CORONA DEL MAR, Calif. — According to www.globest.com, investor interest in service-based, internet-resistant retail has created a popular new class of net lease investments: carwashes.
Single-tenant, net-leased carwashes have become a growing and sustainable alternative to other net-leased retail properties, the article continued.
Jeff Lefko, senior associate with Hanley Investment Group, has helped complete the sale of more than $15 million in single-tenant carwash properties across the country since January 2018, the article noted.
This number accounts for nearly 25 percent of all carwash properties sold since March 2017, the article added.
“In the past, carwashes were typically either sold with the business and equipment to owner/users looking to start their own business or in a net lease portfolio to real estate investment trusts,” said Lefko. “Today, savvy carwash operators and merchant developers have realized that they can maximize value by putting in place a long-term lease and selling off the real estate to a private investor looking for a fixed return. In general, it has resulted in a viable alternative investment for private investors and an approximate 100 basis point premium in value for carwash operators and developers, compared to selling to an institutional buyer.”
According to CoStar, a source for commercial real estate intelligence, only two single-tenant, net-leased carwash properties in the U.S. were sold to individual buyers between March 2012 and March 2017; however, from March 2017 to March 2018, 12 single-tenant, net-leased carwash properties were sold to private buyers, which, Lefko noted, marks a 450 percent increase in single-tenant carwash sales, the article stated.
Lefko added that some reasons for this newfound interest in carwash properties are due to the fact that carwash locations are generally in high-traffic-count areas with densely populated surroundings and that expensive carwash equipment provides a secure leasehold; in other words, if the tenant were to quit, the investor would likely either be able to open his or her own carwash or find a new operator to replace the tenant, the article noted.
Furthermore, Lefko added, single-tenant carwashes are usually sold for a lower price per square foot for the land compared to a quick-service restaurant (QSR), the article continued.
In addition, most carwashes being sold are express conveyor carwashes, the reason for which Lefko said is, “A large portion of customers pay for monthly subscription services that allow the customer the convenience to get unlimited washes per month. The express carwash model is highly recession-proof because they are a low-cost alternative to the more expensive full-service hand wash formats.”
Lefko continued, “As of April 2018, there were 16 carwashes on the market or in escrow (according to LoopNet and CREXI). A quarter of these properties listed for sale have a lease that is guaranteed by either a dominant regional operator or a large company; both provide investors with a secure investment. The carwash industry is an extremely segmented business, but it is becoming exponentially more consolidated with large operators such as Mister Car Wash, International Car Wash Group and Zips opening locations at a pace that has not been seen in the past. Approximately 75 percent of the properties currently on the market are leased to one of the top 10 largest operators in the country.”
According to Lefko, the expected trend is that the supply of net-leased carwashes will increase substantially over the next year, both as operators consider more sale-leasebacks to attract private investors willing to pay premium prices at these historic market levels, and as investors look for service-based alternatives such as carwashes, over typical net lease investments, the article concluded.
Read the full article here.