@Kyle Vogeler
Congratulations to you and your team. Couple thoughts or approaches on funding and cash burn. Developing is always about learning and hurdles, I would have recommended starting smaller, but at least you're starting.
If possible, I would subdivide the two types of projects.
1. If zoning or conditional use for the Storage wasn't already part of your "Subject to" purchase, this might take up to 6 months to get approved. Or not approved in a residential area, unless this is mixed use zoning. This will eat up a lot of interest and "time". If you segregate the two projects, the Apartment project can move forward at its own speed.
2. Segregate so you can have two different General contractors. There are specialized Storage contractors, plus if you're going local, one contractor might not have the horsepower to get both projects done. Speed is of the essence.
3. Segregate so you can have a simpler proposal for different investors. Makes the project less complicated.
4. Can't tell on loans, but you want the construction loan to cover construction and also a Rent up Phase for both/either the apartments or Storage. Say around 5.5% today. On the storage ask for construction period, then either 18 months rent up phase or 60% "Occupancy" rent up. You don't want to be paying 13% interest. Realize the 13% may be to entice lenders, to take no equity position, but it still adds to the total project cost. Also, the Banker would prefer to cover both the Construction period and final financing. You don't want to be caught between temporary lenders and your final Lender. When you hit the 36 month period, your not guaranteed to get re-financed; I would rather be with the same lender in this economy from the start of the project.
5. Does your deal work if in 2 years, the interest rate is 9%? Run the numbers.
6. Or are you looking to flip at the end of your 36 month lump sum construction loan? Again, I would subdivide the property. Will be easier to flip these separately. Also, your time frame I would add an extra year. Talk with your accountant. Less than a year then 37% highest personal income tax rate, or if you hold a year 20% capital gain. At 350 storage units, you will knock out about 80% of all of the potential buyers, with the Apartment complex tied to it.
7. Back on the loan. Lien Positions. Not sure how you will structure but will the private money lenders have to take a second position behind the Financial lender?
8. Check with your longterm finance lender. Your comment $5.5mm cost versus $7.9 to $12mm. Will they give you credit for the "APPRAISED" appreciated value as your portion for the collateral or will they require you to kick in say 25% cash for the $5.5mm. Appraisers will look at: a. Comps, b. Cost, c. Revenue stream. In an uncertain economy the Appraiser may be hard press to appraise above Cost basis. Also their cost approaches use 15 year old cost data, which is not reflective of todays costs.
9. Contract costs. Do you have locked in bids for the $5.5mm? Our storage unit building quotes are only good for 1 month, with a delivery date within 4 to 6 months. They won't quote any further out, like over a 36 month period. Same for our Concrete contractors. Make sure you have wiggle room in your $5.5mm estimate.
10. Self storage you normally do in phases, unless this is multi story. If drive up, you might do in multi phases. This will help with your cash needs and reduce your exposure.
Keep chugging. Great project. Like any development more hurdles equal greater profit potential.
