appraisal shoots down wash purchases

[sticky]

hi folks. pretty frustrated and looking for advice. been working with the owner on a multiple wash purchase for nearly 7 years. thought it was finally gonna happen.... stars lining up on purchase price, lending rates, terms, etc.....then got the appraisal. valuations were there, no problem. however a lending standard called "economic useful life" killed the deal. these washes were built between 1978 and 1996 and are in various states of disrepair, but still producing very decent income. however, the appraiser declared the "economic life" so low (5-10 years, due to building age, condition) that the lender couldn't make the deal work within their guidelines. how does one buy and improve old washes if you can't get financing because they're old? makes no sense to me.

anybody encounter this issue and find a way to get past it, or do you suggest i consider this a show-stopper as i'll encounter the same issue when i'm ready to sell? i'm not gonna do another sba, so that's not an option. of course, one could buy with cash and get equipment loans.

opinions appreciated.

 

[robert roman]

Without having a chance to read the appraisal report, it’s impossible to answer your question definitively. However, since I prepare opinion of value for carwash owners, I’ll take a wag.

If the money borrowed is only to acquire the properties and doesn’t include “improvements,” the appraiser has no option but to consider remaining useful life of assets.

Consequently, how can the lender approve, say, a 20-year note for an income producing property that has a useful life of only 5 to 10 years?

 

[sticky]

"useful life"

robert,
loan was for land and improvements. concrete block buildings....are they gonna blow down in 5-10 years? of course not. it's banker speak. dog chasing his tail. can't get financing to improve an old structure cuz it's old. rediculous. greedy bankers got us into this mess....and their keeping us here. just my opinion....but shared by many.

loan officer toured all locations and projected 25-30 years useful life when they signed on to the project. however, appraiser used industry standard charts and graphs to derive "economic life." charts stop at a 25 year old building. that left useful life of equipment as only option.

the system is flawed. pendulum has swung to the extreme against the small biz guy.

 

[pitzerwm]

Welcome to reality, the new regulations which hasn't even been defined yet, but is assumed to be ugly, penalizes banks for bad loans, so they are running scared. They go through the motions, but they aren't making loans, it has little to do with greed, it has to do with the lack of balls by bankers which has always been the case. I have been in banking and as a local VP of a bank that I know well said just yesterday, "The people that I want to loan money too, don't want it and the people that want a loan, I don't want to loan to".

 

[sticky]

running scared?

well, we could buy with cash and upgrade out-of-pocket easily enough, then we would be among the "i don't want your money" group. problem is, down the road, when we're ready to move on, the likely buyer would be of the "don't want to lend to them" set. exit strategy is important to consider going in.

as a banking VP you're familiar with the term, "making money with other people's money." this bank was aggressively marketing themselves to us, attempting to earn our business. so, i wouldn't consider us as among the "don't want to lend to them" population. quite the opposite, actually. in this case, it's not about the client. if we can't get financing.... who can? nobody on these washes.

 

[Buzzie8]

About half of my professional life "working for the man" has been in commercial lending. While lending is much more stringent post 2008, this industry has different appetites for different industries. I always recommend putting a good bank package together and taking it to at least three lenders if not more. I just went through this with another business that I am hoping to purchase. I shopped the package to three banks, one gave me completely unacceptable terms, the second gave me OK terms, and third gave me just about everything I asked for (and this loan was for a very small percentage of hard assets). You need to shop this around a bit to find a good financing partner.

 

[rph9168]

Shopping is essential. I have seen several people do what Buzzie recommends. While banks are not giving money away the right loan officer at the the right bank and the right time may be the answer. I have also found that the smaller, local banks usually give you a better shot than the big guys. Most of the loan officers at the big banks have to operate strictly by the book and seldom want to stick their neck out. If you feel the project is worth it you looks like you will have to shop it around.

 

[robert roman]

“…. loan officer….projected 25-30 years useful life when they signed on…. however, appraiser used industry standard…. to derive "economic life."

By signing on, do you mean the loan officer gave you a term sheet?

If so, then I suspect the loan officer did so without first having a good understanding the fundamentals of the self-service category. However, through examination and analysis, most likely the appraiser learned.

Perhaps this is what caused the lender to bail.

Contrary to popular belief it is possible to borrow money for a carwash project.

The difference today is lenders expect to see an “excellent” market opportunity and experienced management.

Excellent means above average store performance, strong debt service coverage and exit strategy that relates to the industry model and creates wealth from exit.

Unfortunately, many self-service site locations today no longer fit this description.