All Forum Posts by: Arya Chen

@Arya Chen despite limited reversal in a few select markets with oversupply, the general demand for this product type is very high, leading to lower cap rates that likely won't change much in the near term. Compared to other commercial asset classes, storage remains one of the strongest performers in the market. If you can find one with a true net 10% cap rate, you should be asking "why" is there such a large discount. Likely tied to supply/demand issues, aging facility with high cap ex, and operating costs increases. As you're new to this space, I would recommend partnering with an experienced investor/operator in this space that has several facilities under management create a strategy for investing in this space.

Hi Arya, some feedback on some of your assumptions in your analysis. Your target occupancy of 100% and expense ratio of 33% is a bit optimistic. The national average for occupancy has fallen to 87% (2023). If you're new to this asset class you might want to use 85%. Expense ratios vary dramatically depending on project size, age and other factors, but basic rule of thumb is the smaller the project the higher the expense ratio's, using a 33% expense ratio for a small facility (less than 150 units) is optimistic, smaller facilities are probably closer to 40%. You are not crazy :) cap rates on storage got pretty crazy in the last decade as the space has become crowded and money was cheap, starting to see some reversal of that now, but its tough to find deals at a true 10 cap (10 x NOI or NOI / .10). Hope this helps!

Hi @Arya Chen you may have better luck if you post in the Classifieds section of the forum specific to the areas you're looking in because those forums are location specific!

SBA loans take to long for a location that is for sale.  Get a Construction or Working Capital loan with your local bank.  Make the purchase then convert to SBA loan.  Let your bank know that up front.  Do interest only on the local loan.  Make sure the deal will go thru.  You don't want to get caught with an increased down payment %.  Say 10% for SBA loan.  But if it falls thru and your bank requires 25%.  

Larger banks are normally better for SBA loans, because they have more personnel and can have someone specialize.  I would go for a midsize regional bank, with a Federal lending Cap limit of say $10mm or higher.  That should cover your scaling needs.

3.  Great Deals.  Always go for positive cash flow with potential for appreciation or don't do the deal.  Construction costs have almost doubled in the last 4 to 5 years.  We just sold 3 locations in a C market.  Little debt, 100% occupancy, great cash flow, market needs more units.  Why did we sale?  Couldn't add units and make enough return.  Wanted to take funds out so we could invest in an A market.  Rates are too high, so didn't want to take a loan against, although we will have a loan on the next property, but the returns are significantly higher there.

Do an analysis on your market.  C market- if your 10x20 drive up non climate controlled is say $80 or less, the return isn't high enough for new construction.  I would want my 10 x 20 rate to be $110 or higher to do new build.  Same thought on buying an existing location.

We use a Wagon Wheel and or Linked approach to competition.  If you're operating in C markets and can control the market, then buy the next locations down the road.  Then you can raise prices, above your original Deal analysis.

2 above.  If you plan to scale, then below $1mm is actually a great learning platform.  Will be your worst investment compared to your future deals.  But it will be the one you remember because it helped you set your operations up.  If you fail.  You fail small.

If it has extra land, then it can be a great deal, if the market needs more.  Or you can add parking.

1 above.  I always like having a Buyers Agent.  "But" if a small location in a small town, I would just go with the listing agent.  If you plan to Scale.  Pick a buyers agent that deals in your type of investments.  By giving them "Free" commissions and doing a deal with them, you gain more credence.  How to make an offer and due diligence, they won't be that helpful.  Very few agents unless they are one of the National Self Storage firms will understand Self Storage, although it is very similar to large MFH.  You need to develop your own deal analysis and due diligence.  Just use the lookup function above.