2Gas Station Valuation: Distinguishing the Real, Personal and Intangible Property Appraisal Institute Annual MeetingIndianapolis, IndianaJuly 24, 2013Michael F. Kurschat, ASA, M.S.F., MAIKurschat & Company,2075 W Big Beaver, Ste 222, Troy MichiganPhone:
3Contact Information Michael F. Kurschat, ASA, M.S.F., MAI2075 W. Big Beaver, Ste 222, Troy, MIPhone: (248)
4Speaker’s Background Michael F. Kurschat, ASA, M.S.F., MAI Appraiser, 25 yearsPresident, Kurschat & Company, with 4 other appraisersBachelors Degree In Business AdministrationMasters Degree FinancePast President of the Detroit Chapter of ASAAppraisal experience: Mortgage Financing, Condemnation, Litigation support, Tax Appeal, Estate/Gift TaxWide Variety of Property types: Shopping Centers, Industrial, Apartments, Offices, Development Property, SpecialtiesExpert Witness Testimony, Circuit Court, Tax TribunalPurchased, leased and sold commercial shopping center property
5Speaker’s Background Michael F. Kurschat, ASA, M.S.F., MAI Appraiser, 25 yearsKurschat & Company, Troy, MIBachelors Degree In Business AdministrationMasters Degree FinancePast President of the Detroit Chapter of ASAAppraisal experience: Mortgage Financing, Condemnation, Litigation support, Tax Appeal, Estate/Gift TaxWide Variety of Property types: Shopping Centers, Industrial, Apartments, Offices, Development Property, SpecialtiesExpert Witness Testimony, Circuit Court, Tax TribunalPurchased, leased and sold commercial shopping center propertyCub Scout Den Leader, Caught a 27” Northern PikeComputer Skills - Performed several “fdisk.exe” operationsI Invented the Internet
6Detroit, MichiganYes, 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.
8OverviewWhat’s There a. Physical Characteristics b. Traffic Count/CompetitionClassifying It a. Real Property b. Personal Property c. Intangible Property d. Going ConcernMethodology for Valuation a. Income Approach b. Cost and Sales Comparison ApproachesData and Cases
9What’s There Physical Characteristics Convenience StoreFast Food Sales/SeatingLighted Canopy and DispensersUnderground Storage Tanks Bare Steel, with Cathodic Protection – Least Desired Fiber Coated Steel Double Wall Fiberglass – Most DesiredCar Wash
12What’s There Locational Characteristics Trend toward High Traffic Intersection Traffic Count – Cars/Day, Typically from County SourceCorner – Count two RoadsDivided Highway Effective Traffic Exposure, Typically half of Far Side of RoadFreeway Interchange Location Typically a “wildcard” in evaluating location
13Locational Characteristics Competition Summarize superior or inferior stations in area – x mile radius Number of Competitors Rating of Competitors - QualityBrand and Market Strategy of Competitors Sam’s Club Gas, Kroger Gas, Speedway Loyalty Programs
14Classifying It – Defined Tangible PropertyIntangible PropertyPersonal Property (Tangible and Intangible)Going Concern (or not?)
15Tangible PropertyDefined: 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 InstituteReal PropertyPersonal Property
16Intangible PropertyNonphysical 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 )
18Real PropertyReal Property: The interests benefits, and rights inherent in the ownership of real estate. Sounds like the Intangible aspect, but NOTReal Estate: an identified parcel or tract of land, including improvements, if any. (USPAP ) Sounds more Tangible aspects - Physical
19FixtureAn 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 InstituteIs It Real Property or Personal Property?Plumbing Fixture – Real or Personal?
20Trade FixturesArticles 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
21Personal PropertyIdentifiable 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 )
22Mike’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)
26Real – Personal – Intangible 1 acre of landConvenience Store BuildingA BrickA Trained and Assembled WorkforceCar Wash BuildingToilet/SinkLiquor LicenseWalk-in Cooler
27Real – Personal – Intangible Light PoleCompressor linesCanopyCar Wash BlowersBrushes10,000 gallon underground fuel tankPlumbing for toilet
28Real – Personal – Intangible Piping for dispensersFurnaceFuel DispensersTraffic CountSignBrandingEstablished client base
29Going ConcernA business having the ability to continue functioning as a business entity into the future. The Dictionary of Real Estate Appraisal, 5th Ed., Appraisal InstituteComposed of a mixture of Real, Personal, and Intangible AssetsThree-Legged Stool The whole is not necessarily the sum of the parts.
31Valuation 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.
34Examples – 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.
35Valuation Income Approach Sales Comparison Approach Cost Approach Gasoline SalesConvenience SalesOther: Car wash, liquor, fast food franchise, rental unitsSales Comparison ApproachCost Approach
36Income Approach Gasoline Sales Traffic Count Multiplier = Gallons/Mo divided by Traffic CountDependent upon CompetitionCompare with the subjectWeigh reliability of the subject’s sales information
39Gasoline Margins Margins are based on area competition Check margins based on gas pricesAnalyze subject’s income statement for actual margins for the subjectBEWARE – 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
40Income Approach- Convenience Sales Sales/SF store areaCompare with actual salesBeer/Wine/LiquorPrepared foodsMargins and Industry NormsServices – ATM, Check Cashing, etc.
41Compare Actual Margins To Standards for the industry
42Income Approach – Summary of Gross Profit Gallons x Margin = Gross Profit FuelSales/SF x SF X Margin = Gross Profit Store
43Income Approach - Expenses Fixed Expenses – Property TaxesVariable Expenses – Most othersCredit Card Fees, 2.5% to 3% of credit card salesAmount of Detail – subjective requirement
48Sales Comparison Approach Sale Allocations – goodwill/covenantsUnit of ComparisonPrice per SF of What?Preferred method is total priceComparison Factors for adjustmentsLand size / DispensersBuilding SizeTraffic CountCompetitionSales Volume
49Cost Approach Improvements Site Valuation Building Tanks, dispensers, pipingSite ValuationSize, Frontage, corner locationTraffic Count – Typically from County Road CommissionCompetition
50Allocation Real, Personal, and Intangible Personal Property – Depreciated Cost Approach, or Sales ComparisonIntangible Assets – based on Contribution, or sales (when available)Example of Liquor License Selling at $100, Contributes $150,000
51Allocation Real, Personal, and Intangible Example of Liquor License Selling at $100, Contributes $150,000How should it be allocated?For a Mortgage AppraisalFor a Divorce Settlement?For Property Tax Assessment?Does it matter?
52Special Situations Fast food lease Car Wash Gift Shop Diesel Fueling StationsThe Jerky OutletLeased Facility
53Sources of Data US Dept. Of Energy - Historical Gasoline Prices State Dept. of Environmental Quality – tank informationCounty Road Commissions – Traffic CountsWholesale Gasoline Prices: OPIS opisnet.com