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Gas Station Valuation: Distinguishing the Real, Personal and Intangible Property
Appraisal Institute Annual MeetingIndianapolis, Indiana
July 24, 2013
Michael F. Kurschat, ASA, M.S.F., MAIKurschat & Company,
2075 W Big Beaver, Ste 222, Troy MichiganPhone: 248-816-9166
Contact Information Michael F. Kurschat, ASA, M.S.F., MAI
2075 W. Big Beaver, Ste 222, Troy, MI 48084
Phone: (248) 816-9166 [email protected] www.Kurschatco.com
Speaker’s Background Michael F. Kurschat, ASA, M.S.F., MAI
Appraiser, 25 years President, Kurschat & Company, with 4 other appraisers Bachelors Degree In Business Administration Masters Degree Finance Past President of the Detroit Chapter of ASA Appraisal experience: Mortgage Financing, Condemnation,
Litigation support, Tax Appeal, Estate/Gift Tax Wide Variety of Property types: Shopping Centers, Industrial,
Apartments, Offices, Development Property, Specialties Expert Witness Testimony, Circuit Court, Tax Tribunal Purchased, leased and sold commercial shopping center
property
Speaker’s Background Michael F. Kurschat, ASA, M.S.F., MAI
Appraiser, 25 years Kurschat & Company, Troy, MI Bachelors Degree In Business Administration Masters Degree Finance Past President of the Detroit Chapter of ASA Appraisal experience: Mortgage Financing, Condemnation, Litigation
support, Tax Appeal, Estate/Gift Tax Wide Variety of Property types: Shopping Centers, Industrial, Apartments,
Offices, Development Property, Specialties Expert Witness Testimony, Circuit Court, Tax Tribunal Purchased, leased and sold commercial shopping center property Cub Scout Den Leader, Caught a 27” Northern Pike Computer Skills - Performed several “fdisk.exe” operations I Invented the Internet
Detroit, Michigan
Yes, Detroit just filed for bankruptcy, making it the largest municipal bankruptcy in US History.
Professional group, we’re talking about gas stations, not politics.
Some of those gas stations are in Detroit.
Overview1. What’s There
a. Physical Characteristicsb. Traffic Count/Competition
2. Classifying Ita. Real Propertyb. Personal Propertyc. Intangible Propertyd. Going Concern
3. Methodology for Valuationa. Income Approachb. Cost and Sales Comparison Approaches
4. Data and Cases
What’s TherePhysical Characteristics
Convenience Store Fast Food Sales/Seating Lighted Canopy and Dispensers Underground Storage Tanks
Bare Steel, with Cathodic Protection – Least DesiredFiber Coated Steel Double Wall Fiberglass – Most Desired
Car Wash
What’s ThereLocational Characteristics
Trend toward High Traffic IntersectionTraffic Count – Cars/Day, Typically from County Source
Corner – Count two Roads Divided Highway
Effective Traffic Exposure, Typically half of Far Side of Road
Freeway Interchange LocationTypically a “wildcard” in evaluating location
Locational Characteristics
CompetitionSummarize superior or inferior stations in area – x mile radiusNumber of Competitors Rating of Competitors - Quality
Brand and Market Strategy of CompetitorsSam’s Club Gas, Kroger Gas, Speedway Loyalty Programs
Classifying It – Defined Tangible Property Intangible Property Personal Property (Tangible and
Intangible) Going Concern (or not?)
Tangible Property
Defined: Property that can be perceived with the senses; includes land, fixed improvements, furnishings, merchandise, … and other items of working capital used in an enterprise.
The Dictionary of Real Estate Appraisal, 5th Ed., Appraisal Institute
Real Property Personal Property
Intangible Property
Nonphysical assets, including but not limited to franchises, trademarks, patents, copyrights, goodwill, equities, securities, and contracts as distinguished from physical assets such as facilities and equipment. (USPAP 2012-2013)
Intangible Property – Examples (gas stations) Customer Relationships Non-Compete Agreements Franchise Agreements Trade Name / Trademark Assembled Workforce Liquor License Other Goodwill
Real Property
Real Property: The interests benefits, and rights inherent in the ownership of real estate. Sounds like the Intangible aspect, but NOT
Real Estate: an identified parcel or tract of land, including improvements, if any. (USPAP 2012-2013)
Sounds more Tangible aspects - Physical
Fixture
An article that was once personal property but has since been installed or attached to the land or building in a rather permanent manner so that it is regarded in law as part of the real estate. The
Dictionary of Real Estate Appraisal, 5th Ed., Appraisal Institute
Is It Real Property or Personal Property? Plumbing Fixture – Real or Personal?
Trade Fixtures
Articles placed in or attached to rented buildings by a tenant to help carry out the trade or business of the tenant are generally regarded as trade fixtures. The Dictionary of Real Estate Appraisal, 5th Ed., Appraisal Institute
Personal Property
Identifiable tangible objects that are considered by the general public as being “personal” - for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate.
(USPAP 2012-2013)
Mike’s TOP 10 List of personal property for a gas station
1. Fountain Drink Dispenser (24)2. Cash Registers / Checkouts (19)3. Gondola Shelving (12)4. Coffee Maker / Coffee dispenser (11)5. Ice Maker (10)6. Carbonator and tanks(9)7. Slush Machine (8)8. Movable tables/chairs (7)
Intangible Real Property
Nope. Real Property is always classified
as a tangible asset by the real property discipline.
Does that make the most sense?
Tangible Property
Real PropertyPersonal Property
Intangible Property
Fixtures, Building,
Land, Site Improvements
(Permanently attached)
Trade FixturesFurniture,Movable things
(Chattel)
Patents, Contracts,
Trained and assembled workforce,Copyrights,
Interests: Leased Fee, Fee simple, leasehold,
easement, etc…
Real – Personal – Intangible 1 acre of land Convenience Store Building A Brick A Trained and Assembled Workforce Car Wash Building Toilet/Sink Liquor License Walk-in Cooler
Real – Personal – Intangible
Light Pole Compressor lines Canopy Car Wash Blowers Brushes 10,000 gallon underground fuel tank Plumbing for toilet
Real – Personal – Intangible
Piping for dispensers Furnace Fuel Dispensers Traffic Count Sign Branding Established client base
Going Concern
A business having the ability to continue functioning as a business entity into the future. The Dictionary of Real Estate Appraisal, 5th Ed., Appraisal Institute
Composed of a mixture of Real, Personal, and Intangible Assets
Three-Legged StoolThe whole is not necessarily the sum of the parts.
Going Concern
Valuation of a Going Concern
When is it appropriate to value of the real estate only?
Estate tax return? Property tax assessment/appeal? Mortgage financing? These issues need to be resolved at
the time of engagement with the Client.
Examples – Going Concern “Valero” gas station, 4 dispensers,
high traffic intersection, with convenience store.
BP Station, 8 dispensers, car wash, freeway interchange.
BP Station/McDonalds, 8 dispensers, freeway interchange near theme park.
Urban gas station with liquor license.
Valuation
Income Approach Gasoline Sales Convenience Sales Other: Car wash, liquor, fast food
franchise, rental units Sales Comparison Approach Cost Approach
Income Approach
Gasoline Sales Traffic Count Multiplier =
Gallons/Mo divided by Traffic Count
Dependent upon Competition Compare with the subject Weigh reliability of the subject’s
sales information
Compare with Average Price
http://www.eia.gov
Comparable Income In. Traffic Ct Competation Store Gallons Store Traffic StoreNo Comp # per day SF per mo Sales Mult Sales/sf
1 9-064 59,518 Low/Avg. 2,139 140,796 $60,013 2.37 $28.062 0-003 31,638 Avg./High 1,270 96,170 $51,430 3.04 $40.503 0-024 46,846 Avg./Low 1,675 146,545 $71,894 3.13 $42.924 0-031 42,580 Avg/Low 4,836 170,000 $90,000 3.99 $18.615 0-048 27,200 Low/Avg 1,344 160,000 $92,956 5.88 $69.166 0-065 44,264 Avg./High 1,350 71,677 $24,080 1.62 $17.847 0-079 54,902 High 1,653 91,278 $56,614 1.66 $34.258 0-098 31,055 Average 1,153 55,000 $40,000 1.77 $34.699 1-005 48,012 High 1,347 53,000 $55,000 1.10 $40.83
Subject 61,024 High 1,465 105,000 1.72
Average $42,891 1,863 109,385 $60,221 2.73 $36.32Median $44,264 1,350 96,170 $56,614 2.37 $34.69
Gasoline Margins Margins are based on area competition Check margins based on gas prices Analyze subject’s income statement for actual
margins for the subject BEWARE – how are sales taxes reported
Often shown as “overhead”, should be Cost Of Goods Sold, results in inflated margin.
Reliability of “Cash Business” Science vs Art
Income Approach- Convenience Sales
Sales/SF store area Compare with actual sales Beer/Wine/Liquor Prepared foods Margins and Industry Norms Services – ATM, Check Cashing, etc.
Compare Actual Margins To Standards for the industry
Items
Revenue
Cost of Goods
Gross Margin
%
Cigarettes/Tobacco $101,372.37 $73,035.17 $28,337 28% Beverage 51,600.56 33,379.20 18,221 35% Lottery 8,590.20 6,242.64 2,347 27% Candy 15,628.86 9,376.77 6,252 40% Chips 7,531.55 4,569.31 2,962 39% Fountain 2,584.36 529.11 2,055 80% Coffee 17,177.69 9,414.12 7,764 45% Groceries 16,175.14 10,689.92 5,486 34% Milk/Dairy 6,311.18 5,525.34 786 12% Auto Oil 11,982.32 6,163.65 5,189 49% General Merchandise 4,386.17 3,962.30 424 10% Fast Food 10,997.36 8,628.64 2,368 22% Car Wash 42,661.85 6,222.27 36,436 85% Totals
$296,998.00
$177,738.00
$119,260
40%
Income Approach – Summary of Gross Profit Gallons x Margin
= Gross Profit Fuel Sales/SF x SF X Margin
= Gross Profit Store
Income Approach - Expenses
Fixed Expenses – Property Taxes Variable Expenses – Most others Credit Card Fees, 2.5% to 3% of
credit card sales Amount of Detail – subjective
requirement
Develop NOI
Income Approach – Credit Card Fees
Annual SalesGal 67,334 808,008Price $3.85 $3,110,831C store, other/mo$131,245 $1,574,940%credit card 50.00% $2,342,885charge 2.50% $58,572.14Total Charges $58,572.14
Extracted Overall Cap Rates
Extract from sales where sales and margins are available
EXPENSES – Calculate using same methodology.
Consistency, equilibrium, balance in the universe
Sample Extracted Cap Rate
Annual Income 80,000 /mo gal fuel $0.08 $76,800
$45,000 /mo C-Store 30% $162,000 Total Gross Profit $238,800 Expenses Real Estate Taxes $9,900 Bank Charges $38,040 Variable Exp (25%) $59,700 Management (10%) $23,880 Total Expenses $131,520 NOI $107,280 Cap Rate: $107,280 NOI = 13.41% $800,000 Price
Sales Comparison Approach Sale Allocations – goodwill/covenants Unit of Comparison
Price per SF of What? Preferred method is total price Comparison Factors for adjustments
Land size / Dispensers Building Size Traffic Count Competition Sales Volume
Cost Approach
Improvements Building Tanks, dispensers, piping
Site Valuation Size, Frontage, corner location Traffic Count – Typically from County
Road Commission Competition
AllocationReal, Personal, and Intangible
Personal Property – Depreciated Cost Approach, or Sales Comparison
Intangible Assets – based on Contribution, or sales (when available)
Example of Liquor License Selling at $100,000 Contributes $150,000
AllocationReal, Personal, and Intangible
Example of Liquor License Selling at $100,000 Contributes $150,000
How should it be allocated? For a Mortgage Appraisal For a Divorce Settlement? For Property Tax Assessment? Does it matter?
Special Situations
Fast food lease Car Wash Gift Shop Diesel Fueling Stations The Jerky Outlet Leased Facility
Sources of Data
US Dept. Of Energy - Historical Gasoline Prices
State Dept. of Environmental Quality – tank information
County Road Commissions – Traffic Counts
Wholesale Gasoline Prices: OPIS opisnet.com