NEWPORT BEACH, Calif. — RealSource Group recently announced the sale of over $51 million in express carwash sale-leasebacks in Q1 2022, according to a press release.
The sales, which totaled 10 single-tenant net-leased sites located throughout the Midwest and Southeastern states, were on behalf of two different operators.
The purchased sites were operating with strong sales and EBITDA.
These sales represent the first sale-leaseback transactions for both owners, who each operate less than 10 units right now.
According to RealSource’s Senior Vice President of Investment Sales, Austin Blodgett, “We generated multiple all-cash offers for 10 single-tenant net-leased carwash sale-leaseback investments in the first quarter and procured a different buyer for each transaction to achieve the highest price possible, guiding the entire escrow process, from buyer acquisition to closing.”
As not all carwash operators know the benefits of a sale-leaseback, RealSource Group provides its clients with an in-depth financial analysis of the operating business and demonstrates how the operator can properly exit out of the real estate to focus purely on the business operations.
“A sale-leaseback strategy offers a carwash operator the ability to fund the chain’s expansion plans without a bank loan or taking on an equity partner,” said Blodgett. “Our clients are capitalizing on the current multiples that can be achieved right now by selling their real estate, but still keeping the business.”
With a lack of supply of quality single-tenant net-leased express carwash assets, private investors and institutional demand for car wash properties will continue to drive cap rates down.
As a result, Blodgett thinks that the aggressiveness of the market and cap rate compression will continue to fuel the current uptick in sale-leaseback activity.
“Certainly, these market conditions are driving additional sale-leasebacks and, due to both investor and consumer demand, more operators are growing their chain count. We expect this trend to continue in 2022 as demand for single-tenant car wash assets increases and sales multiples continue to increase,” Blodgett said.
“Currently, there are not many carwash properties for sale on the market, so anything that is well located with a long-term lease that hits the market is getting a full-price offer within the first few days of coming out,” explained Blodgett. “The majority of the single-tenant carwash properties that have recently traded have been existing carwashes with a brand new 20-year lease, like the 10 properties that RealSource sold. However, with many carwash operators now expanding their greenfield development programs in the last 18 months and the typical development cycle of this asset type, we can expect to see more new construction properties and pre-sales to be sold later this year in Q3 and Q4 2022, which is great news for investors.”
Blodgett notes that there is little on the market that can compare to the return on a brand-new construction express carwash with a newly minted 20-year triple-net lease with a corporate guarantee and annual increases.
Also, accelerated depreciation is always a driver for investors to purchase these sites, giving them tremendous tax advantages over other retail asset types, according to Blodgett.
Why are carwashes gaining consumer popularity?
According to Blodgett, consumers want instant gratification and an express carwash is the absolute fastest way to get your car cleaned for the least amount of money.
Also, the pandemic shined a light on the benefits of “touchless” services.
“I think consumers are increasingly becoming less patient and would rather use an express carwash rather than wait 20 to 30 minutes to get their car cleaned at a full service carwash,” said Blodgett.
Cap rates for net-leased carwash properties located in the Sunbelt states, specifically in California, Arizona, Texas, Florida and Georgia, are typically the strongest — mid-to-high-6% cap rate range for operators with approximately 10 units, notes Blodgett.
When an operator has approximately 20 units, the cap rate for an express carwash property compresses to a low-6% cap or even into the high-5% range, depending on the location and lease term.
The larger operators tend to be in the low-5% range or even into the mid-4% range, subject to the real estate and lease terms.
“With the state of the current market and economy, private equity firms and tenants will continue to use sale-leasebacks to fund growth as it is cheaper capital versus more traditional financing methods. We also expect to see more sale-leaseback transactions taking place across the board from carwash, retail, to healthcare, all the way to hospitality this year,” Blodgett concluded.
