Bowling Alley Foreclosure - Posted by Eileen

Posted by ray@lcorn on August 27, 2005 at 12:28:25:


I’d say pass, or watch the process with an eye toward snatching it on the courthouse steps.

My thinking goes is this…

First, the going price for bowling centers is around one times gross. Operating margins are slim; it is capital and maintenance intensive; and takes competent, hands-on management to be profitable. I tell you this from firsthand experience. Our family company owned and operated two centers for over forty years. We closed one in 2002 and redeveloped the site. (We still have a 16-lane center we’ll be glad to sell you!)

The present owner has demonstrated his lack of ability to operate profitably, so making him a tenant instead of an owner is just making his problem yours. In my opinion there is no value in the proposed lease, and bowling is not a growth industry that would make it marketable to other operators.

The fact that he has lied to the government about the gross is a major red flag. Think about it this way… if he’ll lie to the IRS, would he lie to you?

There are so many due diligence items that would have to be investigated it would take hours to list them all. The major problems usually are related to outdated and ill-maintained equipment. It costs $1500-$2000 per lane to resurface every five years, and if they are very old wood lanes there may not be enough wood left to get by more than a few more years.

The pinsetters require constant preventive maintenance and ongoing repair. The parts are expensive and few mechanics are actually trained and qualified to work on them. Problems are known in the biz as “stops”. A high number of stops per night will make even the most patient bowler angry. And don’t get me started about trying to keep league bowlers happy…

In cases where a center sells for a higher multiple it’s usually because the underlying real estate has more value than the business. If the property does have potential redevelopment value, the bank is the party to be dealing with, not the current owner. My guess is they have a very good grasp of the value of their collateral. If the short sale number is true, that would indicate they do not believe the real estate is worth more than the business.

It may be fun to talk with the bank and get a feel for their thinking, take a look at the surrounding neighborhood to get a feel for real estate values for development parcels, and perhaps get a title report (the bank may share theirs with you) to see if there are other liens, such as payroll taxes or sales taxes. A failing business is usually guilty on both counts, and those liens are superior to the bank’s mortgage. That means you have to pay them in order to get clear title.

Once you have that info you can make a decision as to whether it is worth your time, effort and risk, and if so at what price. Even if the research put me off the deal, by then I usually have enough morbid curiosity to go to the sale and see what happens. If you’re the only interested party (and you could well be), the bank may pay you to take it off their hands.


Bowling Alley Foreclosure - Posted by Eileen

Posted by Eileen on August 26, 2005 at 07:18:21:

Hi, I’m a new investor who primarily wants to focus on single families. However, I ran across a business going into foreclosure on 9/26 and not sure if I should try to move forward or try to find someone to help this gentleman. First off, I do not have any capital for any sort of downpayment (which is usually a min. of 10%, I think). Let me give the details I know:

(The bowling alley is located in the suburbs of Milwaukee, WI)

  • City assessed land at 411k
  • Assessed land w/ building 533k
  • Mortgage owed is 480k
  • According to the owner, the bank is willing to do a short sale for approx. 350k
  • (I have not looked at any books) He says he does about 225k/year but only claims 125k (red flag?)

At this point in time he can only get 55% of the loan due to his credit rating. He wants to do a lease to own where he runs the business solely and buy back in a year. For me this would be okay but not sure if it would be smart. The reason he is going into foreclosure is, first, the people he took it over from were running it into the ground and it needed a lot of work. Second, he budgeted incorrectly and was putting all the money back in the business.

I know I would need a lot more information but not sure if I could even begin to move forward. Since there some equity in the place, he is wanting to take out a line of credit to update the building even more. I was also thinking of taking the loan downpayment and my cut out of the line of credit. I would want some $ in the bank in case he defaults.

Okay, with ALL that being said and still more I need to know, any input would be greatly appreciated.

If this does not work out for me and someone else was interested, I would be willing to pass on this guys number. He is desperate to keep the business.

Thanks in advance!