Possible Northern Alberta Truck Wash

We may have the opportunity to develop a building in Northern Alberta into a Semi-Truck Wash. This building is approximately 120 feet deep and 100 feet long. Currently the building is a multi-tenant industrial building which is over 50% vacant and is in dire need of exterior repair and development.

The major upgrades required for the outside would include paving of the remaining site at a cost of $150,000 and landscaping at $25,000. The majority of the exterior of the building is adequate and would simply require a reworking of the exterior signage and beautification of the grounds. The total of the external upgrades including permitting, fees, and soft costs is estimated at $200,000.

The interior would be demised as 4 25'X60' Bays (1500 square feet) and two are currently rented. Currently it is estimated that the gross lease rate for these leases are in the vicinity of $4-$6.00 per square foot. An average of $5.00 per square foot is used in our calculations (below). The remaining interior bays would be developed into two high quality self service commercial vehicle bays. The area averages $7.00 per square foot for a sub-prime location and upwards of $15.00 per square foot for prime locations.

Each bay would require two pump stations as well as catwalks, see-through plastic doors, upgrades to the sumps and motors, interior beautification, rebranding, and the development of an office space for timed washes and vending products. Interior upgrades of this nature are estimated at $150,000 for the two bays, and an additional $25,000 for the office area.

Total upgrades required for this location would be $400,000. Assuming the location can be purchased for $500,000 - $300,000 would be required in equity, leaving a $600,000 mortgage. Triple net income of $5.00 per square foot for 4 X 1500 Square feet yields $2,500 per month - enabling a quality truck wash operator the capability of break-even around $14,000 per month in income.

This equates to 10 washes per day at $50 per wash ($1 per minute) or 30% occupancy. A typical rural car wash will achieve 10-15% occupancy in it's first year, ramping up to 30% or better in 3 years time. Better returns may be had with the use of a Truck Automatic - which would raise costs by $200,000 - but could be used in only one bay with very minimal staff.

Under such a scenario - the total cost of upgrades (interior, exterior, vending area, and equipment) would be approximately $450,000 for one bay - yielding a total cost for the development of $950,000 and enabling an additional bay to be rented. Thus 6 x 1500 square foot bays each rented at $5.00 per square foot would yield $45,000 in annual income. The same $300,000 can be used as equity in this case yielding an annual break-even on the truck wash component of $10,000 per month or 7 washes per day at an average cost of $50 per wash. The large advantage to this system would be that each $50 wash would only take 20 minutes thus decreasing the occupancy to 16% for a normal 14 hour day. However, keeping in mind that this system can effectively operate 24 hours per day (Virtually unmanned) the actual occupancy will be much closer to 9.7%. At 20% occupancy (24 hour day) the gross income from the truck wash alone is greater than $20,000 per month - over $10,000 in profit per month.

Bear in mind that there are alot of assumptions involved in this project - which makes me lean closer to renting each bay out and treating the whole thing as an income property. In that case, the total cost of the development would be $200,000 for the exterior upgrades + $50,000 for interior upgrades + $500,000 for the building = $750,000. Equity would be $250,000, yielding a $500,000 mortgage.

Based on $5.00 per square foot in income for 8 x 1500 square foot bays total annual income is $60,000. The building at this rate is only worth $600,000 - and would only cashflow $10,000 or so per year with a 20 year loan at prime plus 2.00%. However, if the building could be purchased for $250-300,000 the project would become much more worthwhile. At $300,000 plus $250,000 for upgrades the equity requirement would be $150,000 - yielding a loan of $400,000. Cashflow from this development would then be closer to $25,000 or a 17% return.

So the conclusion I have for this development is for 6 x 1500 square foot rental bays producing $45,000 per year in income coupled with a truck wash automatic requiring 7 washes per day at $50 per wash to break even. Yes, the costs are higher at the front end $950,000 for only one automatic bay versus $900,000 for two truck bays - but the upside potential is much more lucrative: at 15% occupancy the project is producing almost $10,000 in income based on a 14 hour day ($16,000 based on a 24 hour day) and has broken-even (or made $6,000 profit on a 24 hour day) with slightly less than 7 washes per day versus two truck bays producing $7,600 based on a 14 hour day with a break-even of $14,000 for the project - which equates to a monthly loss of $6,400 with 5 washes per day between the two bays and staff onsite at all times.

The largest advantage to the automatic is the minimal staffing required - we could potentially use some of the staff at a nearby location to clean the place after thier shifts, coupled with the fact that the building itself already attracts commercial traffic, has a UFA cardlock across the street, and would still allow us to develop a nearby location to it's fullest potential.

Well, here's to the future.