Mini Storage Question

[Jay London]

I've bought and sold some apartment buildings along with several other commercial buildings that I was able to do a value add to, so I used the same principle to underwrite this mini-storage but what they are asking and what the financials are saying are so far apart nothing is making sense. I've spoke with the listing broker and asked him how he came up with the list price and his cap rate and of course he says the market sets the price. It has been under contract that fell through. I'm going to say the buyer backed out after digging into the financials. I've went through Costar for comps and the cap rate for the sold comps are no where near the 5.25% cap they are asking. It appears that the average on past 12 month sales is floating around 8-9% cap. Can someone with more knowledge on mini-storages take a look at the financial sheet and tell me what I'm missing. I don't see where BP will let me attach PDF of the

Financials so if you don't mind I'll have to email or attach it some other way for you to see it. 

To me this thing barley even cash flows (with financing of course) after the 2 year scenario of the pro-forma based on a purchase price on actuals at a 8.5% cap. They are asking $2.8mm and I don't think its work more than $1.5mm as it stands. What am I missing. 

Thanks in advance. 

Jay

[Henry Clark]

Revenue/Income approach:

This is rough calcs to compare against their proformas.  Theirs should be more accurate.

Don't have their size mix.

55,850 NRSF average at 150 (10 x 15)= 372 units

372 average units x $65 their price x 12 months x 85% full their figures= $246,000

Close to their $245,000 figure.  Not including Office rent $21,000 since not included in Cost analysis.

Upside at 100%= $290,000

Can't tell if there is extra expansion land to factor into value.

Lets leave revenue at $246,000

Expenses:

Insurance $13,000 their figure, close to what I pay.

Property tax $20,000  jumps from $6,000 to $20,000.  Ask and understand.  $20,000 seems a little light, but don't know their location.

Leave out Depreciation for cash flow discussion.

Wages $50,000 average for them.  You don't live very far.  I would do Self Service.  You, wife, kids, office help can do this.  Do $5,000 for a local person to walk through and check, pickup trash, weed, send you update pictures.  One of you just drive down once or twice a month to reload units that have moved out.  Go see how I do it on the internet.  Use $5,000.

Other $15,000; to me seems high, but lets leave it.

Net before taxes and depr= $193,000;  remember try to have the purchase price broken out.  Year 1 write offs, your shooting for zero taxes this year and next, from a cash flow standpoint.

I'm keeping this rough, you change figures as you see fit.  Example if you want to throw back in the full $50k wages. Go through Income tax and depreciation calcs to refine.

$2,800,000 / $193,000= 14.5 years.  My objectives are 8 to 12 year payback.  With bank amortization of 20 to 25 years.  I would only go this high if it: a.  Had extra ground to expand on, b.  Had Vehicle storage, I could convert to building storage, or if rental rates are so far below Market and I could raise them 20% and still maintain occupancy percentage.  Instead of their $65 for a 10 x 15; around $75/$80 per unit.  Do a price comparison on Sparefoot in the neighborhood.  Should be a lot cheaper than nearby OKC or Norman, so don't use those as comparisons.

I'll do a market analysis next.