The Benefits of Building Out of Ground

I've been in commercial real estate for a couple of years now. We have multifamily, student housing, and self-storage facilities in the Midwest and Southeast. We started in the residential space. We wanted to move from residential into commercial just to create more of a passive generational style wealth-building concept. We've seen other people do it before us. We knew we weren't going to reinvent the wheel, so we just found some good people that were operators, found out what they were doing and replicated it just like we did with the fix and flip business. So now we've expanded, we're closing on our third storage facility in about 25 days that'll be managed by CubeSmart. They manage about just under 40 million square feet of self-storage space. So they're going to manage all of those for us. We'll brand it that way, we'll market it that way. We'll fill them up and lease them up that way. The top three groups are Life Storage and Public Storage and Store Tomorrow.

Storage units and real estate are kind of two different animals. Multifamily is different if you're building one out of the ground, you have to make sure that it's going to work in that area. If you're buying an existing one, you probably have some metrics to know whether or not it's already working right based on cash flow and occupancy. Maybe there are some operational inefficiencies, maybe it's under market rent but you have a pretty good indicator of what future cash flows will look like based on what current occupancy looks like. It’s always a little bit more speculative coming out of the ground. You really just have to understand why you're in that geographic location. Why are you building there? What's the absorption rate going to look like? Feasibility studies are huge. You're spending a lot of time and a lot of money.

The next project that we're doing is almost $12 million just in cost. We're spending a lot of money. We want to make sure that the locations are going to work, but the benefits and the upside and the efficiencies that you create by building brand new is that you have a class a building. All new updated lighting, it has all the modern amenities and at the same time, you're creating a ton of value coming out of the ground. So you know the value that you get to create as you lease these things up based on your cost per square foot to build new. It just makes a lot of sense if it's in the right geographic.

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