Seller and Buyer Expectations?

[TXCW]

I know every situation is unique, but brokers I speak to tell me that current EBITDA multiples of a value of business and real estate on an express model are not trading for higher than an 8x. They say this is in response to current interest rates and increased competition. However, other operators I speak to off-market still look to negotiate at 10-12x.

I'm curious to hear thoughts on what justifies one or the other.

 

[HeyVern]

With the state of the economy right now, everything is in flux. A lot also depends on the market you are in, valuations will be higher in markets that are not yet saturated with washes. Also, if your wash is not on the market and you are approached about selling you can demand a higher multiple simply because you aren't looking to sell.

 

[Axxlrod]

I'm still hearing about high multiples here in CA, but that is probably due to the land value here. They were as high as 15x a few years ago, but now 10 - 12x is more common. No idea about other states. But that is for well designed and run express washes. For site that aren't top-notch, they seem to be sitting on the market much longer now.

 

[Greg Pack]

A regional chain in my part of the Country is building car washes, then before they are even finished listing them for sale on loopnet and proposing to the purchaser signing leaseback agreements. Asking price was a 5.5 cap rate. They were probably making close to 2 million profit before the wash even opened. Apparently some people with money sitting in the bank earning almost nothing thought owning a special purpose property and getting a 5.5% return was a good idea. That's what happens when interest rates get artificially pushed down for so long. Many real estate deals made sense when interest rates were lower but now they don't pencil out. Right now I can get 5% plus in a money market fund holding US securities with almost zero risk. With interest rates higher, investors are going to demand a higher return for all investments, which means prices should drop from what they were a couple years ago (at least in theory.) When interest rates drop it might make sense again to pay higher prices but I think we've seen peak valuations for a while. The one guy I know that is a express buyer says multiples have dropped, but they are still buying like there's no tomorrow.