5 Ways to Partner on a Self Storage Facility

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 very lucrative for those who have chosen this vehicle for both cash flow and wealth accumulation.

FACT: From over a decade of experience in the acquisition, development and conversion of 30 + Projects - you can’t always do it alone.

Whether you need financial backing, sage business advice, or just a swift kick of motivation, you need to have key team members in your corner.

And contrary to what those on the “outside” may think, funding your next Self-Storage Project is the easy part.

Choosing how to structure your deal and the best ways to bring on partners to help you launch or scale your portfolio, well that’s a longer conversation.

As you can imagine, there are many ways to partner on a facility. Each type of partnership has its own list of benefits and challenges, and like choosing your partners, it is equally important to choose the best deal structure based upon the individual project and the goals of its partners.

One must start by asking the following questions:

1.What are your needs? Do you need funds, framework, or freedom?

2.How much do you need?

3.Are you willing to co-own your business and pay equity?

4.How many partners are you willing to work with?

The answers you’ve chosen will help you choose which partnership is best for you. Let’s take a deeper dive into the types of partnerships that are available…

Debt Partners

Having a debt partner is the most traditional form of funding your new self storage facility. Think about it as you would a typical mortgage. Someone lends you money and you repay it to them with interest tacked on.

When you bring on a debt partner, the debt partner will fund the investment and will be paid according to the interest rate for a set period of time, typically established ahead of time at the onset of the agreement. If you fail to repay the loan, the debt partner could foreclose on the property.

Debt partners don’t have any say in your business – and they won’t receive any profits from the business outside of what is owed to them as stipulated in the promissory Note and Mortgage. They are just simply bankrolling your storage facility.

Once you’ve paid back the loan with interest, your debt partner’s job is done and they have no retaining rights to the business.

The downside? Debt partners only fund the facility. They do not provide any management advice, fund additional startup costs, or share any knowledge or best business practices to move the business forward.

Equity Partners

When taking on Equity Partners, you and your partner(s) form an equity partnership to share in the profits and/or losses of the business.

Equity in the business is also defined as ownership interest, usually defined as a percentage and or shares of an lllc. Whether there are 2 or 22 partners in a project, like in a syndication (see below), not all partneres receive an equal share. Percentage of ownership is based upon a nmber of factors.

One partner may be the operations expert, while another partner is responsible to raise the capital to fund the deal. Profits may be distributed based on the amount of equity each partner has in the business.

The responsibility of each equity partner is spelled out in the partnership or operating agreement. Typically, profits are distributed based on the amount of equity each partner contributes, but the percentages may vary based upon the roles and responsibilities of each partner in the partnership.

The challenge? Be Certain that the operating agreement outlines the equity shares and profit distributions of each/all partners along with Clear Roles and responsibilities for all general partners and Limited partners. Be certain to perform your due diligence on all partners that you will bring in to fund your projects.

Joint Ventures

When two or more parties come together for a specific purpose this is considered a joint venture. Typically, once the goal is achieved, the joint venture may dissolve.

A joint venture can be either:

1.You and a partner use a common entity to establish a joint venture agreement, or

2.You and a partner establish a separate business entity such as an LLC or Corporation.

In either situation, both partners contribute funds to invest in the acquisition or development of a facility. Both partners also share in the management of the newly formed venture as well as any profits derived from it.

A joint venture is usually a quick way to establish a partnership with someone, as all it takes is a written agreement between both parties and the establishment of a new entity.

Joint ventures could help you expand your current business or develop one from the ground up. Partners can draw on the experiences of each other while take on the liabilities and collect the rewards equally.

The caveat? Sometimes you’ll want to zig when your partner wants to zag. You’ll have to pull your thoughts together and make sure you are both on the same path to avoid conflict and to move the business forward.

Syndications

A syndication can be formed by a group of people or corporations that come together for a specific purpose. Most syndications are formed as an SEC, Regulation D filing, which means that it is an investment that is treated as a security, as you will be offering shares of the LLC to the public. Most Syndications are open to Accredited Investors, but do allow for unaccredited and unsophisticated investors to participate.

In addition, the Pooling of resources, skillsets, and knowledge could prove to be a win, win, win for the project. The Greatest syndications include a mix of individuals that have various expertise in acquisition, development, operations, marketing and finance. Not all of these talents are used at the General Partner level, but even limited partners, although mostly silent, can be tapped to assist in moving the needle on the project.

The largest benefit in forming a syndicate, however, is that it allows for more and larger facilities to be developed or purchased.

The caveat? Syndications can be costly due to attorney’s fees incurred to set up a SEC Reg D filing, or similar vehicle. In addition, management of the asset, which includes regular and timely communication with the equity partners, and managing distributions, K-1’s, ongoing reporting can be a time burden.

Tenants in Common

Also referred to as “Tenancy in Common”, is an option whereby two or more people share ownership of the property. Each person’s interests are treated as a separate contract, while the property is owned wholly, in totality, by all parties. In other words, no single party can lay claim to a certain part of the property. One CAN, however, have unequal distributions of interests. You may own 75% of the property while a partner owns 25%.

As the primary partner, you do have the option of buying out the other parties should you no longer wish to be tenants in common. Additionally, each person may leave their share of the property to a beneficiary of their choosing, should an untimely death occur.

This is a popular structure as it increases the borrowing capacities of the entity as the lender will look to each partner to guarantee the loan. plus you’ll be dividing the cost and maintenance of the facility.

The caveat? Make sure you’re getting into business with a partner you know, like and trust. If things go south, or If they default on their portion of the mortgage, you’ll be responsible for the entire amount of the loan balance.