Car Washes being flipped for 8 times EBITDA?

[fraja1127]

Hello everyone new member here. Hope to see everyone at the convention.

I ran into a broker in Florida who was stating that some investors have built car washes and were able to flip them for 8 x EBITDA PROFORMA.
He stated they bought the land for $1.3mm and built a 140ft wash for 2.5mm. All in at about $3.8mm. They were able to sell for roughly $8mm before it even opened.
Does this sound accurate or is this someone trying to Bait investors into building?

Any information would be great.

Thanks everyone

 

[JamboWash]

Hi
This Seems to be a bait , you can do some investigations on this, whoever provided you this info ask him the location of this carwash, then go to the tax accessors office in that county and look up the sale and property taxes on it , you will get your answers right there to begin with

 

[Mel(NC)]

What would make the deal so enticing it worth paying twice the cost of building your own wash?

 

[Randy]

Hello everyone new member here. Hope to see everyone at the convention.

I ran into a broker in Florida who was stating that some investors have built car washes and were able to flip them for 8 x EBITDA PROFORMA.
He stated they bought the land for $1.3mm and built a 140ft wash for 2.5mm. All in at about $3.8mm. They were able to sell for roughly $8mm before it even opened.
Does this sound accurate or is this someone trying to Bait investors into building?

Any information would be great.

Thanks everyone

I find this very hard to believe. If it was such a great deal why isn't every one on this band wagon.

 

[Earl Weiss]

What would make the deal so enticing it worth paying twice the cost of building your own wash?

Location, Location, Location. Plus , how many years in the works and getting up to speed chewing thru interest on the loan to the tune of $$$$

 

[jfmoran]

Hello everyone new member here. Hope to see everyone at the convention.

I ran into a broker in Florida who was stating that some investors have built car washes and were able to flip them for 8 x EBITDA PROFORMA.
He stated they bought the land for $1.3mm and built a 140ft wash for 2.5mm. All in at about $3.8mm. They were able to sell for roughly $8mm before it even opened.
Does this sound accurate or is this someone trying to Bait investors into building?

Any information would be great.

Thanks everyone

8X EBITDA for a well established EE with a significant recurring income from a UMC is not out of the question, but 8X off of a ProForma is a huge risk. It's not unheard of, but that site ProForma would have to be through the roof. We're talking about a site that with 50%+ EBITDA, it would be throwing off $1M+ in cash. Site's like that are the exception and not the rule. One reason an investor might want to do this (obviously one with deep pockets) is to gain an operational foothold in a market while they look to develop other sites. While you can develop for a lot less, the development cycle can be 2 years or longer with another 2-3 years to reach maturity at that site. This wash gives them a presence in the market as they look to buy others, or develop sites.

 

[soonermajic]

8X EBITDA for a well established EE with a significant recurring income from a UMC is not out of the question, but 8X off of a ProForma is a huge risk. It's not unheard of, but that site ProForma would have to be through the roof. We're talking about a site that with 50%+ EBITDA, it would be throwing off $1M+ in cash. Site's like that are the exception and not the rule. One reason an investor might want to do this (obviously one with deep pockets) is to gain an operational foothold in a market while they look to develop other sites. While you can develop for a lot less, the development cycle can be 2 years or longer with another 2-3 years to reach maturity at that site. This wash gives them a presence in the market as they look to buy others, or develop sites.

Man, all that is making my head hurt. I have literally no clue what you're talking about. I would think though, why not build your own wash for half that amount of money?!! Even if location isn't as good, you'd save $4 MILLION DOLLARS & that would take MANY YEARS to get back.

 

[Rfreeman]

I have heard of such deals albeit maybe not 8x's but yes off of proforma numbers. I don't know the actual multiple they are using in their analysis but when the developer achieves the CO (certificate of occupancy) he's at the closing table that afternoon selling the property to his investor group. As mentioned in the previous threads, these types of deals the buyers are always big money groups i.e. pension funds(city, school, municipal, etc.), private equity, and REIT groups. So far to date I know the developer has done 2 of the deals to date but he is always looking for the right location. He has shared with me that these customers who are buying these locations have a very detailed and extensive list of criteria that the site must meet for them to purchase....in essence it's their "plug n play" formula that they have found works or at least provides the return they need. Personally, I feel that broker is trying to bait you into some business for him/her but if they have the buyers/investors that would buy the car wash off of a proforma then tell them you want a meeting with them and setup a build to suit agreement. You put the deal together (financing wise), the brokers get commission on the land deal and the final sale to the investor, investors get a nice new property with cash flow......win-win-win.....see how the broker reacts to that??????

 

[soapy]

The only way I could see this happening is if the city had a moratorium on building carwashes and it meant you had a exclusive. Otherwise another operator could come in and build his own and have half the overhead.

 

[soonermajic]

Also, there is ZERO provable income generated. Maybe everything looks great, but nothing has verified that...so far!

All that glitters is not always Gold

 

[jfmoran]

Man, all that is making my head hurt. I have literally no clue what you're talking about. I would think though, why not build your own wash for half that amount of money?!! Even if location isn't as good, you'd save $4 MILLION DOLLARS & that would take MANY YEARS to get back.

If this is an investor or a PE group, they are looking at these deals far differently than the average operator. These guys are looking at these deals to get a return on their money, they're not looking to pull an income and a return. For these guys its all about leverage and return on equity. If they buy a car wash for $8M that throws off $1M in EBITDA, and they leverage the site by putting 20% down ($1.6M) these numbers will throw off an after tax return of about 21% or $345K, they're not getting that return in the stock market, which is why you see s shit ton of money pouring into the car wash industry. Increase the leverage and that return goes even higher, of course so does the risk. Yes, building a site makes these returns even higher, but I've seen it take 5 years to build a site, and then another 3 to mature. They are willing to pay a premium to get the cash flow and return sooner.

 

[MEP001]

Man, all that is making my head hurt.

Scratching your nose makes your head hurt.

 

[mac]

I’m in FL and have heard this from people that I have known in the business. Again, have only heard about this, which is considered hearsay.

 

[Earl Weiss]

For these guys its all about leverage and return on equity. If they buy a car wash for $8M that throws off $1M in EBITDA, and they leverage the site by putting 20% down ($1.6M) these numbers will throw off an after tax return of about 21% or $345K,

For ease of calculation lets say the $ cost them 5% on the $6.4 Million Balance or $320K / Year. Add the $1 Million cash flow so the triple net monthly rent is $1,320,000 / 12 or $110,000 / Month I hope you wash a lot of cars

 

[Greg Pack]

Off Existing washes yes you can get 7-8X, but I don't think off proformas. And yes, that is one reason there is a gold rush in expresses right now. Everybody wants to build and sell to a bigger group. But remember, we all like to hear the success stories, not the marginally profitable ones that don't sell. I feel like it's a bubble, but who knows how long this trend will last. Profitability is still being pushed upwards with premium packages and memberships.

 

[Greg Pack]

I find this very hard to believe. If it was such a great deal why isn't every one on this band wagon.

Look around the tunnel booths at the shows Randy, there's tons of new blood and investors trying this. While I'm still washing down bays and fixing crap I've seen several acquaintances go from six figure net worth to eight figures in the express business in around a decade. That gets new investors excited. Some operators have sold out and just moved to another part of the Country to repeat the process.

 

[Rfreeman]

Interesting....but say you hit a "gold mine" location and think okay I can repeat this somewhere else....and miss on the second location. Wouldn't your "gold mine" basically be covering both locations??? Then if you tried a 3rd and missed then your really SOL....of course if you hit it's a different story altogether right. Heck the $3 to $4 million build figure mentioned earlier makes me cringe I couldn't imagine sitting in an $8 mil note for a car wash

 

[Greg Pack]

Interesting....but say you hit a "gold mine" location and think okay I can repeat this somewhere else....and miss on the second location. Wouldn't your "gold mine" basically be covering both locations???

That happens a lot in all segments of this industry. I've seen several people do first projects that exceed expectations, but the follow ups don't do as well.

 

[soonermajic]

just talked to a friend in Florida. He is building an Xpress tunnel (mini-tunnel). GREAT location. an investor group just YESTERDAY started trying to buy a gas station across the street from him. Going to build a new tunnel. They are supossedly are building 50 Tunnels throughout the SE USA. They also told him they would buy him out....

 

[br549ms]

A lot of this is hype and I call BS. If you find a great location and build a wash and possibly a few more, build up the business, you could turn the 3-4x numbers. But you are putting the risk in, the work to build the business. Just a coincidence this thread came up right before the ICA? Don't be fooled by the sales pitch. I do know of washes that sold for $8MM. They were part of a multi-wash deal where the "most productive" unit sold was valued for much more that the other units in order to complete the transaction.
That being said, I can see a wash being purchased before opening, the operator has the risk - tackles the permitting, acts a project manager ..... expenses get high with no cash flow. A investor comes in with cash, the investor can probably get good deal - the operator is looking to recoup. I don't know many people who would turn down 1.5 to 2x offer at that point.