All Forum Posts by: Michael Calderaro

Greetings Gentle Readers!

Typically when a property owner or manager needs a laundry proposal they contact a laundry company and ask for a “proposal” without giving the operator, specific, if any guidelines in which they are interested.

And, usually when asked by the laundry vendor what the property wants to see in a proposal, the response is all too often a vague and less than strategic response: “Just give me your best deal”.

That response, unfortunately, is a nonstarter for a laundry vendor and leaves way too many options for the laundry vendor who sadly doesn’t have any idea what the property’s “best deal” looks like. Too often neither does the property and it can result in multiple proposals, revisions, lost time and energy and missed opportunities for both counter parties.

Let me give you two analogies that might help make the point.1.If I were to go looking for a roofing contractor, I would know at least 3 things, maybe more, that are critical to my decision process. In no particular order those might be: reputation, timeline for job and price.

   1.If I were to go looking for a roofing contractor, I would know at least 3 things, maybe more, that are critical to my decision process. In no particular order those might be: reputation, timeline for job and price. 

   2.If I were looking to buy a house, I would know at least three things, maybe more: location, school district, shopping nearby and budget for a mortgage.

What I’m saying is the property owner/manager who knows at least three things, maybe more, is in a better position to get a proposal that meets their requirements, saves energy and time as well as providing peace of mind post decision making.

Getting the “best deal” on a laundry contract requires the property owner/manager to submit a specific request with which both counter parties can work to negotiate the final product.

Keep in mind we’ve not entered into or even seen the lease document yet. We are just obtaining proposals at this point. 

Here are some important considerations when requesting a proposal. This is a starting point:

1.  Lease Term: Industry standard lease terms are typically either 5, 7 or 10 years. A short lease (5 years) yields less revenue to the property but provides the property greater flexibility. A longer lease (10 years) will usually yield higher revenue to the property.

Pick a number with which you’re comfortable and ask for the specific term to be 5, 7 or 10 years.

Pro Tip: Avoid asking for all three options as you will appear as someone who is not focused on what they want and too many options can result in the dreaded "paralysis by analysis".

Insider Tip: The difference in moving from a 7 to a 10 year lease is a 42% improvement in time for the laundry vendor. The property, however, will not see a 42% increase in the revenue share; in other words a 50% commission will not increase to a 71% commission.

2.  “Bonus” Money: More accurately, “Upfront rent” is a second consideration. If the goal is increased cash flow, consider not taking any upfront rent as they are mutually exclusive. A higher commission will result in lower or no upfront payment; likewise a lower commission can result in a higher upfront payment if that is the property’s needs. If the property truly needs laundry room betterments like paint, patch & plaster, etc. etc. Get a proposal from your contractor and ask for that amount upfront. Be specific.

Pro Tip: Bonus money or upfront money never adds to the property’s terminal value. It’s a one-time extraordinary income item which will throw off your budget the following year if not carefully noted in income statement.

Insider Tip: There is no such thing as “bonus” money. Any money paid up front is simply rent that would otherwise be paid to the property but it’s captured over the term of the lease and discounted to a net present value. Example: $10,000 paid up front on a 10 year lease would be $20,000 in cash flow over the term of the lease to the property otherwise. It is expensive money…you can borrow that amount from your bank at a much reduced interest rate.

3.  Machines: All brand new machines increase the capital investment and will correspond to a lower commission. But brand new machines require less service and provide higher resident satisfaction. Front load washers require a bit less water but present a higher capital investment for the laundry vendor – corresponds to a haircut in the commission. Top load washers use slightly more but cost less so commission will increase relative to front load washers. Keep in mind ratios of equipment to apartment units. If you have a 100 unit property with one or two laundry rooms your property can generally support 6 pairs of machines. Asking for 10 pairs will result in lower usage per machine, lower gross per machine and presents a real obstacle to the laundry vendor paying a competitive revenue share.

Pro Tip: Re-manufactured or used machines present a good opportunity to capture higher revenue from the vendor as these machines have no capital costs to them. Caution: only certain properties should accept used machines and those would include high risk for vandalism, low occupancy/ low usage or properties fully equipped with in unit connections and/or those that provide a percentage of units with washers and dryers in the units.

Insider Tip: To maximize revenue and reduce service calls request new washers and used dryers. Dryers routinely last longer than washers and generally have fewer service calls. Additionally, when accepting all used equipment, never sign more than a 3 year lease.

3.  Coin or Card: Question: What appliance do you want to operate with quarters in the next 3-5 years?  Same as me, none.  Still, coin machines represent the lion’s share of revenue generated by residents in C and D properties. But that has changed dramatically over the past 10 years. Nationally, coin machines still account for approximately 60% of all revenue compared to 100% a decade ago.  Card systems are a capital cost and will result in a lower commission than a coin system. However, card systems are not for all properties but can be fitting for specific A & B properties and leveraged to attract and retain residents, especially the first time renter who prefers to communicate digitally with any and all appliances.

Pro Tip: Laundry vendors today can install coin operated machines that also take Apple Pay/Samsung Pay for very little capital investment. Your property can benefit from a higher revenue generated from coin and still satisfy those digitally inclined residents.

Insider Tip: Here’s a quick litmus test to see if your property could accommodate a card system: What percentage of your residents pay rent online, with a credit card or with a check? If the percentage is 75-80% then your resident’s most likely will respond favorably to a card system. If the greater percentage still pay with money orders and/or you don’t take credit cards or online payments, chances are coin machines are still a better bet.

4.  Vend prices: You should be aware of the market in your area regarding single load vend prices. Your leasing agents are calling weekly to find out market information, why not add question on laundry prices? All machines today have the ability to be programmed a number of different ways. Are you charging more for hot water? You should, in order to pay for the energy costs. Usually, if a washer is priced at $1.50 a load, then a hot water wash could be $1.75.

Pro Tip: With that in mind, machines can be programmed to help smooth out demand as well. Many complaints from residents echo some familiar strain of “We don’t have enough machines”…what they mean is “We don’t have enough machines when I want to do laundry”…typically on the weekend. So you can price the machines at $1.75 a load on the weekend and $1.50 on Mon-Tue-Wed-Thu…thus allowing those residents with a flexible schedule to save some money and building some good will potentially.

Insider Tip: Laundry budgets don’t have much elasticity. If your resident has a budget of $28.00 a month for laundry at current pricing, when you raise prices their budget doesn’t necessarily expand to meet that increase. Unlike other commodities there is not much “substitution” going on in the laundry room. Residents can substitute less expensive food, look for cheaper gas, clothes, buy in bulk, etc. etc. when dealing with other consumables. Raising prices could provoke them to go off property to a public laundromat thus reducing gross revenue resulting in a lower payment to your property.

The point of this was to help property owners/managers start the proposal process with a solid idea of what they want, ensuring the laundry vendor can then give them a proposal that makes sense.

So compare this:

“I’m looking for a laundry proposal that is 7 years with new top load washers, rebuilt dryers, priced at $1.75 to wash and $1.50 to dry and with zero upfront money and the highest commission I can get.”

To this: “I’m looking for the best deal I can get.”

Which do you think gets a better deal? 

Your comments and feedback are appreciated! 

Greetings Gentle Readers!

Important Disclosure: I am not a real estate attorney and I only offer my anecdotal and my 30+ years' work experience in the informational blogs I write. Should any legal question arise from your readings please consult with your in house counsel or locate an attorney for a legal opinion. I'm happy to give my opinion/response which is business based and not grounded in real estate law.

Here's a quick "laundry list" of lease paragraphs...this is not all inclusive as each lease may be modified and negotiated by both counter parties....but it should suffice to kick start a discussion....

Firstly, Keep in mind that the laundry vendors have written the leases they prefer to use and generally it's written to their benefit but if you read the leases carefully you'll find there are areas that are negotiable and non negotiable. Not all laundry vendors use the same format, language and clauses so don't assume one lease is like another.

• Preamble - identifies Lessor (property) and Lessee (laundry vendor) - includes date of execution & lessor description and address,

• A typical lease will include number of apt. units and identifies number of units with connections (if applicable) - keep in mind that if you have in-unit connections for washes and dryers you present competition for the laundry room resulting in possibly reduced usage and reduced revenue. Laundry vendors will want to know how many in unit connections are in play at lease execution. That is a known risk. Furthermore there will be a "non compete" clause to prevent the apartment from adding additional in unit connections. This will be non negotiable.

• Term of the lease is usually a paragraph of its own...this is where one might find the "auto renewal" clause and possibly "right of first refusal" clauses but not necessarily...make sure both of these are struck during the negotiation. They do not serve the property owner at all. Depending on the laundry vendor you could get some push back on the auto renewal clause but if you don't want it, insist it be scratched. Pro Tip: some vendors will have the auto renewal clause buried in another paragraph so make sure you read the entire contract carefully.

• Rent paragraph typically spells out the revenue share - that's another blog of its own but generally speaking it is a percentage of the gross collections identified in various equations of percentage of revenue or some percentage over a minimum base amount per machine per day. Pro Tip: Rule of thumb: revenue is a pie, the bigger the slice your property takes in monthly commission the lower the "upfront" payment can be and vice versa. And over the life of the lease your property will ALWAYS get more revenue if you take -0- upfront and a higher slice of the the pie in the form of monthly rent.

• Lessor's & Lessee's authority to execute lease is a separate paragraph. Pro Tip: This paragraph essentially says whoever is signing the lease has the authority to sign it. I've encountered many owners unhappy that a property manager signed a 10 year lease but this paragraph authorizes them.

• Insurance coverage is another separate paragraph - typically the Lessee (laundry company) will spell out how much PL & PD insurance coverage if offered. Generally speaking the laundry vendor should spell out the exact dollar amount and not utilize vague language like "reasonable amount" of insurance. That's fodder for lawyers to argue. Pro Tip: Make sure the laundry vendor names the property as "co-insured" and does not simply provide a certificate of insurance for the property's file

• Since laundry leases are "real property" leases a separate paragraph will spell out that the laundry lease conveys when the land is sold.... so any property that is sold while the lease is in effect will be required by law to assume it. - this is often times confusing for a new or amateur owner who may not be schooled in real property leases. I can't count how many times in my experience a new owner claimed their lease wasn't valid because they didn't sign it. Provided the lease has not expired or has not been breached the lease conveys and is valid. Period Pro Tip: Laundry machines are tagged with identification from the laundry vendor which, one could argue, puts any potential property buyers on "constructive notice" that the vendor has a lease on the space. Ensure any liens on the property made by the laundry vendor turn up during title search when purchasing a property. These should appear in the title search. Most all laundry vendors will record a memorandum of lease and not the lease as it contains too much information for public digestion. 

• Viability or enforcement of lease clauses paragraph - while this is a lot of legal jargon here it boils down to say if any ONE paragraph of this lease is found to be invalid that the rest of the lease will remain valid and in force. Pro Tip: This is a standard and non negotiable clause.

• Cause and cure for breaching lease - this may or may not be in the standard lease but essentially this paragraph stipulates what actions or lack thereof could cause a breach and how much time does the beaching party have to "cure" the breach. Most obvious breach would be non payment of rent but there are others, installing additional in unit connections for example. Pro Tip: Look for or add language to ensure the property does not get entangled into a "cause/cure/cause/cure" merry go round on the same "cause".

• What generally is conspicuous by its absence is any metric that measures performance as the laundry vendors want to avoid that as the intent of the lease is to be construed as a real property lease and not a service agreement (which can be more easily cancelled). However, property managers and owners can insist on language being added to protect them from poor service given a 7 or 10 year lease. Pro Tip: Typically a service response of X hours can be included (but it needs to be within reason, i.e. 48 hours not same day). Keep in mind "Service response" is not the same as "fixed". Ensure the language is adequate to cover that.

Keep in mind that laundry leases are negotiable instruments and that a "one size fits all" is not a very good approach for either counter parties. Each property is a separate and distinct opportunity based on demographics, occupancy, location, access to laundry and in unit connections.

Feel free to comment or ask a question. I appreciate the feedback!

@Marcia Maynard  Thanks for the post Marcia, I love your mission statement, it's one of the more simple, yet powerful, ones I've seen.  

So, if I may, let me ask have you considered both the pros and cons of a laundry vendor that would allow you to focus on the mission statement and relieve you of the burden of the capital investment, operation, service, collection, processing the money, vent cleaning, clothes claims, price changes, jammed machines, etc., etc?   

There are two or three vendors in your neck of the woods who, given the chance, would recapitalize your laundry room, take over the collections, add insurance for PD & PL and overall increase your peace of mind.  I'm happy to discuss offline if you'd want to - no charge!    PS  I don't work for any of them! 

@Teri Feeney Styers  You're welcome and Thank You for reading my post!   The number of units (apartments) really doesn't come into play regarding the "minimum" or the "overage" equations.  Most vendors gladly work with small properties, in fact out of approximately 800,000 washers and dryers in the national portfolio of one of the largest vendors approximately 325,000 (or 40%) of those machines were in properties with under 5 machines in total.

But you actually asked two questions in one:  First, let me address the frequency with which machines are used.  Low usage or low collections (same thing) comes from a number of issues:  occupancy, condition of equipment, condition of laundry room, vend prices, competition (laundromats nearby), in unit hook ups and ratio of equipment to apartments. 

Let me address the last one as the others are self explanatory to a degree.  The industry standard ratio for apartments to pairs of machines varies on the type of property, locale and demographics.  

One quick example: Let's use a garden style 2 story family suburban property with one or two laundry rooms on the property and let's say 80 apartment units would most likely have an 6-8:1 ratio - meaning for every 6-8 apartment units (depending on the demographics) the vendor would install 1 pair (w&d) .  Key driver to usage is kids!  Family properties routinely use machines much more than other types of properties.

In a mid -  high rise, urban property with one laundry room the ratio would grow to 12-15:1, so for every 12 - 15 apartment units the laundry vendor would install 1 pair.   The reason is that the demographics change dramatically.   

Urban mid-high rise dwellers tend to be young couples, singles/roommates, and more than likely professional, maybe some senior empty nesters who, all in, do less laundry than their suburban family property counterparts.  

Regarding the "minimums", what is more important from the vendor's point of view are these factors:

1.  Does the property have a proven collection history of 12 months or more so the laundry vendor doesn't have to "guesstimate" the revenue to be generated from the laundry room based on comparable properties.  Solid record keeping can eliminate anxiety on the part of the vendor who is investing capital in the equipment whether for 4 machines or 40 machines.  Absent historical records of collections a vendor would assuredly include a minimum for themselves. 

2.  Does the property have a "safe" room and environment?  A laundry room that is free from visible signs of vandalism and a property that is well maintained with no deferred maintenance is a big plus for laundry vendors and again can work to eliminate the minimum.  Again, with signs of vandalism and deferred maintenance a minimum surely would be included.  

3.  Given those two factors the last one is "What does the property want out of the laundry deal, higher cash flow (more percentage of the gross collections) or a lump sum up front payment with a reduced cash flow?   An up front payment will certainly warrant a minimum from the laundry vendor who is looking to protect their investment.  

But, my last thought is this: a 'minimum' should not deter a property owner from contracting with a reliable laundry vendor.  There are many forgotten considerations relative to "owning and operating" laundry equipment. 

I hope this helps your understanding further!   

Again, thanks for reading and asking the question!

Greetings Gentle Readers!

Today's topic is one that is of some concern to multifamily apartment owners currently in a laundry lease or thinking about signing a laundry lease.

"Commissions" is a colloquial term used by laundry vendors and property owners alike but in reality "commissions" are legally "RENT" for the space the machines occupy.

Typically the property will receive a percentage of the gross revenue (collections) that the machines generate from usage by the residents on the property.

How that percentage is computed can be confusing.  There are 3 very broad categories of RENT payments that are computed and made typically monthly.

First let's look at what variables the laundry vendor will input to calculate any type of RENT payment.  

• Capital investment (buying the machines and providing technology payment systems if suitable) 
• Operating expenses (installing, servicing, collection, processing, insurance, vent cleaning, etc., etc)
• Term of the lease (Typically, 5, 7 or 10 years)
• Contingency Risk (Occupancy, market risks, competition from in unit hook up)
• Revenue (collections) from historical performance over the past 12 - 18 months
• Condition of the property (new construction or existing)
• Class of Property (A, B, C, D)
• In unit connections
• Competing laundromats in the area
• # of Machines
• Vandalism risks
• Type of Machines (front load or top load)
• Quality of Machines (Factory New or from Inventory)

Once those variables are collected and input the commission or RENT payments can be determined universally done using a Net Present Value, Internal Rate of Return calculation along with other financial metrics.  It's no longer a pencil and paper calculation.  

So let's look at the aforementioned 3 categories....

1. Straight Percentage - This is the simplest of the 3.  This calculation is expressed in simple terms of a percentage of the gross revenue (collections) of say, 30%, 35%, 40% , 45% or 50% which are not necessarily what your specific property would receive.  If the property generates $500 a month and the lease stipulates a 45% RENT payment it's an easy calculation = $500 x 45% = $225 in rent would be paid less any deductions for refunds, taxes, fees, etc.  
2. Overage Percentage - This calculation is expressed as a percentage of the gross revenue (collections) in EXCESS of a base amount.  To illustrate, let's say a property would qualify for 75% of all gross revenue (collections) above a base amount - which could be expressed in a per machine per day amount like $1.20 per machine per day.  So the commission equation in the lease would read: "ZERO (0) percent of all revenue up to $1.20 per machine per day and then 75% of all revenue thereafter".  That $1.20 would be multiplied by the number of days in the collection cycle to determine the base amount per machine for the collection cycle.   If the cycle was 28 days then the base amount per machine would equate to $1.20 x 28 days or $33.60 per machine.  If the gross revenue per machine was $72.50 then the payment would be computed as follows: $72.50 - $33.60 = $38.90 to be paid at 75% or $29.18 per machine.  When you multiply the RENT payment of $29.18 x the number of machines installed you'd have the total amount of RENT.  To compute the "effective" percentage you'd take divide the $29.18 by the $72.50 to equal 38.7% percent of the total gross revenue.
3. Straight Percentage with a Minimum - Here is how it would appear in the lease language: "...50% of all gross revenue from the machines provided however the lessee receive a minimum of $1.20 per machine per day...".  Let's calculate that out and see that it is similar to the overage with one big distinction.   Again, we need to identify the number of days in the collection cycle to determine the base amount per machine per cycle.  Let's use 31 days this time:  31 days x $1.20 = $37.20 per machine per collection cycle.   Let's assume the machines gross revenue was $69.75.  Here's the calculation:  $69.75 - $37.20 (minimum) = $32.55.  Now, here's the single distinction between this and the overage - the property would receive 100% of the $32.55 since the minimum was met.   The effective percentage on this deal would look like this: $32.55 divided by $69.75 equaling 46.6% in RENT payments.  When does the property receive 50%?  When the machines gross revenue is $74.40  or anything above that.   In that case the 50% payment "kicks" in and until then the minimum is subtracted and the remaining is paid out at 100% up to $74.40.

Are there other variations?  Sure but not significant variations.   I hope this helps apartment owners better understand what goes into and what comes out of the gross revenue. 

As usual, your comments, questions and any feedback is appreciated! 

Thanks for reading!

Thanks for your comments, Marcia.  I appreciate the feedback.  You understand the importance of a clean, safe affordable amenity.   Your last sentence threw me off a bit because you really are in the coin op laundry business since you own, operate, maintain the machines, collect and process the money.  And it sounds like all is good, so Kudos!  I applaud you!  

First, why did I post this blog in this forum?  Because gentle readers, a laundry vendor is a commercial tenant.   And the reason they are commercial tenants is because if you signed a contract, as it is called, it really is a "real property lease".   

Commercial laundry vendors invest capital to purchase equipment, provide service, collect and process payments and for that they want to ensure their "real property leases" convey should the property flip.   They do not sign a "service" agreement or a "License" both of which can be cancelled.  As you know by now, a real property lease conveys with the land.

Similarly, I can't tell you how many times I got a call from a new owner saying "Your lease isn't valid because I didn't sign it."....my response was to gently ask them to show the lease to the counsel and ask them the same question.   It's valid and it conveys just like all those apartment leases from the individual units you acquire but did not sign.  

Now, onto the challenge: Problems or Amenity?

Without a well written lease that spells out performance metrics, protects your payments in a timely fashion and ensures the lease doesn't automatically renew or have other onerous clauses the laundry room can be an amenity.

How?  Consider technology.  Today machines can be equipped with coin as well as digital payments like Apple Pay or Samsung Pay - it works off a Bluetooth connection and is a modestly priced upgrade to a laundry room.   

Is the laundry room safe?  Is it well lit, clean, freshly painted and sanitary?  If not, you're likely not showing it to prospective residents.  

If you have to compete with other properties that may have in unit connections, a laundry room that accepts digital payments, is clean, safe, well lit and with properly maintained equipment can attract and retain residents.

I welcome your comments, questions and remarks.  Thanks for reading!