A Certain Strategy for Uncertain Times: Why Sale Leaseback Financing as a Tool for Car Wash Businesses May Be More Relevant Now Than Ever

Within the past year there have been significant transformations in the car wash development and sale leaseback markets due to the changing macroeconomic environment. Specifically in the last 3-6 months, the landscape has experienced notable shifts.

The impact of higher interest rates and increased development costs has affected crucial metrics for operators such as CAP rates and overall unit level rents. These factors have prompted investors, both private and institutional, to adopt a more cautious approach. Investors are now placing heightened importance on assessing historical profit & loss statements and unit level coverages and have shown increased scrutinization on Greenfield developments and proforma unit level financials. This has resulted in investors adjusting rents downward and CAP rates upward to reflect the additional risk associated with these assets, which in turn has caused many operators to be forced to leave more money in their developments.

Moreover, the continued sunsetting of bonus depreciation benefits over the next few years further complicates the landscape. Investors have shifted focus toward stronger underlying real estate fundamentals as car washes start to become more akin to other sale leaseback investment tenant types, prompting a reassessment of overall investment strategies.

Despite these market shifts, sale leaseback continues to remain a viable option for businesses looking for non-dilutive forms of equity or alternative financing solutions. In fact, given the evolution of capital markets over the past 18 months, sale leaseback financing may be more relevant now than ever. Often, it provides financing at rates cheaper than the current cost of debt, making it an attractive option for businesses navigating uncertain economic conditions.

In this environment, the role of a real estate advisor has never been more critical. Having an experienced advisor can assist companies in navigating the complexities of capital planning, ensuring that they make informed decisions that align with their long-term goals and mitigate potential risks.

At NNN Pro, we provide a comprehensive and holistic approach to real estate portfolio management. We work closely with our clients to evaluate each site, determining which are more suitable for institutional investors and which are more suitable for the private market. By reviewing operating sites with historical coverage along with development sites with proforma P&Ls, we develop creative strategies to maximize the value of our clients’ portfolios. All of these strategies are employed with the goal of yielding the most attractive cap rates, highest level of proceeds, but most importantly the strongest surety of close. Given the current market conditions, we understand the importance of having reliable capital providers to assist in the funding of growth via development and M&A.

If you are looking to learn more about ways to profit in the evolving landscape of the car wash industry, join NNN Pro’s Car Wash team at The Car Wash Show in Nashville, TN, from May 13th and14th. Reach out directly to schedule a meeting during the event and discover how we can help optimize your real estate investments in this changing market.