Option to buy our lease

[srr5008]

We were just informed that the person that owns the land that our wash is on wants to sell. He owns various businesses in the plaza and called all of the owners to let everyone know.

Obviously we are interested. He told us he'd like to know in the next 2 days. We're going to push back on that (not getting forced into a snap decision) and our thought was to have the land assessed first.

He told us that he wants 10 years rent (about $200k) for our 0.3 acre lot. We're in a rural area, with maybe two dozen businesses in our town. However we do do very well at this location (right off the highway). I was just curious as to what peoples thoughts were on the 10 year rent figure? (Knowing that there are a lot of variables) The land owning family is a bunch of wheelers and dealers so I don't expect them to necessarily be fair.

Has anyone ever had a land lease change hands on them? Not sure what that would do for us...

 

[Waxman]

Jump on it right away. A 200k loan is nothing for a busy wash. It's an investment in yourself because you will be making $ from operations while paying off the income producing asset. Plus when you go to sell you actually have a complete business with property which is worth a lot more than a business on leased land. You don't need to get the land assessed in my opinion because wash makes money and a $200,000 loan for a nice piece of land isn't a whole lot of money.

10 years rent @$200k=$1666/mo. That should cover mortgage and taxes on $200k.

 

[MEP001]

I'd be curious what the land is actually worth.

 

[Axxlrod]

Any bank making a loan is going to require an appraisal on the land.

 

[JMMUSTANG]

Are you just self serv bays? If so can your location use an IBA?
I would tell them that your interested in buying it but your bank wants 3 yrs. P & L’S to see if it’s viable for that much money to purchase the property.

 

[srr5008]

Are you just self serv bays? If so can your location use an IBA?
I would tell them that your interested in buying it but your bank wants 3 yrs. P & L’S to see if it’s viable for that much money to purchase the property.

Our wash is 2 IBAs and 2 SS bays. No room to expand due to the layout of the lot (we're maxed out and built up with retaining walls to get out of the flood plain).

 

[JMMUSTANG]

Having 2 IBA’S and 2 bays sounds good.
How long is left on your lease?
I would think that even in a small town it would be very hard to get a commitment for a loan from your bank that quickly without lookin over your books.

 

[Dan-Ark]

Most commercial real estate purchase and sale agreements contain a feasability study time as well as contingency for financing. You can "lock down" the property and then make sure it appraises and can be financed afterward. After all if you don't buy it, the next owner might want to be in the car wash business someday or have some other use in mind for the property... How many years left on your lease? No guarantee a new owner would renew...

 

[Car_Wash_Guy]

First thing I'd do is ask the owner if he's willing to do an owner carry.

 

[srr5008]

Thanks for the input all. We (brother, mother and myself) took over the carwash after my father passed in 2016. He was our financial whiz, so all of the opinions here are very helpful.

Having 2 IBA’S and 2 bays sounds good.
How long is left on your lease?
I would think that even in a small town it would be very hard to get a commitment for a loan from your bank that quickly without lookin over your books.

We have 13 years left on the lease (was a 30-year lease originally). After reviewing the lease in further detail it looks like the rent is due to change in 2024 to our original rate ($1,250 vs the $1,663 we pay now) + CPI - I believe this will increase our rent even more for the last 10 years. All the more reason (in my mind) to buy now at the current rental rate.

I'd be curious what the land is actually worth.

I know that owning the property vastly improves the value of the business - just was looking to get a "gut check" on the fairness of the 10-year rent amount. This family owns the entire plaza (say 8-10 businesses, 3-4 empty storefronts, and many apartment buildings). The entire plaza is 24.23 acres and the assessment office has it valued at $63,200. We are located on 1.2% of that land - that's where we are struggling to come up with a realistic number.

 

[soapy]

A car wash on leased ground is generally not worth any thing if the lease is less than 10 years. I would pick up the property now

 

[Waxman]

There is no question about financial feasibility since you are already making about the same payment that you would be making on a loan.

When a reasonable buy out of the land is offered it makes sense to take the deal when you are leasing. This way you have much more value in the business.

 

[JMMUSTANG]

It sounds like it’s a good deal. But...
My concern is with 30-40% empty spaces. This does not help your business verses if it was full.
Is the property and driveway for the whole property in good shape? Will the driveway need to be redone later on?
Maybe you can negotiate little bit better deal because of these issues.
If your bank is willing to loan you the money will they give you a solid 10 year loan at today’s rates?

 

[Rfreeman]

The entire plaza is 24.23 acres and the assessment office has it valued at $63,200. We are located on 1.2% of that land - that's where we are struggling to come up with a realistic number.
[/QUOTE]

Personally I wouldn't put much weight on the assessments office value...more than likely they wrong. I don't know where your located but here in TX if you can buy something for the assessed value you are easily ahead by 15 to 20%.

I think the deal sounds solid and fair for all the reasons already mentioned. If you know a commercial real estate agent ask them to pull you some comparable sales...if any exist in your market. Maybe that will give you some negotiating power or confirm the deal is pretty good.

 

[Kramerwv]

I agree with Soapy, the closer you get to the end of the land lease the less valuable your business becomes. You won’t regret controlling the whole thing at that price.

 

[srr5008]

Well guys, I appreciate all the input...

BUT the owner just called me back because he found a buyer for the entire plaza. I suspect he had an offer in on the entire plaza already, and was fishing for numbers from the individual businesses to see if he could make more selling lots separately. I'm guessing he got enough "no's" back from some of the franchise businesses (DD, Smoking Joe's, etc) that he decided to go with the offer on the table.

 

[Mr. Clean]

Now that the fire has been lit, follow up with the new owner about purchasing. They may be interested in a quick cash infusion, especially with vacancies.

 

[srr5008]

Now that the fire has been lit, follow up with the new owner about purchasing. They may be interested in a quick cash infusion, especially with vacancies.

That's the plan! Waiting game for now, until we see what happens with the current purchase.