All Forum Posts by: Benjamin Gallant

Hi all, I seem to have stumbled on a unique opportunity that I would like to pursue further, but I don't have the tools/resources to properly evaluate whether I have a deal or not. There is 1.5 acres of land in a prime Central Coastal California location along the 101. I have been seeking value add self storage opportunities and this property has about 85 units that fits the bill. The storage is located on 0.5 acres. The other acre contains about 17 trailers and 5 houses. I spoke with the owner who was willing to sell but would only sell the two lots together. 

Current Income: self storage brings in about $11k/month and the trailer park brings in about $14k/month. He has owned these for over 20 years and likely has a low tax basis, so anyone familiar with Prop 13 knows my future tax expense would likely eat into a lot of that cash flow. 

I think I can get the self storage to about $13k/month. 

The Ask: The owner previously had this site under contract to a group for $4.5 million and structured it to limit his 1031 exposure. The terms were $500k at close with a $4m seller financing note costing $13k/month. The seller was giving the previous group a 6 year term before the rest was owed. In the meantime, the prior buyers were planning on building about 25 small homes on the 1 acre lot (think ~500 SF footprints or so). 

My Conundrum: after thinking through the possibilities, I stumbled on a Twitter thread where someone had been to a luxury RV park in Wyoming which flipped a light bulb on in my head. The 1 acre would be perfect for a "glamping" style AirBNB resort. You are about 2 miles from the beach and AirDNA has stated the occupancies in the area have remained high as its a "drive-to" destination that did not get hurt as bad during the pandemic. Average nightly is around $200. I don't know the first thing about cost to develop a pre-fab style cabin resort, nor do I know anything about cost to operate, analyzing and valuing it too. My back of napkins numbers show I need it to be worth at least $3.5m plus Project Costs based on what I think I can raise the value of the self storage property to hit my return goal.  

My question to you all is...is this a deal??

Short answer: yes typically! Does the Sponsor have any money in the deal also? Typically what I've seen is something like this:

1) Preferred return is paid

2) Capital is returned to whoever invested capital. This can be returned pro rata back to the LP/GP or sequential (LP's first, then GPs).

3) Once capital is returned to all invested parties, then the promote kicks in. 

Of course, your mileage may vary depending on the needs of the investors. In institutional JV agreements, the project may have an IRR% hurdle the project has to clear before the promote kicks in. Just depends on what you negotiated and what's in the best interest of the investors.
 

You're also using a 3.5% down payment loan...are you planning on getting an FHA loan and house hacking? Otherwise would love to know the lender you're using that will give you that much on an investment duplex!

 Ki, if you’re putting that much down, you should target larger multifamily. Same amount of work, but more cash flow! 

Real short answer to this one: yes.

If you need any help tracking down information through Costar I’m happy to help

That’s a good question on the SBA loan. I have a follow up to that, what does a borrowers balance sheet have to look like to qualify for an SBA loan that will fund this type of conversion?

Also what is a typical cost per rentable square foot for big box conversion to self storage? And if there is 19 feet of height, what would be the cost to convert to two floors? Would you still use about 75% of Total GLA for each floor or lose a little more efficiency to vertical transport?

That's a great list @Nate Marshall and I liked your NFL analogy. Another crucial team member you left out is the Property Manager. If you are not going to manage the property yourself, an all star property manager is necessary to knock your business plan out of the park. Everything looks good on paper until the bullets start flying and its time to execute. A good property manager is necessary to help see your business plan through to fruition. 

@Natalie Wells @Theo Hicks ditto what Theo said. I used to work as an analyst at HFF, a leading commercial mortgage brokerage firm. They’ve got offices nationwide and relationships with almost every lender. If you’re doing the type of volume you mention, it’s worth getting in contact with them and worth the fee you pay them to find the best loan terms. They do tend to focus on institutional clients more but some of their younger, hungrier brokers could help you out.

Also Theo, love listening to your Syndication School series. I’m learning a bunch!

@Jared Garfield what an awesome deal. Goes to show you don’t have to stay limited in what you invest in as long as you drill into the market and feel comfortable.

What pricing on the lots are you using for resale to developers for your analysis?