Passive Express Car Wash Investments
Over the past 18 months, our team has been heavily researching and investigating a new, exciting passive real estate investment asset class: Express Car Washes. Behind the scenes, our goal is to be continuously searching for new real estate assets for our passive investors to continue to enjoy capital preservation, consistent cash flow, and significant capital appreciation.
Cash Wash Industry Statistics
The car wash industry market size in 2020 was $27.8B and is projected to have an annual growth rate of 3.8% (source: Grand View Research, 8-2021) across all 3 major car wash types.
There are three major car wash types: express tunnels, roll-over/in-bay automatic, and self-service. The express car wash tunnels offer the most profit potential with easier scalability due to the lower maintenance and lower payroll burden. There is also an opportunity to convert existing self-service or roll-over/in-bay automatic facilities into the express car wash model.
The growth rate of 3.8% is an average growth rate across all 3 car wash types with the express car wash model growing at a much faster clip.
Most car wash owners are smaller, mom-and-pop operators with 1-5 locations. This provides us an opportunity to acquire these types of assets and grow a regional footprint to improve operations with economies of scale. These economies of scale include bulk purchasing of certain supplies including car wash chemicals and payroll optimization.
In addition to the smaller 1-5 asset portfolios, we will also be looking to acquire larger corporate chains as we continue to grow in the 10-20 location size.
There are a handful of large operators in the car wash industry including Mister Car Wash, Zips Car Wash, International Car Wash Group, and Autobell Car Wash. Most of these larger operators are operated by deep pocketed private equity groups. We want to disrupt this space by syndicating these express car wash businesses with private, accredited investor capital to help reduce the institutional buying and allow you, our passive investor, to earn massive returns like these private equity groups.
Our goal is to be within the top 10 car wash operators in the USA by the end of 2023. This means we need to acquire approximately 50-75 locations.
Car Wash Consumer Trends
According to the International Car wash Association (ICA), most Americans prefer to have someone else wash their cars. This trend has been growing for the past several decades. From 1996 to 2014, people who chose to wash their car at home vs a car wash facility declined from 52.4% to 28.4%. During that same period, people who chose to wash their car at a professional facility grew from 47.6% to 71.6%. This number grew to 77.0% in 2019 and is projected to continue to steadily increase.
The Car Wash Management Hurdle
One of the challenges with acquiring and owning express car washes, is that there is no third-party property management company that will manage the facility like we have for our multifamily and self-storage assets. The lack of an “easy button” for operators to acquire assets, like a third-party management company, is what causes most operators to shy away from this asset class.
We believe this opportunity is too good to pass up based on the return potential for you. Our team is in the process of building out an express car wash management team which will include positions in finance, operations, maintenance, human resources, supply chain, regional management, etc. Yes, this has been a lot of work for us to assemble but this shows how much we truly believe in this asset class.
Normally, it doesn’t take us 18 months to navigate a new asset class, like I stated earlier, but we wanted to make sure we had all the pieces in place prior to launching a new asset class.
Potential Returns for Passive Investors
Express car washes have a tremendous amount of opportunity to provide consistent cash flows and growth through improving operational inefficiencies and marketing optimization.
Based on our initial underwriting and analysis, as a passive investor, you can expect to receive projected annual cash flows in excess of 10% cash-on-cash and over 25% annualized return. When our team saw this potential for outsized returns, we started researching and learning more about the industry to ensure we pursue the best options for the highest returns for you.
Our Exit Plans for the Express Car Wash Offerings
The exit plan for these assets will not be our typical buy and hold for 5 years and then sell to another investment group. Our goal is to acquire 100-150 express car wash locations throughout the USA and then either sell to a larger private equity group for a healthy 8-10 multiple based on the EBITDA or go public with our chain of express washes. Top-line revenues in excess of $100mil annually allow for the attractiveness of having an IPO which could potentially provide for a much larger equity multiple in the 15-20x range.
The IPO would also allow us to have additional capital to continue to expand into more markets and to eventually be the leader in the space over the next 7-10 years as more capital becomes available to scale quicker through mergers and acquisitions.