For those of us in the carwash business, the last two years have been very difficult. For that matter, it’s been tough on almost any kind of business. It’s been survival of the fittest and dog-eat-dog, with each of us scrounging for every meal. And, just like in our natural world, only the strong survive.
But in the ashes of destruction there can still live small forms of life — life that can be resurrected and made strong again. In our case, this has meant resurrecting or reviving carwash properties that have endured bankruptcy and sit in foreclosure.
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Only recently has the discussion of overbuilding in our industry somewhat subsided, with group focus turning toward survival. Some would offer that the recent economic downturn has effected much-needed carwash consolidation, leaving those of us who have survived potential opportunities for expansion. Many of these opportunities were once great locations with a loyal customer base. However, not all foreclosed properties fit neatly into this category.
One of the most important reasons customers frequent a location is convenience. Therefore, when considering a foreclosed property always keep in mind one of the most important rules of business: “know your competition.” Closely survey all facilities available to your potential customers through expanding concentric rings around the property you are considering. Gain a thorough understanding of their offerings, pricing and wash model. Are they express, full-service or flex-serve? Visit the locations and make your own assessment of their ability to properly serve customer needs.
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Examine traffic flow throughout the community. Has it changed significantly since the property closed? If possible, determine the reasons the property failed in the first place. Was it due to financial mismanagement or poor service? Or, did it fail due to a lack of customers exacerbated by an oversaturated market?
Conducting an extensive critical analysis is likely the most important task you’ll undertake when considering a foreclosed property, so take your time. Seek professional opinions from those in the industry and from those that know your local community. Their help will be invaluable.
That said, there are plenty of opportunities available in the marketplace. Purchasing a foreclosed property can have many advantages over new construction, but quite simply, the key financial advantage of obtaining a bankrupt property is that the assets being purchased are normally well undervalued, especially if the market is ready for a new carwash.
Additionally, banks that have been holding these toxic properties for months (sometimes years) have incentives to move them to the “plus” column. But be careful; insist on a thorough title search as there may be many lien holders in the wings wanting their piece of the pie.
Despite what you may hear in the press, banks have plenty of cash to loan if the deal is right, including the Small Business Administration (SBA). For the SBA, even though it may have “lost” money due to a previous foreclosure, it will lend again on the same property!
If you have a sound borrowing-payment history, insist that lenders compete for your business. Sell them on your proven ability to thrive in a poor economy. Banks love a winner, and in the end, you’ll find the final appraisal will likely put you in a positive equity position — equity that may help fund new equipment, modernizations or even cash flow.
Dealing with foreclosed properties is really no different than with new construction. Having a personal relationship with the local government officials responsible for approving your concept is critical. This can be even more important with older sites. “It’s a carwash now, why does it have to be rezoned?” This is a question we found ourselves asking when considering our new location. Bottom line, use the following hard and fast rule: “Don’t Assume Anything!”
Make sure you thoroughly understand what the often “intentionally ambiguous” local zoning rules will require and when. In our case, in addition to being rezoned, significant changes to local building and architectural codes had been made since the old store was built in 1997, many necessitating significant cost.
For example, the exterior facade was changed from cinder block to stucco-rock with a cornice ($200,000) and new street light requirements ($20,000). Fortunately, we did not have to reconfigure the storm water detention