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  • Self Storage Conversion


    Hi, I am a Real Estate broker and Investor out of Los Angeles. My family has been in the self storage business for over 30 years with a few local storage facilities. It has been passed down from generation to generation. I am now interested in going my separate way with some partners and get into the self storage conversion business. Recently some partners and I sold an apartment building close to Los Angeles and we will be putting some of the proceeds into this new project. We have located a 33,000 SF 3-story industrial building in Ohio. We are currently traveling and have seen the building and gotten somewhat familiar with the area. We are in heavy discussions with the city who is eager to see us develop this vacant building into self storage. It seems based on the amount of square footage in a 3 mile radius with the 3-mile population, there is a demand for more self storage. Some hesitations we have are that it is a market that we are unfamiliar with and just starting to understand. It is also far from Los Angeles, and we do not know the difficulty it will take to lease up the building. The visibility is also not necessarily the highest visible area, however it is not terrible as you can see it from different angles. We went around with the city planner today and he was showing us a lot of the new multi family development that is happening very close to our building. Additionally a brewery is going in right next door that should help with more traffic and exposure. Everything about the deal looks good, however because I am brand new to the process I am unsure if I am missing anything or if I need to worry about being in a market that I am new to. We would like to buy in California however it is way too expensive for our budget so we have taken this route. Any insight and guidance would be greatly appreciated. Thank you.

  • #2
    Hire a third party to take you from Vision to Management and beyond...lol...
    Chasing Perfection to catch Excellence

    Comment


    • #3
      That is a good point and we are not opposed to doing that. Do you think it’s too small for a third party to manage the facility?

      Comment


      • #4
        Please tell me you are going to have a living breathing human being manage the place during business hours. Especially in a multi story building. Many threads here about the horrors of what some tenants do in the freight elevator shafts and anything else having to do with enclosed multi stories.
        "Never let the inmates run the asylum!"

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        • #5
          Hi pacnwstorage, thank you so much. Yes we plan on either having someone manage the site during business hours or having a third party manage the facility. I just wonder how hard it is to lease up a brand new facility?

          Comment


          • #6
            An actual human on site is preferable but hell, it's your call. The other concern of leasing up a brand new facility is all about location, IMO. I know there is much more but I also know that almost all tenants prefer drive up units. The multi story building is a whole different animal.
            "Never let the inmates run the asylum!"

            Comment


            • #7
              Yeah, that is true. From my experience with the facilities we have in Southern California, our tenants with larger units generally like the drive up units yet for the smaller size units they prefer and like our indoor facility.

              Comment


              • #8
                Well, either way you decide, good luck. I guess you gotta love L.A. to want to do business there.
                "Never let the inmates run the asylum!"

                Comment


                • #9
                  Did my quota of writing for today. But I'll throw some check points out. Please don't respond to them.

                  1. Your in Real Estate and should already have a list- Abestos, floor load, roof, Structural, HVAC, insulation, fire systems (grandfathered or need update), ADA, Elevator structural and how it fits with floor plans, etc. Are these elevators sized for storage business or do you need wider, taller, deeper, heavier, etc.
                  2. Your partners and you- this is longterm, can't get out of for 5 years without loosing money. Everyone happy, does your agreement have an exit strategy for someone, normal partnership stuff.
                  3. Location- if your first time out on storage and your willing to look that far; I would go with an old Kmart location closer to you. Right size, single floor, population study already performed, Pick any town where there is one left, closer to you. Stay away from the elevator. More of an enclosed building with less windows. HVAC already layed out. Less Demo cost. More usable floor space. Again, no elevator.
                  4. California versus Ohio- Again consider your Electric, HVAC and insulation; versus what your used to.
                  5. Size- Use the logic, change the figures and assumptions based on your knowledge. 33,000 sqft divided by 3 = 11,000 sq ft. per floor. Usable space even at 33,000 assuming a 10 x 10 (100)= 330 units. At $100= $33,000 per month. Assuming a 60% utilization (don't count the 5 x 15 units or the 4 x 9 units) that equals 33,000 x 60%= 19,800 divided by 10 x 10 units= 198 units at $100= $19,800 per month. Assume 90% occupancy= $17,820 per month. Break even assume 65% occupancy (less if your money, not banks, but you could also do something else with your money)= $12,870. Difference between the $17,820 versus $12,870 = $4,950. You do the tax/depreciation etc scenario. Assume there are three of you. Each of you will be building $1,650 of equity each month ($4,950 divided by 3). With an investment 3 time zones away, with a $500 airplane flight for one of you each month. Change these numbers and assumptioins. Keep in mind you have to pay a management person. I do not include that in my 65%.
                  6. Buy your family out.
                  7. You mentioned 3 stories, not totally visible, not in the highest visible spot. Assume it's a hilly area. Make sure your 3 mile radius is a good assumption. Is your facility truly accessible to a 3 mile radius. Is there a river with no close bridge next to you. Is there a ridge above you, with not clear roadways. Ask the neighbors about the building and neighborhood with ice and snow.
                  8. 7 is good from an indoor storage standpoint, that means there are not to many drive up facilities in your area.
                  9. Do a "Stupid" money test. a. Act like your going to buy ground to build. Check out zoning, price, availability, and size., b. Act like your buying a building, again, check the above factors. The harder it is for you to enter the market, the safer your investment and the harder for someone to come build next to you.
                  10. Do an inventory count of facility, room sizes, prices in the area. Get on Sparefoot while your in LA and grab most of this info. Determine your price points for 5 above. Then go spend two days and count them. On Sparefoot pick that zip code or two and find who the top competitors are within your zip or distance.
                  11. Union rates, check your costs out. Might be different than LA for demo and construction.

                  I/ve made enough mistakes just being local. With crews/companies I use project to project versus just a one off location. I would want to compare at least three or four sites, before making a decision.

                  Comment


                  • #10
                    Googled Kmart Los Angeles. There are some "Hot" locations. They should all be closed.

                    Main front door, Side loading docks, wide open interior, HVAC all set up, Sprinkler systems in place; huge parking lots for parking, expansion, RV storage, develop or sale, etc.

                    I would go to 10 of the locations and find out who owns and make offers on all of them (low, low ball prices), subject to zoning for Storage. Actually, I like to spread my risk so I would pick several towns within driving distance. Although Los Angeles is not one market area and is big enough to cover your risk.

                    Pick them up during this whole Covid, do we work from home, do we shop at a store anymore time frame.

                    If you don't want Los Angeles pick another town or state, your group can drive to easily for your first start up.

                    Ohio??; distance, snow/ice, elevator, old building, population guaranteed with a Kmart location, etc. Plus you can't cookie cutter the old building and layout, like a standard Kmart building.



                    Seize the moment. Low interest rates. Chain store closed. Covid/Store front, down market. The only thing in question is zoning.

                    These things don't come along in a family generations:
                    1. Money
                    2. Idea
                    3. Entrepreneurship- leap off the cliff.
                    4. Interest rate and building availability.

                    Number one is the hardest. After that, it is cookie cutter, repeat.



                    Comment


                    • #11
                      If you go with a third party, please please let us know if you end up doing a takeover ( Orkocean ?) I believe that's what he called it! I need to hear more stories about this!

                      Comment


                      • #12
                        Clarkstoragellc Thanks for that insight. I would love to speak further with you about this to get some more knowledge. We have been in communication with a larger third party management company who is local to that market. We feel confident but the more knowledge and insight we have, the better. We are open to looking at some old K-mart, however the problem is even at low ball offers, being in the RE business, those prices are going to be substantially higher then what we can afford now. Let me know if you are open to chatting more via email or phone. Best,

                        Comment


                        • #13
                          Anytime. Just go to my website and pickup my phone number.

                          To me there are four "general" price ranges I have seen, decide on which market to be in:
                          1. Small existing Country location pre-existing or buildout- $250,000; I have also bought 60 units for $125,000. Again "General". Drive up
                          2. Metropolitan area- $1,500,000; drive up, Just completed an 8 acre site for $1,550,000; 230 units phase 1, with 200 each in Phase 2/3.
                          3. Metropolitan area- $3,000,000 indoor, not my area of expertise; if we talk, I can give you a neighbors name who is in 10 states and has 15 locations. Don't think he will want to talk with you. He's having fun.
                          4. Off Downtown- $5,000,000 indoor pre-existing building; Go check out a Uhaul operation and poke around to get info. You will be playing with the big boys and your SEO/finances/risk dilution will never be as good as theirs.

                          The key behind all of the above is not so much the cost of the structure, but your rental income potential and occupancy breakeven. I've made the numbers work at $1,000,000 per acre, but I was not willing to take the Exposure, since I had more options with a greater chance of success.

                          Exposure example using the industrial building you mentioned: a. Look on the floor. Is there 6 x 6 tile? You have a problem., b. Look at the piping and ductwork, does it have old grey insulation? You have a problem., c. Elevator- This is the bottleneck to your business. What is the cost of gutting it and putting a new one in?, I would not build my first project around old elevator systems., d. Windows- most old industrial buildings have lots of windows, either you have to close them up or pay electric/gas., e. Management company- maybe later, but if you plan to scale your portfolio up, recommend your team gets your hands dirty now and manage it (learn), plus to help your margins. See my topic on Covid- Self Service. If one of you has an office worker they can do this for you. Weekends your team does the non customer work., f. Distance- I would "learn" close by, not LA to Ohio. If your plan is to use a Management firm to manage, I would just invest in a REIT, less risk/risk is multilocation diversified.

                          Key- even without knowing the details of your project, I know there are many other opportunities to get into Storage with less Exposure. Its your money, you are always Right.


                          Look at the topic I did on Financing- Broad discussion, same as you have from your Real Estate background. Depending on your finance method, you need 15% to 40% of the above for collateral. That will be your input figure.

                          No matter what you do:
                          a. Start small and make your big mistakes then.
                          b. Look at several options, before you pick one.

                          Comment


                          • #14
                            Clarkstoragellc Thank you again, really like the insight you have been giving us. To go further into this building, although it is in Ohio a lot of the factors are very positive. We are not in a hilly area, we are the closest facility to the nearest bridge over the river in which a new block of multi family community has been constructed and is about 80% of the way completed. Our 3 Mile population is large as it has over 100,000 people. Aside from that, the area we are going into is currently the next area being developed and we are buying the building at the right time before the prices go up. A brewery is going in next door, all of the other buildings around ours are being purchased and developed to town homes, a food hall, more multi family, and other positive usages. We are buying our building for dirt cheap which is why it would make sense for us. Even with inflated expenses, and a third party management company we should be at an extremely healthy return based on our spreadsheets and numbers. We are in talks with a large private third party management company that operates 3 other locations in the greater market. They have 90% occupancy at all 3 sites and are eager to get into more locations in that market as they also strongly feel their is a demand. It is not ideal that we are not local to it and we agree that it would be nice to be close, manage ourselves to learn, however the opportunity based on what we would be in it for seems to be very strong. The total amount of cash flow when divided by the partners may not be a big number, but on a percentage basis it is very large and our goal is to start small and keep building. I am sure that we will come across hurdles and not being on the ground will be tough but I guess that is part of the process. I figured I would explain the scenario a bit more specific to give it a better picture.

                            Comment


                            • #15
                              Ok its Ohio.

                              I'm going to list off a number of steps, and not explain them totally. The Bold ones are where you will fail the biggest and it will cost. The rest you can recover from:
                              1. Building inspection- your a real estate agent, so I won't expand on this. Abestos, superfund location, roof, water sprinklers, elevator for your purposes (have to believe you will need to build a new "set" due to age, type and location).
                              2. Zoning- again, your an agent.
                              3. Zoning- does this zone show Storage, or do you have to get a conditional/special use permit. If you need a special permit find out if they will want you to do anything special. Example: Historical building or neighbor hood, change the façade, add parking that you don't have- thus you need to use up first floor space, etc. Ask them for any weird requirements they will have.
                              4. Third Party manager- For all of the Third Party Manager comments, do exactly what you did as a Real Estate Agent for Apartments. Walk their other sites with them. Ask them to evaluate your site on paper (you don't want to hear one year later, you had a bad site, didn't like your color scheme or lighting, you needed a new front entrance, this is why we failed and only have 30% rent up, etc). Have an exit strategy with them. Ask them how they do "Rent Ups". Set expectations with them and spending goals. Is it okay to give Sparefoot 3 months rent versus minimum 1.5 months? How much can they spend on Google Ads ($1,000 per month)? Basically you want them to define Success and what it will take from you and them. Ask them to see monthly management reports from the other facilities, what you will be getting. Preferably see online. Requirement- You want to be able to tap into a camera system during construction and operations from the internet in LA.
                              5. Third Party Manager- have them spec and quote (estimate at this stage) a security system.
                              6. Read their renters contract.
                              7. Third Party manager- ask them for a monthly "Audit" report/system. "I'm going to rent two units to customers for cash, without you knowing it and take the cash payments."
                              8. Third Party Management- ask them if one of the other locations was a "Rent Up" scenario. Ask them to walk you through the last 36 months or 60 months inventory report. Ask them what caused the increases by month. Disregard impact of Covid, you want to understand their expectations or "Rent Up" and what they do to make it happen.
                              9. Third Party Management- ask them how cash is managed and reconciled against rent reports.
                              10. Property Taxes- get an estimate, check your projections.
                              11. Property/Liability Insurance- Get an estimate, check your projections. Ask the Third Party Manager for recommendations.
                              12. "Stupid Money"- your not the only smart person. Check the area and find out how easy or hard it is for the big boys or someone else to move in.
                              13. Contractor/Building- get the Third Party manager to recommend a Contractor and Unit manufacturer. See if they will manage the buildout on location. The following is Key, pick only one of your partners to be the Point person. They are responsible for everything. The contractors only report to them.
                              14. This is a simple one, but since your from LA and not Ohio. Get all "Outside" work done before Winter. Prioritize that.
                              15. Third Party Management- define responsibilities in both developing and managing: management software, Security, contracts, Customer and Property insurance, auction policies, cash management, banking, website, marketing (googleads, youtubes, sparefoot, etc), Other.
                              16. Financing, read my Topic on financing. Otherwise the same as your Apartment practices.
                              17. You need a market study. Go to my topic on Demand analysis. Spend two days on site and on the internet. Compare against population headcount. Do not, Do not, Do not, take my word. Put the effort in and do your study. Your area can take 6,000 storage units, assuming a 10 x 15 size. Go count all of the existing storage units in the area. Don't worry about 10,15, 20 for now. Read the "Topic" I wrote.
                              18. Third Party Management- have them recommend a Unit Mix. Go to sparefoot and get competitor prices in your area, not 10 miles away. How does this compare to your forecasts? Also ask them their unit quantity expectation and how they would lay the building out. Does two things. Takes them along for the ride. You don't want to hear from them why they failed, you had the wrong mix a year later.
                              19. Unit quantity- 33,000 square feet. 60% utilization. Equals 19,800 square feet. Assume a avg.= 132 units at 15's; 198 units at 10's avg. Estimate rent at 90% occupancy = ??????. Do this math, challenge each item. Compare against your estimates. Change the logic as needed. Realize your architect will do this. But, go buy a bucket load of string and duct tape. Lay out one floor of the building. String for Hallways. 4 inches of Duct tape along the string to mark units. Decide where the Elevators and stairs will go. Decide N/S or E/W orientation. Lay it out. Go to lunch and come back and walk it again. Get the feel. Visualize it. I do this on my properties before I rough grade (no tape).
                              20. Also, start a "Topic" and discuss with Multistate managers about sticking to a territory and the size of locations, get their input.
                              21. Another "Topic" on where to put Elevators and Stairs in multistory. Ask about type of Elevators and stairs.

                              If your plan is to cookie cutter and expand. I would pick a territory of States. Then do a two prong approach:
                              A.. Go in to "Buy" existing units, takes out competition, strengthens unit price, takes away "Rent up" Cash flow issues, no zoning issues, most mistakes, etc. Example: 3 hours away is a location with a metro area of 400,000. They are near an Interstate and a major road. High traffic count and high "Local" traffic count. They are an old facility. 1/3 of their property is Storage units. The other 2/3's is RV storage on rock. RV storage doesn't make much money. Only do this while you have excess ground. You could go buy a piece of land to build or buy an existing brand new facility down the road. Don't. This is a Cherry. Unless you are in "One" building, your first build out should achieve breakeven (cover principle, interest, expenses, not depr) around 65% occupancy. Your second buildings only take 35% occupancy. Look for these diamonds.
                              B. Go to "Build". Ran out of time, need to decide Chinese, Mexican or burgers for dinner. Lets do this one in reverse. Make a list like your were going to build an "Apartment".


                              Im hungry right now. No one read the following unless you promise to buy me and my family a Steak or seafood dinner if we ever meet and eat with you.

                              Before I sign off. I will give you a cheap nugget that I have used. Use GIS property search map. Go to any town that has a railroad running through it. Along the tracks look for any property that is owned by the railroad larger than two acres and ask them to buy it. The US government gave townships and blocks of land to the Railroads when they built them. Most have been sold off. They don't put them up for sale, but they are for sale. Don't worry if they are zoned residential. The Railroad has covenants that no Human habitations can be built on them. Railroads pay no property taxes. Ask the city zoning Board to change the zoning so you can pay them taxes. Also your buildings will block the Railroad noise from the surrounding community.

                              Time for supper.






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