Clean Up With An Investment In Carwashes

In a rapidly changing world, it’s great to see industries & concepts evolve to cater to the ever changing needs of the consumer. It’s great when technology and innovation meet. For years we have seen the growth of self-serve & express car washes.

I was in downtown Solon, Ohio, last week and a new carwash had just opened up right across the street from a combined gas station / convenience store with a carwash right on the premises.?Less than a half mile away was a carwash that’s been in business for well over 30 years.?Still, there was a line of cars that wrapped around the business waiting for their wash.?

The pandemic did hit car washes. A large number of states classified the car washes nonessential, so many shut down for much of 2020. ?However, growth is clear down the road.?The global car wash service market size was valued at $33.0 billion in 2018 and is expected to grow at a compound annual growth rate of 3.2% through to 2025.?

Now that things are opening up, it seems as if there are car washes sprouting up everywhere you turn.

What gives? Why would someone open a carwash in a market that appears to be competitively saturated??Let’s take a look at it in comparison to some other retail sectors.?With everyone being home-bound, many people turned to alternative, internet-based, delivery or fulfillment models. Think of how the restaurant segment suffered even after adapting. This category may be immune to the threat the internet poses to so many retail brick & mortar categories.??Nothing on the internet can actually reduce the need for a good cleaning.???Frankly, the internet can only make it easier to get a car wash… Now you can make a reservation so you don’t have to wait in line.

Why is the segment so attractive for investors??

·??????Longer 20-year leases are the segment standard

·??????Prescheduled 2%-3% agreed upon rent increases cooked into leases

·??????Rent coverage ratios are about two times earnings before interest, debt, depreciation, taxes and amortization (EBITDA.)

·??????Most car wash leases are triple net – meaning the tenants pays rent and all additional expenses.

The category presents lower risks for landlords and investors.?

What does the future hold for the carwash??

The industry’s health is supposed to rebound from the Covid numbers.?As municipalities and states reopen more people are beginning to drive again to reopened workplaces, for instance. Here are some hints of what is to come

·??????Vehicle registrations increased in the last decade by 20 million, to 273 million, and it’s expected to reach 296 million in 2025, according to IBISWorld.?

·??????Car wash revenue is projected to rise 3.4% annually to $12.9 billion by 2025.

·??????The number of car washes is forecasted to grow to more than 56,000.

The development of the subscription model has been transformative.?When you think that some people are willing to pay more on their monthly car wash see then their gym fees you start to understand why membership programs are among the growing trends in the car wash industry.?They can help sway customers to come more regularly, spend more money and choose a particular facility over the neighboring ones. Meanwhile, they help car wash businesses achieve consistent revenue for landlords and investors .That model means that landlords and investors can more dependably forecast cashflow for the coming year.?

Another influencing trend is that most of these new locations have multiple revenue streams; gas, convenience store and quick dining all contribute to rising revenues.

Because there is no single major branded player, nationally, the risk of fighting a giant competitor in any given market is relatively low at this point in time.

Choose your site wisely

If you are a new carwash investor of looking to acquire a piece of land, here are some things to consider.?

·??????Express carwashes usually need about an acre, while a full-service carwash will require about 1.5 acres. As you add length to a full-service wash’s tunnel or self-service vacuum stations you’ll need to add to the parcel.??

·??????Make sure you know the traffic patterns and the parcel is visible to commuters.?

·??????Due diligence is important, make sure you understand zoning and permit requirements.?One way to cut through red tape is to repurpose an existing business.?We recently completed a deal in a 38,000sf former HH Gregg with Waterway Car Wash. The car wash incorporated tiered pricing all you can use express wash with a large area of indoor & outdoor free vacuum & self-cleaning stations. If you can work with a franchise, they may have proven processes that require less staff, thus reducing payroll.

Possible over saturation?

There are a few risks however. The growth of the category could end up being the industry’s biggest enemy. Too many competitors opening up in one area could cannibalize market share.?A 2019 ICA survey?found that three-fourths of consumers picked their regular car wash because it’s the one they happened to have driven past.?The other risk is the impact that rising gas prices might have on people’s willingness to get in the car.?These are a couple of pot-holes to look out for as you consider this category.

Even in a downturn caused by a pandemic that?kept Americans off the road, the fundamentals, sited above appear to make the category recession averse.?The triple-net leases that have become standard for car washes means little risk for landlords and lots of benefits.?

If you are looking for a long-term, stabilized asset that is going to basically generate a regular cash flow, the car wash lease structure may very well fulfill your needs. ???Maybe now is the time to consider a carwash as your next retail property to invest in.