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Gas Station Valuation: Distinguishing the Real, Personal and Intangible Property Appraisal Institute Annual Meeting Indianapolis, Indiana July 24, 2013.

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Presentation on theme: "Gas Station Valuation: Distinguishing the Real, Personal and Intangible Property Appraisal Institute Annual Meeting Indianapolis, Indiana July 24, 2013."— Presentation transcript:

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2 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

3 Contact Information Michael F. Kurschat, ASA, M.S.F., MAI 2075 W. Big Beaver, Ste 222, Troy, MI 48084 Phone: (248) 816-9166 kurschat@kurschatco.com www.Kurschatco.com

4 Speakers 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

5 Speakers 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

6 Detroit, Michigan Yes, Detroit just filed for bankruptcy, making it the largest municipal bankruptcy in US History. Professional group, were talking about gas stations, not politics. Some of those gas stations are in Detroit.

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8 Overview 1. Whats There a. Physical Characteristics b. Traffic Count/Competition 2. Classifying It a. Real Property b. Personal Property c. Intangible Property d. Going Concern 3. Methodology for Valuation a. Income Approach b. Cost and Sales Comparison Approaches 4. Data and Cases

9 Whats There Physical Characteristics 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 Car Wash

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12 Whats There Locational Characteristics Trend toward High Traffic Intersection Traffic 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 Location Typically a wildcard in evaluating location

13 Locational Characteristics Competition Summarize superior or inferior stations in area – x mile radius Number of Competitors Rating of Competitors - Quality Brand and Market Strategy of Competitors Sams Club Gas, Kroger Gas, Speedway Loyalty Programs

14 Classifying It – Defined Tangible Property Intangible Property Personal Property (Tangible and Intangible) Going Concern (or not?)

15 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, 5 th Ed., Appraisal Institute Real Property Personal Property

16 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)

17 Intangible Property – Examples (gas stations) Customer Relationships Non-Compete Agreements Franchise Agreements Trade Name / Trademark Assembled Workforce Liquor License Other Goodwill

18 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

19 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, 5 th Ed., Appraisal Institute Is It Real Property or Personal Property? Plumbing Fixture – Real or Personal?

20 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, 5 th Ed., Appraisal Institute

21 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)

22 Mikes 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)

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24 Intangible Real Property Nope. Real Property is always classified as a tangible asset by the real property discipline. Does that make the most sense?

25 Tangible Property Real Property Personal Property Intangible Property Fixtures, Building, Land, Site Improvements (Permanently attached) Trade Fixtures Furniture, Movable things (Chattel) Patents, Contracts, Trained and assembled workforce, Copyrights, Interests: Leased Fee, Fee simple, leasehold, easement, etc…

26 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

27 Real – Personal – Intangible Light Pole Compressor lines Canopy Car Wash Blowers Brushes 10,000 gallon underground fuel tank Plumbing for toilet

28 Real – Personal – Intangible Piping for dispensers Furnace Fuel Dispensers Traffic Count Sign Branding Established client base

29 Going Concern A business having the ability to continue functioning as a business entity into the future. The Dictionary of Real Estate Appraisal, 5 th Ed., Appraisal Institute Composed of a mixture of Real, Personal, and Intangible Assets Three-Legged Stool The whole is not necessarily the sum of the parts.

30 Going Concern

31 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.

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34 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.

35 Valuation Income Approach Gasoline Sales Convenience Sales Other: Car wash, liquor, fast food franchise, rental units Sales Comparison Approach Cost Approach

36 Income Approach Gasoline Sales Traffic Count Multiplier = Gallons/Mo divided by Traffic Count Dependent upon Competition Compare with the subject Weigh reliability of the subjects sales information

37 Compare with Average Price http://www.eia.gov

38 Comparable Income

39 Gasoline Margins Margins are based on area competition Check margins based on gas prices Analyze subjects 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

40 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.

41 Compare Actual Margins To Standards for the industry

42 Income Approach – Summary of Gross Profit Gallons x Margin = Gross Profit Fuel Sales/SF x SF X Margin = Gross Profit Store

43 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

44 Develop NOI

45 Income Approach – Credit Card Fees

46 Extracted Overall Cap Rates Extract from sales where sales and margins are available EXPENSES – Calculate using same methodology. Consistency, equilibrium, balance in the universe

47 Sample Extracted Cap Rate

48 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

49 Cost Approach Improvements Building Tanks, dispensers, piping Site Valuation Size, Frontage, corner location Traffic Count – Typically from County Road Commission Competition

50 Allocation Real, 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

51 Allocation Real, 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?

52 Special Situations Fast food lease Car Wash Gift Shop Diesel Fueling Stations The Jerky Outlet Leased Facility

53 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


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