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Updated 11 months ago,
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Clarkstoragellc- 2023 Year End Wrap Up
You can look back at our 2022 Year-end Wrap-up Post for further perspective.
Economy- my perspective right or wrong throughout 2023. 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 most of the Covid cash is out of the market. Those deposits they had to turn around and loan out. Now they are not pressed to make loans. For risk management they are only lending to repeat loan customers and not new customers. Glad they are part of our team, and we did not go chasing 1/4% rate differences. I make it a point to discuss with all of our contractors how is their backlog. Engineers, building manufacturers, Excavators, erectors, Electricians, Plumbers, etc. backlog of business has started to go down. All are having trouble finding workers still. Inflation, rather Inflated prices over the last few years will stay up for a while. Even if inflation levels off. 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 A location is nearing 80%, thus in 2024 we will need to think about expanding. Regular self storage units are running about $4,100 per unit versus around $3,000 about 3 years ago. The rent in our B/C locations is not high enough to add more units and make a desirable return. Your 10 x 20 units need to be above $90 to make a profit, and above $130 to make a desirable profit. Don't see new construction going down anytime soon.
Debt level. Pulled back to around a 50% LTV across all properties with the 2022 "A" location sale. Last year we refinanced to a 7 year balloon so don't really care what happens to the interest rate for our existing investments.
The one new building we added late 2022 was 100% rented out early in 2023. Have to decide whether to build again. This is one of our "C" locations, so we built from a competition standpoint versus a return standpoint. We are getting quotes to buy and move down about 30 storage containers to that location. They can be written off in one year depending on tax law updates. Also, no property taxes. Can add as needed. We did do a new quote for another building. It would work financially, just not sure the occupancy and rent up will be as positive as the last building.
Worst financial decision last year: Not moving forward with our Flex buildings, see below. Wanted to wait to see if building costs would go down. They haven't. Also wanted to see more clarity on the overall economic environment, and it is still cloudy to me.
Future- sitting on 5 acres purchased to do an "A" location. Not ready to pull the trigger to start building. The interstate system construction around this location has been completed and will slowly start to increase the value in this area. Black Swan- there are a lot of potential economic hits right now. China collapse, China/Taiwan, China production moving to other countries, Ukraine/Russia war, Ukraine/Russia fertilizer and wheat, Panama Canal water levels, US debt versus GDP, US illegal immigration, US Baby Boomer social costs coming on line, Stock market P/E ratio. Even if interest rates dropped 2% points, I am very leery of the economic outlook. We are sitting in a good spot, but there are a lot of things I am looking over my shoulder. We did investigate selling 3 of our Self Storage locations, potential price target was not what I wanted. We will do some value-add options and increase the value. Have other potential investments with greater returns we could use this funding for.
Flex buildings:
We have the land, the contractor, the plans, the zoning and the financing in place. Although a metal building similar to Self-Storage in concept, totally different customer base. 25 by 45-foot bays, with 14 foot roll up door and a walk thru door, with light electric. Not as comfortable assessing the market. Held off last year. Got updated building costs and about the same. This project is a good financial project and meets our targets, just wanted to see if costs would go down and the economy settled more. Will decide in the coming month or two whether we build this year. Interest rates aren't a factor since we can refinance and are factored into our deal analysis.
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 Springs post. Ended up with 18 lots. Bought at auction for $675k; will invest around $200k into roads, 1 pond, 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 5%). 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. Trucked in about 100 tons of boulders and strategically placed.
Waiting on Subdivision approval. Will start to market this summer/fall. If interest rates continue downward, then interest will rise. We are planning on a 5-year sale cycle for this project.
Teak Plantation in Belize:
Teak trees are going great. Continue trimming and thinning trees. Have almost all new seedlings planted. Looked at 4 other existing Teak plantations last week. About 400 acres in total, covering 4 parcels with 4 different owner groups. Only interested in 2 of them based on the trees themselves. Current owners are aging out. Will see if we can make a deal.
Funnest Idea Last year:
Built a fishpond on the new Teak farm we bought. Was a ditch with a natural flow. Pond turned out great since there was a lot of clay and the bottom sealed really well. Literally just got the Tilapia fingerlings this week and placed in the pond. Will be 3/4 pounds in 4 months and about 2 ponds in 9 months. Workers will be able to enjoy free fish every week. Have to show them how to make fish traps. This property had a 5-acre hill on it, that wasn't good for Teak. We cleared and planted about 300 fruit trees and flowers on it. The pond can be seen from above. Will be a great building site if we ever sale and adds value. Took about 3 days with our skid Steer.
Dumbest Idea Last year:
My brother/wife moved near Pisa, Italy last year and our son is based in Sicily. Going to a new market and economy lots of ideas popped out. No Uhaul type service, very few people have pickups due to the high cost of fuel and taxation. No Self Storage business to note. Parking is very limited, so parking stalls would be very marketable. As always, we would have to look at zoning, legal and a new market assessment.
Outlook for 2024:
Still playing it conservatively. Will let the new Subdivision get completed and go to market this summer. We need 10 of the 18 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 2024 investments.
It's your money, you are always right, even if you're wrong.
Start small and Make Your Big Mistakes Early.