Inside Self-Storage

JAN 2019

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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S elf-storage is the best business there is for the small investor. It has all the benefits of a real estate play and few of the drawbacks associated with traditional investment real estate. It's also an operating business with very predictable cash flow. Because of these facts, it caught the eye of Wall Street following the last recession. The flood of money into the self-storage industry altered the landscape for all investors. This has had a significant impact on those who wish to start a storage business in the following ways: • Prices are still high. • The industry has become more sophisticated. • The complexity of starting a self-storage business keeps increasing. • Your long-term success in the industry will be determined by acquiring speci- c knowledge and expertise. There are seven key abilities you must develop to start or grow a self-storage enterprise. They are the ability to: • Find storage projects • Analyze the - nancial viability of opportunities • Finance storage opportunities • Put cash into projects • Determine project-construction costs • Construct or oversee the construction of buildings and/or a conversion • Oversee and schedule subcontractors Before you start looking for your first deal, these skill sets must be in place. Why? Because the days of finding a good facility, buying it and immediately getting the returns that make it worthwhile are gone. The year 2012 was the last time I could buy a stabilized facility and get the returns I need. The influx of Wall Street money drove capitalization rates down and value and pricing up. If you've been trying to get into the self-storage business but can't seem to make a deal work, this is why. As small investors, we need to find value-add situations. That usually requires an expansion—adding more rentable space to an existing facility. For someone new to the business, that's usually the best strategy because it's the least risky. Building from the ground up typically has one to three years of negative cash flow. Expansions at least break even from year one. You're going to pay more for an existing facility than you desire; but after you blend the returns from the acquisition and the expansion, you get a return worth seeking. The due-diligence timeframe has shortened to, at most, a few months or as low as 45 days. This makes those seven key abilities especially important. If you don't have these areas covered, you can't close a deal fast enough. By the time you can close, someone else has already stepped up and is willing to pay more than you were. I speak from experience. Now let's look at these seven areas. The Ability to Find Projects For most of us, this requires developing relationships with self-storage brokers who work in the area of the country where you want to own. Know these people. Meet them. Talk to them. Help them look good to their clients and you'll get deal-flow for a long time. How do you do that? Be a buyer. How do you become a buyer? Have these seven skill sets figured out before you write your first letter of intent or contract. What you need to start or grow a storage business By Mark Helm Investor Abilities to Master 7 The due- diligence timeframe has shortened to, at most, a few months or as low as 45 days. This makes those seven key abilities especially important. If you don't have these areas covered, you can't close a deal fast enough. 14 ISS I January 2019 www.insideselfstorage.com

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