Real estate investors looking for a safe place to park money might consider the humble car wash. The sudsy byproduct of the automotive age had by 2021 become an unusually durable commercial real estate asset.
It is largely immune to the encroachment of the internet — unlike so much brick-and-mortar retail — and its leases run to the long side: 15 to 20 years usually, with rent coverage ratios at least two times earnings before interest, debt, depreciation, taxes and amortization (EBITDA).
These fundamentals, too, appear to be recession-proof, even when it came to a downturn spawned largely by a pandemic that kept Americans off the road in record numbers. What’s more, the fee-simple, triple-net leases that have become increasingly standard for car washes means little risk for landlords and lots of benefits, including through their taxes.
As more institutional money settled on car washes, these fee-simple, triple-net leases became the preferred ownership structure and a big reason for the industry’s durability as an investment. In a fee-simple, triple-net lease, an owner has total ownership with the tenant responsible for all costs, including maintenance. Owners can also claim depreciation to reduce taxable income — often accelerated depreciation, given the specialized nature of car washes. Rent increases are often baked into the deal, too.
Other car washes might operate under a triple-net ground lease — no fee-simple — which provides many of the same investment benefits, except the depreciation.