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:

3. Contact Information Michael F. Kurschat, ASA, M.S.F., MAI
2075 W. Big Beaver, Ste 222, Troy, MI
Phone: (248)

4. 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

5. 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

6. 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.

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

9. What’s 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

12. What’s 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 Sam’s 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, 5th 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 )

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 ) 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, 5th 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, 5th 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 )

22. Mike’s TOP 10 List of personal property for a gas station
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)

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 Intangible Property
Real Property
Personal Property
Patents,
Contracts,
Trained and assembled workforce,
Copyrights,
Fixtures,
Building,
Land,
Site Improvements
(Permanently attached)
Trade Fixtures
Furniture,
Movable things
(Chattel)
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, 5th 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
Real Property
Personal Property
Intangible Assets

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.

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 Sales Comparison Approach Cost 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 subject’s sales information

37. Compare with Average Price

38. Comparable Income

39. 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

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 Site Valuation 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, Contributes $150,000

51. Allocation Real, Personal, and Intangible
Example of Liquor License Selling at $100, 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