How to Price a Gas Station

Question

I have experience in the residential real estate market, but none in commercial real estate or small businesses. A friend of mine is looking to sell a gas station he owns in a small town in rural Oregon. We are trying to figure out an appropriate asking price.

The building is less than 5 years old, 3 aisles, plus two walls of refrigerated drinks. There are 4 unleaded pumps and two diesel pumps. A small restaurant is attached to the gas station.  Total income and net income have both been increasing for the last few years. Gross Income last year was $2,160,000 with expenses (not including depreciation or interest) of $2 million for net income of $160,000. The owner does not put in any shifts at the store, just oversees a hired manager.

What kind of calculations would you do to come up with a value or asking price for this type of property?

Chris Seveney · Answer

I stay very far away from gas stations and anything that deals with fuel and oil. The liability is off the charts for these types of assets because of ground contamination, and if it got into adjacent properties etc. it can be a nightmare. We developed (thankfully did not own) a property that was a former gas and service station - there were buried cars in the back and the oil contamination was several million dollars of cleanup. Throw in the time it took as well and it easily cost $3M to do the cleanup when complete.

Joshua Michael Hauman · Answer

Hey @Zeb B.

Are you selling just the land and structure or are you selling the operation as a business with the real estate included?

Either way, unquestionably your best bet is to find a commercial real estate broker or business broker who specializes in gas stations. Not only will they be able to help your friend value the property but also will likely know buyers who will want the deal.

Good questions to also consider are

Tenant quality: Meaning is this rented out to national tenant like a BP/Shell or a Mom and Pop operator. Same would go for the restaurant. Higher quality tenant lower cap rate.Guarantee: Is the guarantee on the lease corporate backed, franchise or personal. Stronger guarantee lower cap rate.

Lease term: How long is remaining on the lease?

Lease Type: What are the landlord responsibilities? Taxes, Insurance, Maintenance?

I could go on and on but I would find a broker that transacts the type of deal you're looking at selling. A way of doing this is to search crexi for deals of similar nature and reach out to the listing broker. Never a bad idea to leverage the BP community for connections and support ;)