Gas Station Valuation:
Distinguishing the Real, Personal and
Intangible Property
Appraisal Institute Annual Meeting
Indianapolis, Indiana
July 24, 2013
Michael F. Kurschat, ASA, M.S.F., MAI
Kurschat & Company,
2075 W Big Beaver, Ste 222, Troy Michigan
Phone: 248-816-9166
Kursuchat@kurschatco.com
Contact Information
Michael F. Kurschat, ASA, M.S.F., MAI
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2075 W. Big Beaver, Ste 222, Troy, MI
48084
Phone: (248) 816-9166
kurschat@kurschatco.com
www.Kurschatco.com
Speaker’s Background
Michael F. Kurschat, ASA, M.S.F., MAI
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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
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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
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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.
Overview
1.
What’s There
2.
Classifying It
3.
Methodology for Valuation
4.
Data and Cases
a. Physical Characteristics
b. Traffic Count/Competition
a. Real Property
b. Personal Property
c. Intangible Property
d. Going Concern
a. Income Approach
b. Cost and Sales Comparison Approaches
What’s There
Physical Characteristics
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Convenience Store
Fast Food Sales/Seating
Lighted Canopy and Dispensers
Underground Storage Tanks
Bare Steel, with Cathodic Protection – Least Desired
Fiber Coated Steel
Double Wall Fiberglass – Most Desired
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Car Wash
What’s There
Locational Characteristics
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Trend toward High Traffic Intersection
Traffic Count – Cars/Day, Typically from County Source
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Corner – Count two Roads
Divided Highway
Effective Traffic Exposure, Typically half of Far Side of Road
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Freeway Interchange Location
Typically a “wildcard” in evaluating location
Locational Characteristics
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Competition
Summarize superior or inferior stations in area – x mile radius
Number of Competitors
Rating of Competitors - Quality
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Brand and Market Strategy of
Competitors
Sam’s Club Gas, Kroger Gas, Speedway
Loyalty Programs
Classifying It – Defined
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Tangible Property
Intangible Property
Personal Property (Tangible and Intangible)
Going Concern (or not?)
Tangible Property
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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
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Real Property
Personal Property
Intangible Property
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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)
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Customer Relationships
Non-Compete Agreements
Franchise Agreements
Trade Name / Trademark
Assembled Workforce
Liquor License
Other Goodwill
Real Property
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Real Property: The interests benefits,
and rights inherent in the ownership of
real estate.
Sounds like the Intangible aspect, but NOT
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Real Estate: an identified parcel or
tract of land, including improvements, if
any.
(USPAP 2012-2013)
Sounds more Tangible aspects - Physical
Fixture
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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
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Is It Real Property or Personal Property?
Plumbing Fixture – Real or Personal?
Trade Fixtures
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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
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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.
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4.
5.
6.
7.
8.
Fountain Drink Dispenser (24)
Cash Registers / Checkouts (19)
Gondola Shelving (12)
Coffee Maker / Coffee dispenser (11)
Ice Maker (10)
Carbonator and tanks(9)
Slush Machine (8)
Movable tables/chairs (7)
Intangible Real Property
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Nope.
Real Property is always classified as a
tangible asset by the real property
discipline.
Does that make the most sense?
Tangible Property
Intangible Property
Real Property
Personal
Property
Fixtures,
Building,
Land,
Site Improvements
(Permanently attached)
Trade Fixtures
Furniture,
Movable things
(Chattel)
Interests: Leased Fee,
Fee simple, leasehold,
easement, etc…
Patents,
Contracts,
Trained and assembled
workforce,
Copyrights,
Real – Personal – Intangible
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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
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Light Pole
Compressor lines
Canopy
Car Wash Blowers
Brushes
10,000 gallon underground fuel tank
Plumbing for toilet
Real – Personal – Intangible
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Piping for dispensers
Furnace
Fuel Dispensers
Traffic Count
Sign
Branding
Established client base
Going Concern
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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
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Composed of a mixture of Real, Personal, and
Intangible Assets
Three-Legged Stool
The whole is not necessarily the sum of the
parts.
Going
Concern
Valuation of a Going Concern
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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
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“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
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Income Approach
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Gasoline Sales
Convenience Sales
Other: Car wash, liquor, fast food
franchise, rental units
Sales Comparison Approach
Cost Approach
Income Approach
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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
No Comp # per day
1 9-064
59,518
2 0-003
31,638
3 0-024
46,846
4 0-031
42,580
5 0-048
27,200
6 0-065
44,264
7 0-079
54,902
8 0-098
31,055
9 1-005
48,012
Subject
61,024
Average $42,891
Median $44,264
Competation Store
SF
Low/Avg.
2,139
Avg./High
1,270
Avg./Low
1,675
Avg/Low
4,836
Low/Avg
1,344
Avg./High
1,350
High
1,653
Average
1,153
High
1,347
High
1,465
1,863
1,350
Gallons
per mo
140,796
96,170
146,545
170,000
160,000
71,677
91,278
55,000
53,000
105,000
109,385
96,170
Store
Traffic Store
Sales
Mult Sales/sf
$60,013 2.37 $28.06
$51,430 3.04 $40.50
$71,894 3.13 $42.92
$90,000 3.99 $18.61
$92,956 5.88 $69.16
$24,080 1.62 $17.84
$56,614 1.66 $34.25
$40,000 1.77 $34.69
$55,000 1.10 $40.83
1.72
$60,221
$56,614
2.73
2.37
$36.32
$34.69
Gasoline Margins
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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 ApproachConvenience Sales
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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
Beverage
Lottery
Candy
Chips
Fountain
Coffee
Groceries
Milk/Dairy
Auto Oil
General Merchandise
Fast Food
Car Wash
$101,372.37
51,600.56
8,590.20
15,628.86
7,531.55
2,584.36
17,177.69
16,175.14
6,311.18
11,982.32
4,386.17
10,997.36
42,661.85
$73,035.17
33,379.20
6,242.64
9,376.77
4,569.31
529.11
9,414.12
10,689.92
5,525.34
6,163.65
3,962.30
8,628.64
6,222.27
$28,337
18,221
2,347
6,252
2,962
2,055
7,764
5,486
786
5,189
424
2,368
36,436
28%
35%
27%
40%
39%
80%
45%
34%
12%
49%
10%
22%
85%
Totals
$296,998.00
$177,738.00
$119,260
40%
Income Approach –
Summary of Gross Profit
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Gallons x Margin
= Gross Profit Fuel
Sales/SF x SF X Margin
= Gross Profit Store
Income Approach - Expenses
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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
Gal
67,334
Price
$3.85
C store, other/mo$131,245
%credit card
50.00%
charge
2.50%
Total Charges
Annual Sales
808,008
$3,110,831
$1,574,940
$2,342,885
$58,572.14
$58,572.14
Extracted Overall Cap Rates
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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
$45,000 /mo C-Store
Total Gross Profit
Expenses
Real Estate Taxes
Bank Charges
Variable Exp (25%)
Management (10%)
Total Expenses
NOI
Cap Rate:
$0.08
30%
$76,800
$162,000
$238,800
$9,900
$38,040
$59,700
$23,880
$107,280 NOI
$800,000 Price
$131,520
$107,280
=
13.41%
Sales Comparison Approach
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Sale Allocations – goodwill/covenants
Unit of Comparison
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Price per SF of What?
Preferred method is total price
Comparison Factors for adjustments
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Land size / Dispensers
Building Size
Traffic Count
Competition
Sales Volume
Cost Approach
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Improvements
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Building
Tanks, dispensers, piping
Site Valuation
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Size, Frontage, corner location
Traffic Count – Typically from County Road
Commission
Competition
Allocation
Real, Personal, and Intangible
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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
Allocation
Real, Personal, and Intangible
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Example of Liquor License
Selling at $100,000
Contributes $150,000
How should it be allocated?
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For a Mortgage Appraisal
For a Divorce Settlement?
For Property Tax Assessment?
Does it matter?
Special Situations
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Fast food lease
Car Wash
Gift Shop
Diesel Fueling Stations
The Jerky Outlet
Leased Facility
Sources of Data
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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