Clarkstoragellc- 2022 Year end Wrapup

[Henry Clark]

You can look back at our 2021 Year-end Wrap-up Post for further perspective.

Economy- my perspective right or wrong throughout 2022.  This is the basis for some of our business decisions.  Basically, put our money where our perspective was.  Costs kept going up on Self Storage buildings and Flex buildings.  No reduction in sight.  We have been past our "Number" for several years, so expanding into this Economic market we weighed more towards Risk Analysis and Wealth Preservation than bigger numbers (debt/asset growth) and increased exposure.  Our 3 bankers said there is still a lot of cash and Government issued cash out on the sidelines looking for a home.  This will keep inflation up for a while, even if interest rates go up.  I make it a point to discuss with all of our contractors how is their backlog.  Engineers, building manufacturers, Excavators, erectors, Electricians, Plumbers, etc.  all have a 6-month backlog, both a year ago and now.  No slowdown in sight.  All are having trouble finding workers.  Inflation will stay up for a while.  Again, this is our perspective, forget whether we are right or wrong.  But this is the basis for our decisions.

Self-Storage:

We are primarily at 100 % at all of our B/C locations.  Our two A/B locations are in Rent up phase.  One is at 65% occupancy and the other was at 20% occupancy.  Decided to sell the one at 20% occupancy due to our Risk analysis at the time.  This was our largest debt exposure, and it was at only 20% occupancy which was progressing well during rent up.  This also allowed us to take off a lot of profit on this location off the table.  Applied it to our other Self Storage locations debt, bought extra land to hold (cash purchase), and saved some cash back.

Decided to help my brother out (don't call me for help) on a self-storage deal a while back.  He is in the process of selling after just one year.  Occupancy is at 50% and going great.  His cost is 1 x; CBRE appraisal said 2 x; and he has on the market for 3 x.  Was astounded by his market as I helped him analyze.  Both from a Cash flow, Cash on Cash, Cap rate and appreciation standpoint far better than where we are at, with the same cost and effort.  But I like it here.  He is moving for two years, so if he gets his number, he sales, otherwise he keeps, and the value keeps rising with higher occupancy levels.

As I have helped him and others on this forum analyze markets, I'm astounded at the many great markets left in the US to invest in.  Even cities where you think it would be impossible such as San Francisco (off downtown), Tampa, and yes, Bill, Wyoming.  Even helped my Niece look, found a large city where I would jump in and build 20 locations of 300 units each or more with great zoning and land availability.  Luckily, we are primarily done growing otherwise if our 22-year-old son was 30, we would take off on an investment spree.

Debt level. Pulled back to around a 50% LTV across all properties with the above-mentioned debt pay down. Finalized our SBA loan on one of our A properties and secured 20 year fixed. Refinanced and combined our other Storage debt from 5 year to 7-year balloon. We still had about 2 years left out of the original 5-year balloon, but I want to extend our balloon terms and lock in interest rates now versus being exposed 2 years from now with whatever interest rates end up at. Basically, we are paying an extra 1% point than we would have for the remaining 2 years, but the current interest rate we would refinance to, is already 2% points higher. Plus, our balloon is out to 7 years. Don't really care what happens to the interest rate for our current investments.

Actually, I take my last statement back.  I hope interest rates go up.

We have been growing so fast making money on the development side, that we had not gone back and increased rates.  This year we increased all new contracts $10 each and had all old contracts increased $10.  Doesn't sound like much, but that is about $7,000 per month more in cash flow, for sending out notification letters for existing customers.  Lost about 10 customers due to the increased rates but replaced them within a month.

We added one new building at one of our C locations, where we are just hammered for people wanting to rent.  Financials projections weren't that good but decided to build anyway to keep competition at bay.

Worst financial decisions this year were:  A.  Selling our latest location, B.  Paying down debt.  We decided to err on our Risk management side, versus going for MORE.  But we decided to pull chips off the table and reduce debt load.

Future- have 5 acres purchased to do an "A" location.  Our electrician contractor has two properties in a town where we can't find property at the right price and location.  Might make a deal this year.  Great town.  Has additional unmet demand for 30 miles around.  Also, we will cutoff the major competitor who is 4 miles out of town.

Flex buildings:

We have the land, the contractor, the plans, the zoning and the financing in place.  Just not ready to pull the trigger.  Costs are too high.  Although a metal building similar to Self-Storage in concept, totally different customer base.  Not as comfortable assessing the market.  Holding off this year.

Subdivisions:  We do Country subdivisions.  2 acres up to 20 acre lots.  We just subdivide the lots and sell them.  We sold our last lot on our Journeys End Subdivision in 2022.  You can look up post.  Bought a new location with 75 acres that we are developing.  Lookup Silver Lake post.  Looking at the surveyed layout this Monday.  Should end up with around 25 lots.  Bought at auction for $675k; will invest around $200k into roads, 4 pond dams, and development costs.  Plan to sell lots for $80k up to $150k per lot.  I tell people doing a Subdivision development right now is a bad idea.  Where we are ahead, is this is a pure cash play with no debt, thus no holding costs (yes opportunity cost is missed but let's say 3%).  Our area we are very low on housing inventory, so people are willing to build.  The target market with the lot price point and the building Covenants are people who have the money and are not as impacted as other home builders.  Are we right?  As I always tell people, it's your money, your always right, even if you're wrong.

Lessons learned on these subdivision projects.  People love trees, ponds and boulders.  We plant trees as needed.  Build ponds.  And truck in boulders.

We won't truly start to sell in earnest until November of next year, so we pay capital gains and not ordinary income taxes.

Teak Plantation in Belize:

Things are going great now, since our Belizean Contractor is living onsite and is also our partner.  It's all about "TRUST" and giving him skin in the game.  Depending on if we own the property 70/30 split or if we are managing the property 60/40 split.  He gets the 30 or 40% of the profit, with no input costs.  Every trip down, we run through the numbers on how the Lumber industry works for Teak, so he can see the end game.  The numbers are so big, he can't actually perceive that much wealth.  As a contractor he gets USD $30 per day.  He just has to watch over the property for the next 15 years or 25 years depending on the age of the plantings.  When this is done, he will be in the top 1% for Belize and probably the top 20% for the US.  He just bought a used truck with 120,000 miles on it, and he is tickled pink.

With the sale of our Self storage location above, we bought a new Teak property in Belize.  Two pieces of land side (32 acres) by side (28 acres).  Originally listed for $310,000; bought for $180,000.  It's a buyers' market down there.  We lined up a list of 13 properties.  Told my realtor in descending order the deals to offer and our price, with a 3 day offer subject to inspection.  Made it to the 3rd one on the list and made a deal.  Thinned and trimmed the one property with 12-year-old Teak and Mahogany trees.  The other piece we cleared and planted half this year.  Not enough seedlings.  The rest next year.  Only ran into one snake the whole time.  Small Boa Constrictor, the bulldozer got.

Dumbest Idea Ever:

Spent Xmas/New Years in Sicily and Italy. Our son is stationed in Sicily with the Navy. From the BNB we stayed at in Sicily the house below was in our sight, from our terrace balcony. Every day looked at it. Walked over and asked around. Building was started 15 years ago, and the owner died. The family never finished it. Was to be his painting studio and vacation house. Four stories with great views of the Ionian Sea in front and coastline, and Mount Etna in the back. Hard to turn my REI head off. Contacted an Agent Immobiliere (Real estate agent) and got him to show me this property and another similar property. Hard to believe the number of houses available over here. Some cheap and some really expensive for being old and needing that much more to re-build. If we weren't already in Belize, would definitely invest here for the life and food, not as an investment though.

Outlook for 2023:

Still playing it conservatively. Will let the new Subdivision get completed and go to market November of this year. We need 10 of the 25 lots to be sold to break even, thus not a lot of pressure. But the market will decide. Still have both Cash and a lot of Equity on the sidelines. Have three properties shovel ready. Will wait and see how the subdivision does, then look at costs again on new projects. Not really looking to buy existing Self Storage. Premiums are too high. Making more money developing than buying existing locations. Finance terms were solidified to 7-year balloons and SBA 20 years, so have no downsides if interest rates increase for the Self-Storage business. At about 50% LTV across the board on Self Storage and Flex buildings; thus no Banker "call" issues. Only downside on higher interest rates will be sales of the Subdivision lots, which since this is a cash investment, we can sit on and hold.

Good luck on your 2023 investments.

Its your money, you are always right, even if you're wrong.

Start small and Make Your Big Mistakes Early.