Goldman Sachs predicts drop in commerical real estate valuations

[Greg Pack]

Something to consider before you sign on the dotted line:

http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080205/REG/321136649/1028

 

[vinh]

Does buying or selling at 4 to 5 times Gross change?

Greg that is a very interesting article.

I am in processes of putting my 3+1 for sale and then buying an 8 bay SS for my father. I was going to to try to sell and buy at around the 4 to 5 x gross range. Does the senior guys who have been in carwash business > 10 years who went through the housing market crisis of early 80s and 90s see the same buying and selling ratio (4 to 5 time gross) or does the ratio goes down to say 3 to 4 time gross?

 

[Greg Pack]

Hi Vinh, long time so see. I guess you've been busy with your other job.

I think the multiples still work OK. Maybe even better if commercial loan rates are dropping. Although personally I don't think I'll pay 5X gross for a wash unless it is a like new high volume, good area location( 250K plus gross) , and I consider that " absolute top dollar". I like 4X gross a lot better. And depending on how low the revenue is, 3X gross is still called for in lower volume washes. It has less to do with % of ROI and actual dollars left at the end of the year. I guess what I'm trying to say is in actual dollars I would rather earn 10% on a 1 mill investment than 15% on a 250K investment. Does that make any sense?

I guess I posted this for people who are buying or developing commercial real estate. I think we are in for a bit of a slowdown and it might not be a good time to pay $20/sq ft for property,especially if commercial real estate is going to take a hit. As you know we've had a tough three months here and the people that paid too much for their wash and/or are over leveraged are really hurting.

Stop by and visit when you have a chance.