Another lease purchase thread

[br549ms]

I have an opportunity to take over a lease SS with a Mark 7 IBA
6 bays using mark 7 meters
6 vacs - 3 islands
mark 7 IBA is ready for retirement
equipment room is not bad, but everything is dated (2006)
current operator built the building on leased property in older shopping center
good traffic - probably 8-12k per day
claims revenue of 120k, but doubtful
Asking me for an offer, I have no experience with leases

I do know the lease 30 years has options every 10 years to exit, with second option coming up in 2026, the lease terms are locked through the 30 years, not bad. But the lease holder owes "their part of the property taxes and ins". The current operator has not purchased any new equipment - all dates back to '06. so no value there, building is on leased property so no value there. He is willing to show books from the CPA and past taxes, utiltites, etc...

Being a lease, equipment basically no value and building on the leased property - no value. I am thinking 1 or 2 times the net?




thoughts?

 

[Roz]

Leases of car washes are very hard to sell. You need to understand all the expenses (lease expenses, utilities, everything) - ask to see all expenses. Find the free cash flow and discount by 10-20%. Is the left over amount worth your time and risk to assume the lease....

If current lease holder is looking for a payment so you can take over the risk then look closely at the lease (time remaining and schedule for lease increases). If acceptable time remains then it may be worth 1-3x free cash flow.

 

[mac]

I would start by asking the operator to see his last 3 years tax returns. If he can't or won't then politely just walk away. Fast. Even assuming that the 120K is real, that means you would net around 70K. There could be some hidden expenses in there as well. The automatic is now at least 13 years old, which means it's nearing its useful life. That alone could eat up a lot of your income.

 

[Rfreeman]

I would recommend starting with the lease agreement and make sure you review this document with a fine tooth comb because it is going to tell you what you can and can't do and who is responsible for what. I would start with a sublease issue/take over (however the lease calls it) which you will be doing since the you are taking over or subleasing from the original tenant. From the information your provided "their part of the property taxes and ins" this is a ground lease or NNN for the landlord. At the end of each 10 year period who has the option to renew landlord or tenant (you). Under what conditions can the landlord terminate the lease? Once your comfortable there yeah personally I agree with you....building and equipment have relatively little value, what you are offering or paying for is future net cash flows (17 years left on original lease assuming there is no termination at 2nd 10 yr renewal in 2026). I wouldn't offer more than 2-3x's net cash flows this is a higher risk opportunity and I would guess the current tenant is going to have a very hard time selling/transferring this lease agreement.

 

[br549ms]

Thanks to all for the advise

Appearance is not too good, duct tape on CC of Wash Select..... however bays work as advertised.
Like I said Mark 7 need to be retired before it falls on someones car. IBA bay very dark and unappealing.
I have read the lease and yes the lease transfer is not clear. Everything else looks OK.
I doubt he is seeing that much net (70K), from what I hear it is less than 40K
Operator is ready to retire and this is standing in his way.
I will see just how much he will 'sell' as capital equipment with very little of the payment going to good will, at least some deprecation with that option until we could rehab.

thanks again

 

[tdlconceptsllc]

Honestly I would run from a carwash lease I just finally bought mine after years of leasing. Only way I would consider leasing is with a option to purchase the property at X amount in the contract after a couple years. Only way you ever come out on a lease unless its just super cheap rent.

 

[tdlconceptsllc]

Just word from the wise who has experienced it myself

 

[soonermajic]

Listen to TDL
That dude knows his stuff