Four Corners Property Trust Adds Car Wash Properties to Its Net Lease Holdings

A heightened demand for car washes can be attributed to a growing population, increased car ownership, and a focus on vehicle maintenance and appearance.

As a result, lenders have recognized the potential profitability of car wash investments, leading to an uptick in lending activity, Matt Marlin, Vice President, Debt & Equity, SRS Real Estate Partners National Net Lease Group (SRS), tells GlobeSt.com.

And despite experiencing notable volatility, buyers and owners continue to secure long-term financing for car wash assets.

“The demand for car wash services has steadily grown, generating greater interest in investing in car wash properties,” Marlin said.

Last week, Four Corners Property Trust acquired nine car wash properties for $40 million from a top five operator via a sale-leaseback.

The properties are in strong retail corridors in Florida, Indiana, Louisiana, Ohio, Oklahoma, and South Carolina.

They will be corporate-operated under a long-term, triple-net master lease.

Bill Lenehan, CEO of FCPT, said this was FCPT’s first major acquisition in the car wash space.

Car wash properties, along with certain gas stations and convenience stores, saw the highest cap rate spikes in Q1, GlobeSt.com recently reported.

Their 80% bonus depreciation rate is available in the first year of purchase, making them attractive to investors that were already interested in the single tenant net lease asset class.

Those sectors were part of a steady rise in cap rates across the board, according to a recent report by B+E. Car-wash cap rates rose by 49 basis points between Q 24022 and Q1 2023 to sit at an average 5.77% cap rate.

More Firms Financing Car Wash Deals

Marlin, though not involved in the FCPT deal, said SRS has arranged financing for car washes through banks, credit unions, and life insurance companies (Life Co’s).

“Compared to five years ago when only a few groups provided capital for non-owner-user transactions, we are witnessing a growing number of capital providers for both owner-user and non-owner-user transactions,” he said.

Marlin said the value of the car wash market has increased primarily due to operators’ continuous growth and improvement of their balance sheets.

“Consequently, many tenants have gained stronger creditworthiness in the eyes of lenders,” he said. “Car washes were priced more expensively by lenders than other assets a few years ago.

“However, today, they have the potential to receive more aggressive pricing than other retail properties due to the strength of the operators and the long-term leases they are signing. We are actively closing car wash deals with interest rates ranging from high 5% to low 6%.

Car washes are typically considered “special purpose” properties, leading lenders to be more conservative when determining the maximum LTV they can provide, Marlin said.

“The increase in interest rates over the past year and the low cap rates demanded by car wash assets have resulted in a decrease in the maximum LTV for these properties,” he said.

“Lenders evaluate maximum loan proceeds based on the cash flow generated by the asset, which can be used to service the debt payments. On average, this results in a maximum LTV of approximately 50% to 60% for most car wash acquisitions.