Car Wash NNN Properties For Sale
Commercial real estate investors who are interested in purchasing triple-net lease properties are often aware of the opportunities in the fast food and quick-service restaurants (QSRs) sector. Many have heard of dollar store and pharmacy investments – but there are a few common triple-net lease tenants that are often overlooked.
One major NNN lease player that doesn’t get the attention it deserves is car washes. The car wash industry continues to grow, and it is opening new locations at a rapid pace. With both multi-unit regional and national corporate operators, you’ll be able to experience investment stability and a high chance of profitability.
Car Wash NNN Properties Overview
Currently, car wash triple-net lease properties that are listed for sale offer an average cap rate, or capitalization rate, of 5.77%. This figure assesses a real estate investment based on its profitability and return potential. Common alternative net lease investments, such as medical properties, pharmacies, and QSRs, typically offer lower average cap rates.
In other words, car wash tenants offer a higher potential for return on investment (ROI) than many other net lease options. Plus, the industry continues to grow and consolidate. While the car wash sector was once dominated by local operators, an influx of private equity investment has fueled consolidation that will yield more supply in the car wash triple-net lease market.
|Car Wash Triple-Net Lease Properties Overview
|Mr. Clean Car Wash, ModWash, Take 5 Car Wash, Zips, Tiger Express Car Wash
|Number of business entities
|Average NNN lease property cost
|Average cap rate
|Typical lease term
|15 - 20 years
|Average lot size
|1.0 - 1.5 acres
|Highly trafficked retail corridors in urban and suburban locations
Common Car Wash NNN Tenants
Some of the most common car wash NNN lease tenants include entities like Mr. Clean Car Wash, Zips Car Wash, Splash Car Wash, Tommy’s Express, Wash Depot, and more. There are numerous car wash brands, but they become more and more consolidated each year as PE (private equity) money enables buyouts from local owners of just a few locations.
These tenants typically have similar requirements when it comes to location. All of them look for locations in urban and suburban areas that get high amounts of passing traffic each day. Some prefer to have room for a parking lot so that they can offer additional DIY services such as vacuuming and detailing. They will usually want easy ingress and egress as well.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
Net leases and gross leases are typically considered opposites – but for commercial real estate investors, there are many benefits when it comes to opting for a net lease instead of a gross lease.
So what’s the difference? A gross lease means that a tenant will pay a predetermined amount to use a space. That rent figure will not change based on operating expenses, since landlords generally cover operating costs under a gross lease. Net leases, on the other hand, allow landlords to hand off various levels of operating expenses to their tenants.
There are three tiers of net leases: single, double, and triple. They are also known as N, NN, and NNN leases. Each increasing level allows the landlord to pass additional expenses onto the tenant, absolving themselves of more and more risk as the tiers increase.
Single-net leases (N leases) pass property taxes over to the tenant in addition to the cost of rent, but the landlord remains responsible for insurance, maintenance, repairs, and utilities. Single-net leases are less common for commercial real estate. Double-net leases (NN leases) and triple-net leases (NNN leases) are much more frequently used.
What Types of Net Leases Are Common in the Car Wash Industry?
Many car wash tenants will sign ground leases with lengthy primary terms ranging from 15 to 20 years. Some of these tenants will invest in constructing built-to-suit structures, which then become the property of the ground lease owner at the end of the lease. When tenants make that level of investment, they’re even more likely to stay in a location.
Car wash tenants typically use NNN leases, also called “triple-net leases.” NNN leases hold tenants accountable for operating expenses and other costs related to the property. These can include insurance premiums, property taxes, and bills for maintenance or repairs.
While these leases often allow tenants to pay a lower base rent (because they’re responsible for so many operating costs), they remain attractive. That’s because using triple-net leases means the landlord has to manage fewer ownership responsibilities, making the investment more passive for savvy commercial real estate investors.
How to Evaluate a Car Wash Net Lease for Sale
No matter what industry you’re considering, it’s crucial to evaluate both tenant strength and property value when signing an NNN lease. Most car wash tenants look for urban and suburban locations along highly trafficked retail corridors. High visibility is also a plus, and proximity to other businesses as well as room for parking are all major value-adds.
Meeting these criteria will help ensure that your tenant does not default on the lease. When your tenant succeeds and continues renting your property, you profit, too. But if your car wash tenant leaves, you’re left with a built-to-suit space that’s challenging to fill.
Luckily, most car wash tenants are growing companies with ever-improving balance sheets. That means you’ll receive your payments on time each month, and you won’t have to go chasing down non-investment-grade tenants to get your money.
What Makes Car Washes an Attractive Industry for NNN Leases?
The car wash industry continues to grow, with an estimated market size of $15.21 billion in 2022 that is expected to grow to $15.86 billion by the end of 2023. By 2030, that number is expected to grow to as much as $23.79 billion. In other words, Americans are getting their cars washed in droves.
In fact, as many as 66% of Americans get their cars washed twice per month. That means that car wash triple-net leases can yield repeat customers as long as the property adheres to the company’s desired specifications in terms of traffic, parking, visibility, and more. The key to maintaining a profitable car wash NNN lease is choosing the right property to invest in.
How Do Car Wash NNN Properties Compare to Others?
With a higher-than-average cap rate, car wash properties can outpace the returns that commercial real estate investors might see on other common NNN investment options like gas stations, fast-food restaurants, or auto parts stores. They are attractive in that they tend to use long-term NNN leases, meaning that the lessee will be held responsible for property taxes, repairs, and more in addition to the cost of the rent.
That means that landlords and triple-net lease investors will be able to accrue more consistent revenue from their car wash investment properties. Plus, over 90% of consumer households in America own cars and the number of cars on the road continues to increase – so the car wash industry is predicted to see success for years to come.