All Forum Posts by: Kris Benson

Really interesting thread here.  There is a balance to everything in life and I think it applies here.

Syndication is a very powerful tool and with great power comes great responsibility.....My first syndication I really had no idea what we were getting into and fortunately we were a beneficiary of a really strong market to make up for our mistakes.  We were able to return our investors principal and a hefty profit and that was how we go started.  I had a group of family and friends who were willing to take a risk with me because they knew I was going to work really hard to make it successful AND I had my money along side theirs.  The thing is there was no better learning experience than going through it for the first time.  If you wait until you have all the answers you will never move forward.

On the other hand....I wish I could give credit to who said this but this statement always resonated with me....Think of investor's money in a syndication as their time.  They have spent hundreds if not thousands of hours earning the money they have to invest with you. Don't waste it.  Syndicators are stewards of investor's time/money.  It's our responsibility to ensure we are doing our best to not waste it.

There is no right answer here.  For the investors looking for syndication opportunities PLEASE PLEASE do your due diligence and ensure they have done what they are trying to do before.  Past performance is the best indicator of future results.  

You wouldn't pick a cardiac surgeon who is doing his/her first heart surgery on you.  Don't invest money without understanding who is really executing the business case and how many times they have done it before successfully.

For those people trying to get involved in syndication please get a great team (attorney, accountant, real estate coach, etc.) to help you.  Usually you get what you pay for in these regards.

Stepping off my soapbox now.....

Kris

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

Lane,  I would be happy to speak with you about our self-storage platform.  Feel free to pm me and we can set up a call to talk in more detail.

Kris

Michael,

Congratulations on the opportunity! That is a broad question and based on many factors on both the property and the market. Are you trying to calculate gross potential revenue or NOI? Are you trying to use the revenues to get to a valuation based on market cap rates?

I am assuming you are planning on making everything climate controlled based on your location?

We have 46 properties across 7 states and the rent per square foot is very dependent on the market.  I would encourage you to do a brief comp study.  I would call the 5-10 of the closest storage facilities and track what they are getting for their rents by unit type and extrapolate from there.

You are in a great position make sure you get an appropriate valuation for your property.

Kris

@Danny Randazzo  In the structure that you are proposing do your investors sign on the recourse debt as well?

I think your point around the type of investor you are engaging here is critical.  The investors we are working with typically are looking for exposure to the real estate asset class with none of the responsibilities of the sponsor.  We just finished a $7MM+ raise and I can tell you that none of those investors would want to put up their balance sheet for the debt.  In my opinion that is how you engage high net worth individuals who are too busy to run a real estate business.

If your goal is to grow your syndication business to include a bunch of investors for larger projects, this may not be the way to do it.

I have met Amy Wan and saw a demo of her software.  It looks and feels fantastic but I have not used it personally.

That being said I can't think of better money spent than the money used to protect you, your family, and your investors.  Not to say that a more expensive attorney is better but I don't believe you should make your decision on a key team member on cost.  

Spend some time on the phone with a couple of attorneys and talk through what you are trying to accomplish.  Make sure your personalities are a good fit for each other and that you enjoy working together and can build some rapport.  Finally I would take the time to call a few referrals and make sure they have the experience they say they do.

Good Luck!

Kris

@Franky Davis, I love that this is what you are thinking about with 3 years left of your fellowship! I have quite a bit of experience working with surgeons as I worked with Intuitive Surgical, developers of the daVinci robot for quite some time. That being said with a busy practice and a family the biggest constraint for you is going to be time. We work with quite a few surgeons who like you have disposable income to invest but don't have the time to put in the 10,000 hours to become an expert in the asset class they are interested in. I would continue to network on sites like BP, local REI groups and find the "experts". The companies who have a track record and can guide you through the investment process and hopefully minimize the pitfalls that any new investor will run into.

Syndications are one option where you can invest passively with a professional operator who has a track record but the downside is as a limited partner you don't have much control.  Another option is to partner with someone who has the knowledge and drive to build a real estate business and needs an equity partner.  That may afford you some control without being the one managing day to day operations!  

Good luck in your fellowship and future practice!

Kris

@Jason K.  A great place to start is with an attorney who has significant experience in non registered securities.  I am happy to provide a couple of referrals but this is who you want to connect with first.  Relay the business plan of the project you are working on to him/her and she can help give you some perspective on what their clients have offered over the years.  DO NOT skimp on the money spent on your attorney.  Ensure they have the experience to guide you appropriately and check references.

In regards to the structure of the returns for the investor I would start with the return you would like to offer the investor and work backwards. For example if you want to provide an investor an 18% IRR over 5 years then back into that number with a preferred return and equity waterfall. If you are interested in what the "market" has to offer for syndicated projects start reviewing deals on the crowdfunding websites. After you read 15 or 20 investment summaries you will start to understand what opportunities and structures are out there for investors.

Hope that helps!

Congrats @Wendy Carpenter  that's what it is all about!

@Paul B.  Barriers to entry are quite high since most municipalities do not want more self storage in their commercial infill areas.  It is not as desirable as M.F. , residential, or commercial.  

20% of the S.S. market is owned by 6 REIT.  These REIT's do not own franchises but certainly have the infrastructure to expand wherever they see the demand.  Where we have seen success is entering the secondary and tertiary markets creating value and exiting to a REIT who wants a stabilized asset.