All Forum Posts by: Henry Clark

Up posting this post.  Have a separate post I am referencing this post.  Hard for people to find using just the lookup function.  

Self storage syndication post.  If you have a question just reference this post. 

Did some research on the syndication. The person who DM’s me has not responded back yet.  

I asked if they had a checklist for due diligence.  Make sure you have one to keep improving on

Two things I noted:
1.  There is a Fund of Funds involved.  If you have followed some of the recent syndication posts you can follow up with that concept.

2.  The picture they used was more of a B or C market location.   Also not that large of a location.  Need a larger location and an A market to have more Meat on the Bone.  Unless this is a value add location with more expansion hard to get a lot of bang.  Ask the Syndicator for the locations market analysis.  You want to know the total demand and the existing competition.  See the stress test above.  If they don’t have back out.  It’s just a gamble.  If you want to do the analysis, use the lookup.  Put in “Will they come?”.  Should be the 3rd post by me.  This will tell you how strong the location is.  

3.  Also ask for the rental rate analysis they should have.  If 10x20 units are budgeted for less than $130 then not an A location.  Back away.  

Start small and Make Your Big Mistakes Early.  Post your syndication due diligence checklist and ask for a review.  Good luck on your investments.  

1031 or have them move there as a primary residence for 2 years.

Responding to a question about Political impacts and Self-Storage in a discussion.

From a political standpoint, don't see a change in the stock market. From a performance standpoint, I see a big change. Price/Earning ratios make it not worth investing. All recent increases and near-term future increases are just gambling. At some point the House wins.

To put it in Self storage terms, very similar to my C market comment above. Even if you had the demand when would you stop building? Currently units run around $4,100 erected and let's say in a C market you rent a 10x20 for $70. Let's say the cost goes to $4,500; then $5,000, then $6,000 while your rental rate stays at $70. At some point your Price/Earnings ratio is not sustainable. We are there in the Stock Market, and also in C markets for Self-Storage. Plus, if you dive into the Stock market there are only about 5 companies making the S&P rise. We are in the Stock market, but those funds are for 15 years and out.

We just ordered 200 new locks. Made in China. If tariffs come into play, or any conflict those products become nonexistent and when we switch to a different country source, they will have tripled or quadrupled. Note: Those locks will get shipped here on a Cargo or Conex container.

Shipping Containers are virtually all made in China. They are made out of Core Ten Steel, to resist Saltwater environment which requires Virgin Steel. China has cheaper labor, almost no EPA constraints, far cheaper electric power with their new Dam, etc. Even if products are shifted to new countries, you still need a container to ship them. The US mainly does recycled steel production since it requires far less energy and potential EPA issues, but recycled steel can't be used in most technical situations. We would have to switch back to Iron Ore mining and more Coal energy, which both have significant EPA or political issues. Almost 100% of all Self Storage buildings are made out of recycled steel, since their usage is not technically demanding. So, I don't see a cost increase to our buildings themselves. We are currently running the numbers for a new storage location. In each Phase 1/2/3 we would use 100 "1 trip" or new 20-foot cargo containers, priced at $2,800. During Covid you could not find them since shipping ports were closed, plus their price went up to $5,000. We would financially not be able to complete the project.  However, all products shipped via Cargo Containers or Conex's will go up due to a lack of availability of containers.  Actually, our ports would get clogged with stranded empty Chinese containers.  Ownership and usage would be in question; thus they would be tied up legally.

Concrete material components are mainly sourced in the US. Thus, no political impact to material costs. However, most of the concrete crews are Spanish. ****Forget the Political**** side of the discussion. If a significant portion of low income laborers were to be deported, both the cost and availability for pouring new concrete would become stressed. Even if every Concrete crew was "legal", wages would pull them to other low paid laborer jobs such as landscaping, house framing, meat packing, etc, causing wages and cost to go up for new Self Storage Construction, let alone availability.

Security Systems- yep sourced overseas, China.

Interest rates going lower, but I expect Inflation to go higher. Thats not possible, right????? Wouldn't the Federal Reserve just increase interest rates to reduce Inflation???? By next Fall of 2025 I expect inflation to start to skyrocket. The Feds won't be able to increase the Interest rate, because the US debt level has gotten so high and banks are still under stress with low prior loan rates, but high interest costs. The US government is also refinancing our debt every year, and we can't take a doubling or tripling of the interest rate. They will start to print money, which creates inflation. Inflation whether due to material costs, material shortages, labor shortages, labor wage hikes, or just increase growth demands, etc won't be curtailed starting 4th quarter of next year. Impact to Self-Storage is growth will slow down. Even consolidation into REITS will slow down. Only "A" markets where 10 x 20's rent for $130 or higher will be able to justify the increased building costs.

Crystal Ball. Is any of the above, correct? Probably not. But it's what my thoughts are and determines how we will operate and spend our money.

I always tell people it's your Money, your always right, even if you're wrong. We own our decisions.

Not a financial advisor.

Hate wasting effort.  Was asked in a DM what I thought about a specific Self Storage Syndication, so reposting here.

Note: We buy and develop Self Storage. We do not do Syndications; we have access to all the funding we will ever need, and I don't like sharing the profits. We do not invest in Syndications, not good or bad, we do our own investments with higher 250% to 400% COC returns in 2 years.

But we have the same considerations, when making our investments. Realize these same concerns apply to other Syndication asset types also.

Do stress tests against the deal for both hitting the financial targets and also the Capital Stack impact. All deals have the following issue, you should stress test, the degree of failure before it impacts the Capital Stack and then what happens.

1. Occupancy- Where are you at, where do you need to get to? How will you get there?

2. Rental Rates- where are you at, where do you need to get to? What are comparisons against comparable competition?

3. Operations- how will operations be performed

4. Capex- how much capex is needed, and what happens if only xx% occurs?

5. Financing- what is the financing package? If short-term, does it match the exit time frame and strategy. If they plan to exit in 3 years, does the financing and balloon refi occur in 3 years or longer?

6. Market exposure- what is the existing density of the rental units, what is the potential existing market, what competition is coming online?

You should all have a due diligence checklist.  We have one for both buying an existing location and building one.  Realize Syndication is supposed to be Passive, and the Syndicators should have considered all of the above.  But you are the BANKER.  Just like our BANKERS validate and question our deal analysis, you need to be the BANKER.

Majority of the Syndication failures going on right now are due to either Short-term financing used on longer term projects- in a period of extreme interest rate hikes, material Inflation, or Covid related supply chain or personnel issues.

You as the BANKER, know that all of the above should have been covered by the Syndicator and by you the BANKER.  Crystal Ball???  Yes.

1.  Interest rate hikes.  If the payout time frame was 5 years, then the rate exposure should have covered 5 years.  Even if the project was delayed a year, the interest rate hikes would have had little impact.  The fact someone wanted to show a 20% versus a 15% return by using a lower interest rate, meant increased risk, which you either win or lose, since you're gambling.

2. Material inflation- Really a CAPEX question. How much of the financing was for CAPEX to either build new or value add? Only deals which were one year out in starting the development or rehab should have been dramatically impacted. If they were into year 2 of a 3 year funding, most of the CAPEX should have been spent already.

3.  Covid related supply chain- We had a project where we needed a 300 amp electrical service.  There were none available anywhere in the US.  Couldn't find a 400 amp.  Went with 2 200 amp services so we could open the doors on time.  Long term means two monthly bills.  Developing and project management is all about Hurdles.  You need to know the Operation team of the Syndication can get it done.  That is thru TRUST, which I don't like, or thru experience which can be vetted, just like a BANKER would.

There is no Passive.  You will note there is no mention above about being a good communicator.  You have your one chance as the BANKER to have communication. After that, they have and control your money.  No SEC requirements.

Google to get specifics.

1.  Only do land.  You take possession in 6 months.  Houses take 2 or 3 years, can’t remember specifics.

2.  Only do off auction properties. Actually a lot of properties the taxing authorities don’t put up for auction.  If $25,000 back taxes offer $4,000.  Gets it back in the tax rolls.

3.   Check the following.   Are there other taxes past due.  Drainage districts, certain school taxes.   Are the taxes being auctioned to the current date. 2024 versus 2022 and more taxes are due.

4.  What happens if they pay the taxes?  You get your money back plus varying amounts 25% for year one, 50% year two etc.  Check this.  

5.  So which properties do you want to make offers on.  My brother and nieces did or looked at these.  
10 acre subdivision lot two houses down.  Paid $10,000 sold for $50,000 two years later. Mowed the grass.  

6 acres in the highway in the middle of town for $8,000 sold 1 year later for $200,000.  

One lot looked at.  Had high lines above and with setbacks you can’t build. Could do parking and cargo container storage.

 4 acre lot needed 200 yards of rock in dirt road.  Drainage went through the property. I see a small pond with the land split into 2 lots. 25 miles away from Dallas.  

There is no zoning in Texas counties.  Get the land and find a purpose.  

Having been thru the corporate world, I came to understand wanting to be financially free, in charge, reaping benefits beyond salary which was good. 

To get into REI we didn't use BP or other forums. But BP is built on churn. All of us responding support churn for different reasons. Mine is boredom between Self Storage and Country subdivisions. Also responding has sharpened my deal analysis.

If I was to talk with all of these potential investors.  I would tell them what I wished I had known. 

1.  Join the military.  My entire extended family is military.  Would do it just out of pride.  But with BAH base allowance housing. $15,000 to $50,000 tax free annually.  You’re guaranteed to be a millionaire after 20 years plus have training, retirement, benefits.  Plus you got to see the world.  

2.  Texas property tax sales.  Just land.  Don’t go to the auctions.  Make offers on off sale properties. 

3. Primary residence capital gain $250,000 exclusion. Buy the worst house in a great neighborhood, do rehab, ADU, lot split.

4.  Nasty.  Invest in properties others don’t have the vision.  Not necessarily dirty.  

None of these are $200 per door in a C neighborhood.  

So understand the desire for financial freedom.  They just need to run the numbers.  Also to risk adjust the returns.  Build a Scale model and see what it takes to get to your number.  

Start small and Make Your Big Mistakes Early.  

 In the lookup.  Type will they come.  Look at the third listing with my name. 

 Read my post.   Marketing new location startup.  Then come back with your own post asking questions .  Covers all aspects of marketing self storage.  

 Grew up in Louisiana.  
Read my. Post “Will they come.”  Also my post on marketing.  

Then reach out to me on a separate post and we will analyze.