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Corporate Structure, Investors, Mark Helm

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  • Corporate Structure, Investors, Mark Helm

    I'm sorry for my post topic, I couldn't think of anything short and clear that would be better. I read Mark Helm's book "Creating Wealth Through Self-Storage," and I'd like to have a conversation about the feasibility of the business structure he uses in today's market. I'll quickly summarize it for those that haven't read his book.

    In a nutshell, Mark didn't have the capital to buy facilities, and so he needed money people. These money people owned 30% of the facility, but they received 90% of the cash flow to pay a return of 12% until he was able to refinance the property and pay their principle back in full. The money people were preferred shareholders until their principle was repaid, and then they became common shareholders.

    To me, if I understand his strategy correctly, he has to have a property that can be drastically improved to create the new equity when he refinances. What I read regarding today's market, especially in my area, cap rates are being driven down because of higher selling prices due to investor demand. The result is very few, if any, steals. I'm not saying it's impossible to duplicate his strategy, but it appears to be much more unlikely today.

    I'm talking to my own money person, but creating an arrangement that depends on refinancing in X years is troublesome. Does anyone have an opinion, or have an alternate strategy?

  • #2
    I too have read his book and I am not sure whether it is feasible at the current moment in this market. The cap rates will not stay on this downward trajectory forever, however, making a business plan that uses this design and can give you a good time period for ROI and Refinance is hard if not impossible currently. I am curious to see what other people who are more Veteran to this industry and this topic have to say.

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    • #3
      I appreciate the enthusiasm to build a new project. We get several members here who want to build a facility but have no idea how to finance it. I wish you luck & hope that you can find some good info in these forums.

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      • #4
        Stevedore I have no desire to build new. Are you saying the only way to duplicate Mark's structure is to buy new? If that's what you're saying, you appear to be correct.

        I actually spoke to Mark Helm about this very question. He was gracious enough to explain that today he executes the same idea, but can only buy conversion projects or expansion projects. The days of finding poorly management facilities that can have their equity increased with better management and tender loving care are pretty much gone.

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        • #5
          Originally posted by LoremIpsum View Post
          Stevedore I have no desire to build new. Are you saying the only way to duplicate Mark's structure is to buy new? If that's what you're saying, you appear to be correct.

          I actually spoke to Mark Helm about this very question. He was gracious enough to explain that today he executes the same idea, but can only buy conversion projects or expansion projects. The days of finding poorly management facilities that can have their equity increased with better management and tender loving care are pretty much gone.
          There's one under the interstate just down the road from me. The owner (a very wealthy philanthropist) died. It's a dump. The manager's nice but there never seemed to be any capital improvements. Wooden walls etc.
          An apple a day keeps ANYONE away if you throw it hard enough.

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          • #6
            I would say there are some excellent opportunities out their currently; they are in the second and tritiary markets. I have seen this "structure" laid out before but usually for only double or 2.5x the money. At 3 times it doesn't make much sense for the "operator" even when the refinance comes in and they are left with 70%. It is too hard to come up with the out of pocket at only 10%. Conversions and expansions are other ways to go as well but again that takes more cash flow to get going. You usually have to have some type of refi time frame in the agreement to protect both the investor and the operator usually a 5 year time frame.
            Chasing Perfection to catch Excellence

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            • #7
              Given the very high prices of existing facilities, Its tough to buy existing and quickly refi based upon significant NOI increases. Thus difficult to buy out partners.

              I see your are not ready to build, but if in the end your goals is financial freedom you may want to reconsider. Even though construction takes time & effort it may be easier to find a partner/investor because the rewards are so much much more. And end up with a 100K to 200K yearly profit in your pocket much sooner. Self storage is to much work for a little profit but not much work for a huge profit.

              If your buying an existing facility, your fin. partner is often going to want to see that you have a self storage tract record and want to get more ownership to insure they get enough returns - leaving less returns for you.

              And with new construction it is easier to find a location close to home then find a facility for sale close to home. Once you open your new construction facility it is often worth 30% more than it cost to build and once you fill it up it is worth millions more than it cost to build and the month profits are a lot more than 10% returns you might be getting from a buying and existing facility.

              If you take a look at feasibility studies for new projects ( that past mustard for a good site) you will see they often assume the owners will refinance in 4 to 5 years, often taking out millions and then still providing a great monthly income.

              If you buy an existing facility the number one question to answer for you and an investor is what changes will you do to be able to increase the rents SIGNIFICANTLY.

              Cheers, Marc
              Marc Goodin, President of Storage Authority Franchising
              Self Storage Owner, Designer and Author
              Self Storage Planning - Design - Marketing Services

              www.StorageAuthorityFranchise.com

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              • #8
                I just noticed your rely Marc. Thank you.

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                • #9
                  Marcgoodin mentions something about a (that past mustard site) Can anyone elaborate on what he means?

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                  • #10
                    I read it to mean "it passed muster". Meaning the new projects meet or exceed certain points that are looked at during the feasibility study.
                    "Never let the inmates run the asylum!"

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                    • #11
                      I believe we have to take into consideration when a book was written and what is it's relevance to today's economic conditions.

                      I consider R.K. Klieibenstein to be my mentor. He wrote a couple of books about making money in self-storage. He was my first customer for Site Plans over 10 years ago when he owned Coast-To-Coast Consulting - probably the premier Feasibility Expert at that time and I believe that I met him in these forums.

                      Things change & we need to keep up with the latest - technology as well as other changes in the industry.

                      R.K.. where are you?


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