An Evolving Asset Class – Car Wash Investment
EquityMultiple not only provides access to commercial real estate at low minimums, but also facilitates diversification across markets, risk/return profiles, and emerging asset classes, like car wash investment.
Over the past three years, EquityMultiple has offered a wide array of commercial real estate investment opportunities to investors. Of the 100+ investments EquityMultiple has launched to date, we have offered various asset classes, including core commercial assets – multifamily, office, mixed-use, industrial, and hotel – as well as more niche property types that are newly attracting institutional capital. As part of our endeavor to help investors build a well-diversified real estate portfolio, EquityMultiple is excited to introduce a brand new asset type to our investor network: car wash investment.
COVID-19 Update: According to a recent report done by the International Car Wash Association, professional car washing reached a record high in 2019, with estimated retail sales of nearly $11 Billion. It also states that 83% of Americans who own or lease a vehicle used a Professional Car Wash at least once in the past year. Those numbers have only been growing, with 77.5% of people choosing to wash at a professional car wash and at-home washing decreasing 12% between 2016 to 2019. The car wash investment thesis may be stronger now than ever due to several unique facets of the pandemic:
- No-touch car washes have earned ‘essential business’ designation in a number of markets.
- There are now limited urban and sub-urban activities that are consistent with social distancing. A visit to a self-service or no-touch car wash is one such activity.
- Uber and Lyft now require routine professional cleaning of vehicles, potentially boosting demand.
Current Environment of the Car Wash Industry
The professional car wash industry has experienced constant growth for the past several years, achieving a 3.6% compound annual growth rate (CAGR) in revenue from 2013-2018. A growing number of drivers are relying on car wash facilities rather than cleaning their car themselves. As the number of drivers increases, the growth in the car wash industry will continue through 2021 at an estimated growth rate of 1.7% per year.
Car Wash Investment Operational Value Drivers
While top-line revenue within the car wash industry continues to show measured growth, the total employment in the industry is shrinking. The industry is turning toward technology-enabled solutions for revenue and expense management to boost profitability. To stay on top of the competition, car wash facilities are modernizing themselves with innovative customer processing systems and smarter equipment to cut back on chemical and water waste, while maximizing customer experience and retention rate. Furthermore, the owners are adding high margin, non-perishables consumer goods to their service offering. The expansion of monthly subscription models, bundled pricing, and brand loyalty programs, incentivizes more frequent customer visits and further stimulates the revenue stream.
In today’s car wash industry; customer experience and operational efficiencies are tantamount to the facility’s success. Car wash operators strive to keep the ongoing operating costs low in order to unlock profit margin. As the number of cars washed increases, economies of scale will kick in and drive up the profit-to-sale ratio. An in-bay automatic car wash, which has capacity to wash 20,000 cars a year, can generate around 69% profit margin. Increasing car wash acquisitions by private equity shops and other financial institutions in the recent years evinces the heightened demand for this alternative asset class under the new car wash operation paradigm. National car wash brands such as Mister Car Wash and International Car Wash Group (ICWG) have purchased lesser-known competitors via one-off as well as portfolio-wide deals.
Car Wash Investment CRE Fundamentals
From a fundamental real estate investment perspective, low construction costs and short construction timeline present an attractive investment opportunity whereby investors can capture cash flow faster, with lower dollar investment amount. In addition to the shorter construction timeline, a large portion of the capital expenditure is incurred upfront during the construction period. With little administrative and ongoing renovations needs, operating expense margins for car wash facilities hover around 30-35%, lower than typical operating expenses involved in core CRE asset classes.
“Location, location, location.” As the axiom goes, the crux of a car wash investment lies in its location. Some car wash customers always choose designated car wash facilities, while others stumble upon the facility while driving to a predetermined destination. Therefore, proximity to major retail destinations, along with the traffic pattern, can determine the property’s ability to generate ongoing cash flow. Furthermore, such locational edge can provide potential downside protection should the car wash business fail to generate cash flow as projected, or cannot cover the investors’ entitled return. Given the attractive location, the property owner can easily reposition the facility into other types of retail unit, such as fast food restaurant, auto repair shop, and consumer service office.
Increasing acquisition activities by large car wash operators and financial institutions have bid up the pricing. A recent report indicates that car wash facilities are trading at a 1.1x EBITDA premium compared to retail assets. That said, real estate investors in car wash facilities are afforded solid exit opportunities.
If you are interested in learning about investment opportunities on our platform or would like find out more information on the car wash asset class (or other unique commercial real estate investment opportunities available on the EquityMultiple platform) please don’t hesitate to contact us via firstname.lastname@example.org or schedule a time to speak with our team by clicking here
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