Auto Lube Facilities-Methodology

[Stan Carman]

I am appraising an Auto Lube Facility here in South Carolina. I am having a hard time gettng my arms around the Sales Comparison Approach. I have tried to look up comps on Loopnet, and have sent out e-mails to our local AI Chapter. Overall, the sales data would tend to indicate a range from $150/SF to $250/SF. We have a lease in place for this facility that would show the Income Cap Approach at near $375/SF. We have considered taking out the land values and still have the huge discrepency. The equipment was actually sold to the lesee for $50,000 in the rent transaction. That takes that out of the picture. I understand that these things are somewhat like fast food reststaurants in that they sell the flag (1031 deal). Unfortunantly, that should be the same for the market data.

The leases that we have tend to support the Income Approach well. Has anyone else ever encountered a similar issue or completed a similiar situation. We are close to calling our client and letting them know that the Income Approach is the only approiate method and wanted to make sure we were not missing out on a critcial element that would not support our scope conclusion. Any help would be appriciated!

 

[PropertyEconomics]

I find in these facilities its difficult to separate out realty from business value. I have also noticed in my market MANY of these facilities have closed and now remain vacant. Just thoughts.

Without sales where will you get your cap rate?

 

[Stan Carman]

I am assuming a general cap rate from Korpaz at this point. That is a good question! Any suggestions?

 

[PropertyEconomics]

I am assuming a general cap rate from Korpaz at this point. That is a good question! Any suggestions?

I think the real issue is how to separate the realty from the business and what rate is appropriate. I dont think national rates are best used on properties like this because they are typically very general and not as specialty as your property is.

Im trying to lead you to a conclusion that I hope you get here in a moment.

 

[Financially Feasible]

Is Loopnet your only comp database? Do you have Co-Star? Also, have you tried calling various auto-lube companies and seeing if you can get any sales from them? I think that more digging for the SC approach is needed here. You might find a lesser discrepancy if you have more sales to work with... maybe... :icon_mrgreen:

 

[Financially Feasible]

I dont think national rates are best used on properties like this because they are typically very general and not as specialty as your property is.

PE - that is OUTSTANDING advice.

 

[Stan Carman]

I know this is crazy, but, in this facility it has basement (Pitt area). Given the fact that there is production (oil changing) done in this area would it be considered low quality square footage?

 

[PropertyEconomics]

There is no floor above it Stan. And the cost is higher than that of typical slab space since it has to be dug out.
Additionally, its necessary for the facility to operate. If your comparables all had the same space, the issue of its quality shouldnt be of concern.

Question .. Is your assignment to appraise the property giving a "value in use"?

 

[Stan Carman]

Is Loopnet your only comp database? Do you have Co-Star? Also, have you tried calling various auto-lube companies and seeing if you can get any sales from them? I think that more digging for the SC approach is needed here. You might find a lesser discrepancy if you have more sales to work with... maybe... :icon_mrgreen:

We have searched over 30 counties over our 3 state area and were unable to find comps that high. I have also sent out a general message to our local AI chapter and only recieved comps less than $250/SF. That is why I am wondering if it is a SF issue.

PE-I was under the impression that these things sold with a leased fee intrest. I am not sure what business value you are talking about--it is not a national credit tenant (i.e. Jiffy Lube). It does have a flag of an oil company, but, it is leased and ran much like a fast food company that owns the rights to the franchise. The flag mostly just puts the name of one of our fine oil companies on the building (customers believe they are a national brand they can trust to put the oil cap back on).:new_all_coholic:

 

[Financially Feasible]

You may have a serious going concern and/or H&BU issue(s) here.

Are there other types of businesses which command the rents that the auto dealership is getting? Would the current improvements of the subject lend themselves to conversion to those other types of businesses?