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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Fact: Self-storage development is at an all-time high, and the demand for storage is still on the rise. Fact: Investing wisely in a self-storage facility has proven to be lucrative for those who've chosen this vehicle for cash flow and wealth accumulation. Fact: You can't always do it alone. W hether you need financial backing for a self-storage project, sage business advice or just a swift kick of motivation, you need key players in your corner. Contrary to what those on the "outside" may think, funding your next investment is the easy part. Choosing how to structure your deal and the best ways to launch or scale your portfolio, well, that's a longer conversation. As you can imagine, there are many ways to partner on a storage asset. Each type of partnership has its own benefits and challenges, and it's important to select the best deal structure based on the individual project. You must start by asking the following: • What are your goals? Do you need funds, framework or freedom? • How much do you need? • Are you willing to co-own your business and pay equity? • With how many partners are you willing to work? The answers will help you choose the partnership that's best for you. Let's take a deeper dive into the options available to self-storage investors. Getting the development and financing support you need By Scott Meyers Is It Time to Partner Up? Debt Partners Having a debt partner is the most traditional form of partnering on a new self-storage facility. Think about it as you would a typical mortgage: Someone lends you money and you repay it with interest. When you bring on a debt partner, it'll fund the investment and be paid according to the interest rate for a set period, typically established at the onset of the agreement. If you fail to repay the loan, the partner could foreclose on the property. Debt partners don't have any say in your business, and they won't receive any profit from it outside of what's owed as stipulated in the promissory note and mortgage. They're simply bankrolling your investment. Once you've paid back the loan with interest, your partner's job is done, and it has no retaining rights to the business. The caveat: Debt partners only fund the facility. They don't provide any management advice, fund additional startup costs, or share any knowledge or best practices to move the business forward. Equity Partners When taking on equity partners, you share in the profit and losses of the business. Equity is also defined as ownership interest, usually as a percentage or shares of a limited-liabilty company (LLC). Whether there are two or 22 partners in a project, not all receive an equal share. Percentage of ownership is based on a number of factors. Typically, profit is distributed based on the amount of equity each partner contributes, but the percentages may vary based on their roles and responsibilities. For example, one partner may be the operation expert, while another is responsible for raising the capital to fund the deal. The responsibility of each party is spelled out in the partnership or operating agreement. The caveat: Be certain the operating agreement outlines the equity shares and profit distributions for all partners. It should also include clear roles and responsibilities for all general and limited partners. Perform your due diligence on all parties. LEARN MORE Learn more from author Scott Meyers in the video "How to Attract Private-Equity Partners to Grow Your Self-Storage Portfolio," available in on-demand and DVD formats exclusively at You can also join Scott at the upcoming ISS World Expo, where he'll present a seminar titled "Finding Your Opportunity Zone: A New Government Program for Self-Storage Investors." Learn more at 18 ISS I January 2019

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