All Forum Posts by: Henry Clark

@Matt

If your interested I can do a full training session with you on this forum over in the commercial real estate section. Others can get the benefit of the discussion. No cost. 

Read the topics I’ve written or added to over there

If you do please narrow the discussion down With the following. It will dictate the discussion areas and depth.

A.  Based on the type of loan your collateralization will be 10/15/35/40 percent

B.  Size of investment $300/$500/$1mm/$2mm/$4mm

example  if you only want to invest up to $100k that will make the discussion more beneficial  

Tell me a general geographic area  City county or other you want to look at.   We can use that as part of the discussion  

Key- Start small and make your Big mistakes early

Good thing about doing this on this forum will Be other people can follow, contribute and challenge. 

Just giving input to an investor putting their plans together on a new location.  Thought I would share.  I am not showing their original comments, so some of my comments might seem out of the blue.

Our security guy just moved us to UniView tec hardware and NVR systems. They are working fine, but not saying you need to change. Here are some features you might check with you supplier on. I love features of this system. But, it is very illogical using it, feels like a programmer versus a user designed.

This is our new facility and we are planning for expansion. The NVR NR12816 is built for 128 channels, we have used about 60. We go with one camera per 6 units. Its a big selling point and the cameras are so cheap now. Another differentiator. Switching our other locations to this as we age out or add.

a. Put a bullet camera over your keypad in/out for a facial shot. Realize the PTI system has a pin hole camera built in, I would go with consistent software. Also with this camera, you can both Record/hear the user, and also speak back to them. Again, keeping these functionalities to one system. Make sure you put a sign telling them, they are being recorded visually and vocally.
b. Use a Special license plate camera IPB2447M both coming in and out. Has to be a specifically built camera for License plates. Can see through headlights and taillights and glare. More pixels doesn't matter, it has to be specially built.
c. Motion sensors- by camera IPB436 be able to dial in the "size" of the object to register. At our current setting our Rottweiler doesn't register, but we do. When snow or blowing rain gets close to the lens, it will set off, because it looks large.
d. Motion Sensors- by camera you can highlight areas you want to register. At our front entrance cameras they project out over the road and across the field. We were picking up cars on the highway 200 yards away. Turned off the highlight in that area.
e. Motion sensors- on another Topic, the person noted they had to look through their cameras to see who moved into a unit without turning in a contract. He spent a lot of time looking over his camera system. Get a system that shows a date and timeline, that shows "orange" highlight anytime there is recorded movement. It makes it a lot easier to review 24 hours of film. We used to have to look for was the rope handle in or out, leaves or grass in front of a door moved, lock broken into or not. A lot easier to look at the orange timeline and just look at those motion logs.
f. Motion sensors- this can be done on any system, just food for thought. My wife gets a ping on her phone every time the front gate opens. She can view all cameras anywhere in the world (Belize, our winter home and future Teak farm). We can set the "back" cameras where someone might break in, to send us a motion ping, between the hours of xx to xx.

There is a reason for each of the above items, even with a PTI system. 1. Can you identify them?, 2. Can you find them?, 3. Did they actually go into "that" unit?, 4. Did your NVR memory bank time out, before you knew you had a break in? Without these, your city or county attorney won't prosecute.

One final note on NVR memory.  By camera you can set the number of pictures per second.  All of our cameras are set at 4 pics per second.  The front gate/license plate cameras are set at 10 per second.  The NVR memory capacity is determined by its capacity, but also by the number of cameras and the number of pics.  

4 pics per second sounds like a lot, but it isn't.  Did that person really walk into that unit?  But they cut the lock and rolled the door up.  That's not "entering".  Did you catch them "entering"?

Story- Guy rides up on a bicycle (no license).  Steals my "low" cameras.  Has gloves, long shirt, full head ski mask, Goggles and backpack. Didn't drop anything on the ground.  Caught them in one day.         Make sure you have the right cameras and lighting. 

That reminds me, I have to ask the city attorney to give me my cameras back.

@C, if you promise to buy me and my family dinner at Pappadeaux's next time I'm in DFW.  Otherwise don't read the following:  I'll trust you.

DFW being so big, pick the side you live near.  Then look out 40 minutes.  

1.  Stay away from Climate controlled units.  Leave this to the Big REITS and larger investors.  Their SEO and leveraging is far greater than yours ever will be.

2.  Deal- your looking for a property that has a large RV/Vehicle/Boat storage portion, or extra bare ground.  This property will get valued with the parking lot/bare land price.  You will convert it to storage and increase the revenue stream.  Can't disregard the lost revenue of the Vehicle storage, but the original storage should have covered all ancillary costs and most of the land.  Your new buildings should only take about a 35% occupancy for total cash flow break even.  This might be 50% given the loss of the parking revenue.

DO NOT buy!!!!    Use the following for discussion purposes only

Look at Loopnet for the Arlington Stor More property.  No price given.

a.    As you see in the picture there are three storage facilities right next to it.  You have to answer the question, is there more capacity/market.  Even if there is not, offer different products.  Tell the other locations, you would like to buy them (price control, increase the prices after you buy them " you just made 30 % more the day you buy them").

b.  There is extra land that goes with this property. Plus there is bare ground next to it.

c.  Take an inventory of both sizes and numbers.  Based on the pictures looks like mainly 10/15 ft units.  "30" buildings could have some 20 splits.  You might then build more 20's.

d.  You might do vehicle ground storage.

e.  Build larger storage bays with 12 wide versus 10 wide; 10 tall versus 8 tall;  this will bring a different customer.

f.  Build Contractor Incubator buildings 25wide by 50 deep. With 14 x 14 doors and a walk thru.  You will get some race car guys.

g.  Love the road, it has a middle turn lane, so you catch customers both ways.

h.  See all of the Lakes around you.  Offer the following product:  1.  RV/Boat storage, 2.  Cargo Container storage, 3.  RV rec parking away from the storage.  Make it top notch: a.  water, sewer, dump station, wash station, tire covers, monthly check up service (tires, doors, plug in, propane tank fill, inside motion sensor alarm, etc).  No one in Dallas or Fort Worth wants to drive their RV or Boat back to the city, even if they have the zoning.  Make them a Brand name.  Example:  don't know your last name.  Clemens- Bardswell; Clemens- Waxahachie; Clemens- Cedar Creek; Clemens- Tawakoni, etc for each lake.  Why?  So customers will have a preconceived quality of your product, also when you sell, it will bring more.    REITS won't go after this market, until you build the brand, outside of the corporate think tank.  They won't do the leg work.  Locals won't think that big.  Go with your location features, Lakes.  Develop a cookie cutter Brand model, then its just work and financing after that.     Hey, someone tell me there isn't already something in the area like this and I just wasted a lot of "ink".  

Key is to offer more/"different" products than your other competition.  Make your deal, don't chase the same deal everyone is looking for.  "Clemens Lake Properties", sounds great.  There are a lot of lakes around DFW.

Start small and make your Big mistakes early. 

@ P;  tag along with @ G comments.

1.  Example: Finance on 20 year amort, with cash flow at 8 to 12 years payout.  If you can't do this, pick another deal.  Each of us has our own financial targets.

2.  "Stupid" money test.  Not everyone, including myself is as smart as you think, even large REITS.  Luckily on the other side of town from my latest location the REITS are pounding each other, with over building.  Do a "Stupid" money test.  For the location your looking to buy, go to the city or county and get their zoning matrix or table with Conditional/special Use notes,  and future development map with future zonings (its easy to rezone, if it is planned for your or competitors).  The harder it is to build or buy, the less chance for "Stupid" money to overbuild.  Be careful, Cities are greedy.  Lets say the Kmart near you closed and it was zoned without Self Storage capabilities.  The city will probably allow a Climate controlled location, to help with the taxes.  Our location we are building now, has both poor zoning for Storage and the hilly terrain makes it hard to find suitable ground; but it is in a a high population, high income area.  Plus the Kmart location was purchased for another business. This was a very hard location to find.

3.  We do 5 towns and 8 locations on my phone.  We have self service.  If we didn't do this we couldn't grow.  Develop your system to determine if it fits your life/work style.  Think of how many times you would drive 30 minutes to meet a potential renter and they didn't show.  If you hire a manager this comes out of your margin.  Or you have to be the live on site manager.  Do these fit your plans?

4.  After you have your business settled, start upgrading your tenants.  If one keeps coming up for auction, then since it is month to month both ways, tell them to move on or double their rent, or start charging auction/lien/late notice fees.  You don't want to be calling and sending letters, this isn't fun.

@LEA

Some basic questions:

1.  Do you have an i phone?  Security systems now can send messages to your phone.  Gate opening; motion between the hours of 10pm to 8 am; Size of motion- cat, dog, person- you can adjust the sensitivity; you can view all cameras on your phone at 3 am in the morning for example.

2.  Do you have a job where you can stop and take a phone call or not?  Your gate opening. If you can't take phone calls for lost codes or fobs, then just do a push button in and out.  The purpose is to stop them in a specific location for a facial camera.  Also in front or back you want a special License plate camera.  These can see through headlights and taillights.  Even the best security cameras can't do that, has to be a special License plate camera.

3.  How far away do you live from the site, minutes?  With the system above, this dictates whether you call law Enforcement or not.  Also you will want a concealed carry gun license, if your going to check at 2 am in the morning, along with your small dog.  If you keep calling the police they will either charge $$$ you for the false alarms or won't come.

4.  How much income at 90% occupancy do you plan to generate?  You need a room to put the camera and NVR system there.  Just a basic system with two license plate cameras and two facial cameras and about 20 normal cameras will be about $25,000 installed.  Pick a system that shows "orange" during motion time frames so you can go to the time, versus looking through 24 hours.  Also when you set your cameras for frames per second, put more at the gate and less in the field.  Don't do 100% recording.  This will get you a better picture where you want it.

Your automated gate system will be about $25,000.  Fence around 2 acres is about $25,000.  Paving, rock or concrete parking?????.  Electrical $7,000;  Night Lights LED on Poles $5,000; 

Take some stakes and string out and line out your property.  Drive your vehicle and an RV or camper around and park.  Determine pricing.

Make sure you have enough revenue before you start the project.  If you don't do the above costs, you will have an RV spot where everything gets broken into.  Rv's are easy to break into.  Your business will go down.  Good luck

@Ryan

Lets assume your in a saturated market.  Looking at other posts/info, your looking at Bluffton or Hilton Head SC.

Strategies:

1.  Lets look for a "Deal".  Get on Sparefoot, put in Hilton Head and Bluffton each.  "Visit" every location listed.  Or look at Google Earth street view.  Or GIS maps.  What you are looking for is something with Acres.  Also a location that does RV/Boat/Vehicle Storage.  Don't ask if the location is for sale.  They have been asked many times.  Make an offer on the first visit based on the parking revenue.  Don't ask for a decision, see if you can come back in a week.  They and everyone else will have valued based on Parking revenue.   Your going to build more storage and increase the value. 

2.  While your doing the above.  Lets go look for land to build on.  You want negotiating power.  By having two options, you can walk away from either, giving you power.  Don't lock in on one location.  Now lets go against the grain.  People don't like to spend money and they get tired of being on the water in a hurricane.  Move away from the high price districts.  Look at Limehouse, Pritchardville, Hardeeville, 278/95, 46/95, 17/95, 30/95 and 204/95.  Remember you want to make money, not necessarily be in the high rent district.  Your prices will be half of the saturated areas and they will come.  Buy a large enough piece of property 5/10/20 acres.  Do regular Self Storage, RV/Vehicle/boat storage, Cargo Container storage, if you have enough land do RV rec parking if you can get sewer/water.

If you pick a spot of land always go for turn ins from both ways or a stop light.  Also on the way to the major destination. 

Your in an area where they probably have class "A" motorhomes.  $250,000 up to a $1mm.  You can look at indoor storage for RV's.  Otherwise don't do in door RV storage, the numbers don't work. You have to be able to rent for $225 up to $350.  Most $30,000 to $70,000 RV owners won't pay that much.  The big REITS don't do this type of product and the Mom/Pops don't either.  Don't think just RV's.  This can also be Contractor Incubator buildings.  Has to be kept clean for your RV clientele.

3.  Now is the best time ever to get into Self Storage.  There will be a large transfer of ownership in the next 10 years, interest rates are low, most properties are mom/pop and the kids don't want it or live nearby.  Stay away from Climate Controlled and the Big Boy REITS.  You can beat them, but not at their game.

Good luck.

This topic got erased before.  I am not trying to sell anything or promote myself.  Giving information and experience freely. Would like folks to know who is giving the information and what the "angle" is.

We are finishing our last storage location.  Moving on to a different part of our life's and a new investment (Teak Forestry).  Glad to help others out.

WHY STORAGE, WHY ME?

First of all, don’t trust anything I say. All things related to Storage, “you” can validate. You need to own the info, since its your money.

Second, start small and make your big mistakes early.

My background is as a CPA/Controller/CFO in Small $10mm and large corporations $1bl. Primarily in the manufacturing arena. Have a great wife and son. Everything is/was good in the world. I don’t have a great Pasta recipe to start a restaurant. Not handy with machines. Not a sales person. Don’t want to fix toilets at 10pm on a Saturday and replace soiled carpet on a Sunday. I am diligent, great at managing projects, good at Finances, care for my clients and most importantly can “Take a licking and keep on ticking.” Do you have similar skills? Being a business owner is hard. Developing a new Storage site is harder. Everyone sees “money” when they see a storage location, they don’t see the Risk or hard work to get there.

The first time I thought about having a business was at lunch with an Engineer friend/colleague. Both of us come from the world, of do good in school, work hard and life will be good. Both of us are at the top of our professions. At the lunch, he mentioned one of his friends got a call from his son who was an Engineer in Colorado. “Dad, I’m thinking about buying a Snow Removal company.” The friend thought his son had gone nuts. He had achieved the dream. Did well in school, worked hard and had a good job at a firm. At the time a lot of technical and engineering work was going overseas. Manufacturing was under attack in the US by Free Trade (which is good to a degree). The son said, “They can’t move the Snow, I’ll always have a job or business”.

As I kept working in the corporate world, I started to go through Buyouts, bankruptcies, rapid growth, headquarter movements, Investment firms and family businesses selling. This started me thinking the old days of working 30 years at a company and having security didn’t exist anymore.

The travels to one of my company’s was past an intersection next to an Interstate. It had huge stumps left from a tornado and cattails, because it was low. Made a low offer on the 2 acres and purchased it. Cleaned it up. Got any free dirt in the area I could get. Built it up about 5 feet. Then had to decide what to do with it.

There are no houses near it. Although it is next to an Interstate interchange, there is no reason to get off there. Came up with two ideas. Self storage and a special type of restaurant/entertainment location. Decided to go with Self Storage. Being an Accountant I wanted all of the numbers to help me to come to a 100% decision to invest, but only got to about 65%, couldn’t quite get enough information, then decided to make a leap of faith. The key was I could take the financial hit and it could not be a total failure. There are a lot of resources out there, that I did not seek out or know about. Keep searching for information. At some point you will make a decision to move forward. Again, “Start Small and make your big mistakes early.”.

Six years later we have 8 locations. Six locations in 4 small towns (800 units), less than 5,000 population. Two new locations in a 1mm metro area. One location in Phase one with 229 units, Phase Two and Three will have 200 each. The second location in the same town is in groundwork stage for 330 units. A lot of mistakes made and lessons learned. All of this is self service, managed through my phone.  I never meet a customer.  Good luck on your projects. 

STORAGE FINANCING FOR PROSPECTIVE AND CURRENT OWNERS

Just finishing our financing on our latest location phase 1 (phase 1-230/ 2-200/ 3-200). Below are some thoughts in general on Storage financing.  Basic for most investors.  More useful for folks starting out.

1. Lender size- decide how large you want to potentially become. Find out your lenders loan cap rate. "How much they can lend to one customer." This is a Federal Banking regulation, not your banks decision. They can farm out any additional loan, but it is quicker and easier to have all your loan decisions under one roof. It is very hard giving multiple banks, your tax returns, loan to value schedules for all properties, moving cash between banks automatically, etc.
2. Lender size- Collaterallization. If you end up with multiple banks, you may be over collateralized for one bank, and need more collateral for another. You can't transfer this position. Banks don't like taking 2nd mortgage position. Try to get a big enough bank.
3. Picking a Lender- Don't go with a large National or Regional bank; or a small Low cap bank. Most Loan officers at Large national or regional banks move within 2 to 3 years. You want a long-term relationship, that you have already established a trust factor. Not everyone knows storage; you and they have to learn together. Pick someone that has done Apartment rental property financing.
4. New Construction or Existing Facility- If you have a New Construction make sure your Bank will do a "Lease Up" period. You want "interest only". Even if you have the funds, you don't want to put it into the project. Try to stay liquid in case, if Rent up doesn't go well or if you want to do another project. I ask my Lenders to give me "Interest only" until I hit 65% occupancy or for 18 months. Bargain. Whatever you get, takes pressure off your cash position.
5. Loan to Value %- Check with all your banking options and your checkbook. Traditional Banks (40%), SBA 504(10 to 20%), Farm MAC(??%), etc have different Collaterallization %'s. This will determine how much you have to put in, up front. For your Collateral, don't borrow from your relatives, you won't pay them back for 10 to 20 years. Storage is like a piggy bank, the more you pay the banker, the more wealth you have. But it is tied up in your storage facility. The only way to get it out is to re-finance when you have a higher Collateral position or when you sale.
6. You- Would you rather lend to someone who has done storage before or not? Start small or work at a Storage facility before requesting a bigger loan. Would you loan to a person who wants to open an Italian restaurant, who doesn't have a great recipe or ran a restaurant? Work your way up. Reduces both the Lender and your exposure.
7. Terms- Traditional lenders will only loan out to 3 to 5 years. Some/most will give you a 10 year loan with the first 5 years fixed and the next five years to be Prime plus ?%.
8. Terms- SBA loans can go out to 25 years fixed, with the participating bank required to do a 10 year participation as noted above.
Amortization- ask for a 20 or longer Amortization period no matter who you bank with. Don't do a 10 year loan and plan to pay it off in 10 years, because your payback calculation said your could. Make sure you have some cashflow built in. You can always pay it off early, unless there are some early pay penalities.
9. Speed- How fast do you need to close the deal. If an SBA loan, it can take up to 6 months. You had better have the land already acquired and just looking for funding for the facilities.
10. Rent up Period- SBA 504 does not do Rent up periods. They sell their bonds monthly to finance your loan and they lock you into Principal/Interest day one. Check on an SBA 7, or have the participating bank hold the loan open till 18 months or 65% occupancy; to cover the rent up period, then submit to SBA.
11. Loan Amount- If doing a construction loan, you better have extra cash available or a Fat budget. Example: The Building group requires you to do a Bathroom. No problem. You see a fire hydrant on your proposed property and you know you have water. Find out later that is a "Private" hydrant for the Apartment complex you bought the excess land from. You can't use it. Nearest water is a quarter mile away and you need another $130,000. Start small and make your big mistakes early. Even later, you still make mistakes, but you can absorb them as you get larger.
12. Covenants- read them. Early payoff penalities, etc.
13. Refinance- a. SBA- make sure you qualify, b. Your local banker. If we move into a recession, make sure your Loan to Value is in a good position or you may need to come up with some cash.
14. Insurance- Identify your insurance carrier, the bank will want it insured. Do both a Construction coverage and then move into a Business coverage policy. Insurance companies won't cover both necessarily. I started off with State Farm, because that was where my buddy worked. Found out they really don't cover that market, thus their policy was twice as high. Moved on to Ponderosa Insurance (not making an ad), because all they do is storage. I want to buy a "Free" move in truck, they won't cover that, so I have to find another Insurer for that. "Still learning".
15. Relationships- make sure your marriage, relationships, partnerships, wills, trusts, etc are all tight. This is at a minimum an 8 to 12 year payoff, perhaps 20 if you used cash to fund your life style. If you have to cash out early in the first 5 years, you will lose big.
16. Business- get your business set up first before the loan. Personal, Corporation, LLC, partnership, etc.


Date Stamp: 05/21/2020
The SBA 504 loan we are closing on will be about the following terms:
Loan to value- We had to put in 15%.
Amortization period- 20 years for both the SBA and bank.
Interest Rates- SBA fixed for 20 years 2.98%; Bank 4.5% first five years, then prime plus 1% the next 5 years, with a total term of 10 years.
COVID- SBA for existing and in process loans will pay first 6 months principal and interest. Helps during the rent up period.

We sought a longer term note since the interest rates are so low. This is one more thing we can control long term. Downside- took a process that took longer, that will expose us to cash flow issues during the rent up period, has early pay penalties, also overcollateralized (we have 8 acres, built phase 1 on 3 acres, SBA wanted the whole 8 acres collateralized, even though they didn't need it).

Lets say you screwed up on all of the above; Start small and get your big mistakes out of the way early. I'm still learning. The location before this, I was still learning the difference between triangles and rectangles when I bought the property (all 3 acres aren't the same). Something I should have remembered from 1st grade.

Don't trust anything I said, "own" your information, it's your money. 

Update- my banker is going to check on a Farmer MAC loan.  He said this would cover my locations in small towns less than 10,000 (??).  Would go long term like an SBA, but without a participating bank, thus more of the loan will be longer term.  Versus a participating bank will do a 5 year, then 5 year refinance terms.  I like to lock in issues (financing) and take them off the table.

@Nick, I'm going to break off this thread and start a new discussion, so more people can see.  If there is a topic you want covered let me know.  Thanks.

@ Nick.  Last note.

Stay away from Climate Controlled.  Don't play with the Big Boys.

Digest the above.

If you want more info, please pick the size of investment you are looking for.  I can tailor my response to that.  Example:  Seeing where you are at. I would start a facility near there, in the middle of "No where" ( I grew up in a creek bottom, so you have more people than where I grew up).  Far away from the Cities and populations.  It would be a special setup.

Good luck.  Gotta go meet the Engineer.