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Show Summary
In this episode, Dave Zook shares his journey into the car wash industry, along with insights on development, operational strategies, and scaling a profitable portfolio. He discusses how selecting prime locations, building strong operational teams, and understanding market dynamics can help investors succeed. Dave also highlights the importance of strategic growth and adapting to economic conditions while building long-term value in the car wash sector.
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Investor Fuel Show Transcript:
Dave Zook (00:00)
We had a decision to make. you know, many of ourpeers ⁓ in the car wash space in development. They chose to, you know, slow down, batten down the hatches, sell off portions of their portfolio or sell some lots that they were planning to develop. ⁓ We took a different approach thinking that if we can be the group that continues to build when things are really hard, gets these car washes into stabilization, when the economy and the environment and all that changes, interest rates
come back down, which you they are coming our way as you know over last 12 to 18 months.
Michelle Kesil (02:14)
Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Dave Zook, who focuses on development and acquisition of car washes. So excited to have you here today, Dave.Dave Zook (02:36)
Thanks for having me, I’m looking forward to it.Michelle Kesil (02:38)
Of course, let’s dive in. First off, those not familiar with you and your work yet, can you share what your main focus is?Dave Zook (02:48)
Yeah, so we’ve been busy over the last couple of years just really developing a lot of these car wash sites. We started with zero about four years ago and today we have 31 in operation and most of them being in development. So those of you who are involved in development, know that, you know, for me, being in development, most of the time,almost all the time. It takes a little longer and costs a little bit more than what you think. But we’ve gotten this nailed down pretty tight now. ⁓ So yeah, we’ve just been busy getting car washes out of the ground in operation and into stabilization.
Michelle Kesil (03:38)
Awesome. And what markets are you operating in?Dave Zook (03:43)
Yeah, so we’re in Charleston, South Carolina, San Antonio. We’re in the Philly market. We’ve got some projects in North Carolina and also in Columbus, South Carolina.Michelle Kesil (03:59)
Awesome. And so how did you get involved with car washes?Dave Zook (04:05)
So ⁓ I’ve got a lot of business background and several times in the matter of.a six month period I got approached by different groups talking to me about Tommy’s Express Car Wash that they were getting ready to get started building Tommy’s Express Car Wash’s and I had never heard of Tommy’s Express Car Wash. We at that time didn’t have any in our local market or in Pennsylvania that I’m aware ⁓ of. after the, and I’ve got friends in the car wash space, so after I got several calls
calls from guys who were like, hey, could you look at our business plan? Could you look over our shoulder and kind of take a look at what we’re doing? And then I reached out to my friends in the car wash space and I’m like, hey, you know, what do you…
can you tell me about Tommy’s Express Car Wash?
And the very first friend that I called, I didn’t even know what brand he was operating under. was like, oh, Tommy’s Express Car Wash, best car wash in the industry. And he spent the next 20 minutes educating me on why that is. And so I kind of dove into the space and then got to the point where one of those groups that had called us was looking for an equity partner. And I decided to jump in and help them build
out a large portfolio of car washes. So here we are today a couple years later we’ve got 31 in operation.
Michelle Kesil (06:25)
Awesome. And are you creating like this franchise or how does that work?Dave Zook (06:32)
So we are a franchisee. ⁓ Tommy’s Express is the franchisor and we’re the largest, at this point, we’re the largest franchisee in ⁓ the Tommy’s Express organization.Michelle Kesil (06:48)
Great. What has been one of the biggest challenges in this development of the car wash industry?Dave Zook (06:59)
So if you know commercial real estate and understand the timing and understand what happened over the last couple of years, you can imagine what we got started four years ago, the interest rate climate, the banking climate, there was a lot of…different things going on then than what we’ve got going on now. And during the process, it was rocky when cost of capital doubles on you in a matter of 12 to 18 months and you’re in commercial real estate and specifically in development, that causes some real friction. And so being able to battle through that when during that same time, thousands of apartment buildings were going back to the bank because,
When you’ve got ⁓ cost of capital more than doubling in such a short period of time, it causes a big ripple effect. It slowed us down. It caused some major frustration, but despite that, we were able to battle through. ⁓ We had good equity partners. We’ve got a strong operations team. We continued to build, and we were able to get it done.
you know, our on our side, banking, interest rates, economic, mean, those things were all coming at us hard and fast throughout 2022, 2023 and well, actually more like 2023, 2023 and 2024. And, you know, we were able to fight through, it was it was it was challenging for sure.
Michelle Kesil (08:50)
Yeah, absolutely. And how did you overcome this?Dave Zook (08:55)
⁓had a decision to make. you know, many of our
peers ⁓ in the car wash space in development. They chose to, you know, slow down, batten down the hatches, sell off portions of their portfolio or sell some lots that they were planning to develop. ⁓ We took a different approach thinking that if we can be the group that continues to build when things are really hard, gets these car washes into stabilization, when the economy and the environment and all that changes, interest rates
come back down, which you they are coming our way as you know over last 12 to 18 months.
Then we’ll be in a really good position and we’ll be happy that we, know, swam against the current ⁓ when we were in that environment. And I believe that’s what’s to end up happening. ⁓ We now have car washers that are built and heading towards stabilization that had we not continued to
We would
have just stopped and waited for better climate. Of course, that’s when everybody else gets into the game and starts building more car washes or starts building whatever, any kind of commercial asset class. So think that’s gonna work in our favor, time will tell, but we fought and we fought hard.
Michelle Kesil (10:57)
Yeah, definitely. What would you say have been some of the main keys that have allowed your business to be able to grow and run successfully?Dave Zook (11:08)
I say operations, I mean it doesn’t matter.I mean, okay, so a couple things. You gotta start with a great product. Whether that’s a car wash, whether it’s a plate of food at the restaurant, it’s steak. If you start with a really good product, your chance of success is gonna be so much greater. You gotta have really good product. It doesn’t mean everything is gonna go smoothly. It doesn’t mean it’s gonna be successful either. After you got the good product, you gotta have a good operation.
you’ve to have a good team to make sure that it performs. And so I think that’s our biggest strength is the operations team. We’ve got a great product. We’ve got a great team. so this is a people business. You treat your people right. You have good people on your team. Pair that up with a good product. Chances of success goes up a lot.
Michelle Kesil (12:06)
Absolutely. And how does the operations work? Do you have like a team that manages each car washer? Can you expand into what the operational structure looks like?Dave Zook (12:17)
Yeah, so that’s changed as we’ve scaled. We’re now at the position with 31 Car Wash is open and in operation. We’re now in the position where we’ve got regional managers kind of overseeing a handful of car washes in different markets. And then we’ve got our on-site managers. And one of the things that we really like about this business is unlike, let’s say a Chick-fil-A or let’s say many of your retail franchise brandsout there that require you to have a workforce of 25 to 30 to 50 people.
a successfully run stabilized Tommy’s car wash, you’re talking, you’re have on a busy Saturday when you’re washing 100 plus cars an hour, you can do that with three people on site. And so that’s been a, ⁓ that’s been something that I’ve really appreciated about this business. There’s a lot of automation, there’s a lot of technology. It’s not like the old ⁓ brick and mortar car washes where ⁓
you
know, you had to get out of the car and you had to spray it down yourself and you had to do some scrubbing or and it’s also not the white glove car wash where you pull in and there’s you know 30 people running around the parking lot you know five people per car they’re vacuuming the inside wiping down the inside you know hand washing and all that that’s that’s kind of a that’s a dying model in many parts of the country. Tunnel car washes, touchless most
Touchless ton of ton of car washes is the future in this country and that’s what we really pride ourselves. We will deliver one of the best, if not the best car wash in the industry in two to three minutes or less. So you get on the bill and it’s designed for busy professionals or busy moms or busy people who don’t have time to sit in line, wait to go through the line.
⁓ We can wash 150, 200 cars an hour. And our job is to get you in off the road and get you back on the road in two to three minutes or less.
Michelle Kesil (14:44)
Yeah, amazing. And in terms of the like return on the investment, what does that look like for this type of industry?Dave Zook (14:57)
Yeah, so it’s different depending on if you go with a development site versus an acquisition site.But we’ve seen numbers in the 20 % IRR range consistently.
We’re projecting numbers in that 20 % IRR. expecting, really we’re building this portfolio to sell at some point. And when you sell at the multiples that we’ve seen in the marketplace, ⁓ there’s a very good chance that.
Michelle Kesil (15:52)
awesome.Dave Zook (16:12)
that ⁓ most if not all of our investors will ⁓ hit a ⁓ very good IRR and we’ve seen some those IRRs in the 20s.Michelle Kesil (16:24)
Awesome. What are you most focused on solving or scaling to next?Dave Zook (16:31)
Say it again, what was the question again?Michelle Kesil (16:34)
What are you most focused on solving or scaling to next?Dave Zook (16:39)
Yeah, so we’ve seen what we’ve seen in the marketplace.⁓ Portfolios of car washes, let’s say if you’ve got a single car wash or maybe even up to three to five car washes, there’s a certain multiple that you can sell that portfolio, assuming it’s a well-run portfolio of car washes. High single digits, maybe. ⁓ When you get into 15 to 20 car washes, you’ll get into the double digits and sometimes well into the double digits.
on multiples on EBITDA. What we’ve seen is the bigger the portfolio, the more likely you’re going to get a really nice premium on EBITDA. And so, you know, we’ve seen, you know, we believe that when there’s, when we have a portfolio of 50 plus car washes that are stabilized, ⁓ we believe based on what we’ve seen in the marketplace, we’re expecting high
double dig, well let’s just call it somewhere between 18 to 22 times EBITDA. That’s a very strong EBITDA margin based on a lot of industries out there.
Private equity firms and institutions love that subscription model. Many of our customers are, you know, they’re set up on a subscription model where they can wash their cars many times they want in a month for one fixed cost. And people like, you know, buyers, PE groups, love the stickiness of that subscription model.
Michelle Kesil (18:19)
Yeah, absolutely.Dave Zook (18:20)
It’sa whole lot easier to predict and you’re not nearly as dependent on the weather. You’re not sitting there making 20 grand one day and making two grand the next because it started raining or the sun came out. You’ve got your monthly subscription, you’ve got your monthly subscribers that are really taking out a lot of that volatility.
Michelle Kesil (18:28)
Mm-hmm.Right. And when it comes to like the development, how does that work in finding the land or the place to develop a car wash?
Dave Zook (19:03)
Yeah, so we always, you know, I talk to you about the speed that we can get people in off the road and get them back on the road and get a quality wash in there. ⁓ So when you’re talking about speed, you’re talking about volume. ⁓ So, you know, we always like to be in places where we know there’s going to be a lot of volume. You know, if you could be on the corner of Main Street and Main Street, right in the center of town, where, you know, right in the retail district, where, you know, where there’s grosswhere there’s restaurants, there’s people, you want to be somewhere where people are going to be. You don’t want to make people travel, you know, three miles out of their way to get to a car wash and wash their car. You gotta make it convenient. So those are the things that we’re looking for. Traffic count, we’re looking at convenience, we’re looking at retail, we’re gonna look at rooftops in the area. There’s a lot of different metrics that go into the due diligence part, but if you get it right, if you’re on the right side of town, you can really up your
chances of success rather than just going where you can go to get, let’s say where you can get land for a little bit cheaper. That land cost is a one-time fixed cost and then you get to enjoy that retail, that good spot forever. ⁓ If you start with a bad spot or a mediocre spot and you skimp out on, you save
some money on the front end because you’re not in the best spot in town. It’s gonna cost you over the long term. Unless of course there’s you know lots of growth coming your way or you know things are trending in your favor but no we try to we try to get in the best best location. We’re not scared to pay a premium for the property we want to be in the best location we can be.
Michelle Kesil (20:58)
Yeah, definitely. And has it been an easy process to find those locations? Yeah.Dave Zook (21:05)
No, all this stuff is Development’shard. Finding great pieces of real estate is hard. Operations is hard. It’s all hard. If it’d be easy, everybody would doing it.
Michelle Kesil (21:14)
Yeah.Yeah, that’s true. It’s a fair response.
what has been like the most rewarding aspect of getting involved with this industry.
Dave Zook (21:31)
⁓ you know.Seeing the team put in all the effort and the hard work, getting these out of the ground, and then seeing the team jump in there once we get it opened, now the real work starts. Now you’ve got to make it work, you’ve got to make it profitable, you’ve got to serve your customers in a way that you never want to go anywhere else. So really just seeing that and seeing the customer responses to the quality of the wash and the speed of the wash and how they love the wash and all that.
It’s very rewarding. being a part of that, it’s been a lot of fun.
Michelle Kesil (22:10)
Yeah,absolutely. Thanks for sharing all of that. And before we begin to wrap up here, if someone wants to reach out, connect and learn more, where can people find you and connect with you?
Dave Zook (22:23)
Yeah, so go to our website at therealassetinvestor.com. You can email [email protected] and that’ll come to me and my team to make sure that ⁓ anybody who sends an email gets a response, gets a prompt response. [email protected].Michelle Kesil (22:46)
Awesome. Well, I appreciate your time and your story. Thank you so much for being here.Dave Zook (22:52)
Alright, thanks for having me.Michelle Kesil (22:54)
Of course. And for the listeners that are tuning in, if you got value, make sure you have subscribed. We’ve got more conversations with operators like Dave who are building real businesses and we will see you all on our next episode.
