment in carwash properties is quickly growing in Southern California, but at the same time, financing can be difficult to attain for those who don’t understand this sector.
Ben Townsend and Matt Marlin from the SRS debt and equity team have become experts in understanding this growing niche’s financing market, the article continued.
“We started to see an increase in carwash development a couple of years ago and, at the same time, saw investors running into issues with their financing,” Townsend told GlobeSt.com. “Lenders offered unfavorable loan terms, re-traded borrowers at the closing table or refused to provide financing all together. We realized that these were not bad investments; lenders just did not fully understand the new business model. Carwashes built today are well-oiled machines that are essentially e-commerce resistant. Lenders had been used to the mom-and-pop carwashes that frequently went out of business or had environmental issues. These new carwashes preform extremely well and are strategically located in high traffic count locations.”
Townsend and Marlin have been able to build a roster of lending sources for carwash deals by educating these potential capital resources on how the carwash model has evolved, the article noted.
However, it can still be difficult to secure funding, due in part to challenges that arise during the underwriting process, the article stated.
“It comes down to underwriting and understanding each lender’s appetite for these assets,” Marlin noted. “The environmental component needs to be addressed upfront due to the cleaning agents, gas filling stations, etc. Many lenders will shy away from these properties based on the environmental component alone. They truly need to understand the business plan and proforma in order to approve and fund these deals. Ultimately, making sure that the deal is fully vetted up front is the most important step. The last thing an investor wants is to go through escrow only to be left at the altar by a lender who’s credit committee denied the deal. We make sure that doesn’t happen.”
Another issue that comes up when securing funding is the fact that carwashes are considered a special-purpose property because of their limited uses, the article continued.
“A special purpose property is a property that has a one-type use or a limited use. In a worst-case scenario situation, if the tenant leaves, you can usually only replace a car wash with another car wash,” explained Townsend. “This makes it a riskier investment in the lender’s eyes.”
Regardless of the challenges, investors continue to look for capital because they recognize the benefits of investing in professional carwashes, the article noted.
“Investors are interested in carwashes because they typically involve long-term leases, have very strong cash flow and are e-commerce resistant. As of late, we have seen more and more institutional money pouring into the space,” adds Marlin. “Operators are partnering with private equity firms to make upgrades to older facilities, develop state-of-the-art concepts, improve efficiency/ease of use and offer monthly subscription-based options. This is all usually structured in a NNN lease, which requires no landlord responsibility and allows for a purely passive investment.”
Read the original article here.
