Industrial Investment Outdoor Storage

[Ronald Rohde]

I've been investing in real estate for 15 years. 5 years ago, I sold 6 SFR in DFW and plowed that capital into industrial NNN properties. I've found that SFR is a lot like autocross driving. Its safe, its simple, faster to learn and the penalties for mistakes are a lot lower. Commercial investing is like driving on the race track. Higher speeds, elevation changes, multiple ways to crash and hurt or kill yourself.

Both are car racing fundamentals, gas, brake, and steering. Neither one is better, it just depends on your individual goals and constraints as an investor. This is my long way of introducing myself. I'd next like to talk about how and why I buy the industrial properties that I do.

Currently, we are buying industrial outdoor storage in infill locations within Dallas Fort Worth, Texas. We are self managing either NNN tenants or semi truck and trailer parking. These are improved gravel sites, motorized gates, solar security lighting and SIM card cameras. They may or may not have a building, but either way, they are "low coverage" sites. The plan is to assemble a small portfolio then sell for a lower cap rate to a friends PE or another buyer. After that, we will solely focus on cash flow and building a large empire. We may sell individual sites, but only opportunistically for the highest priced end user or vertical developer.

We buy in-fill to protect our rents. Even if demand is flat, the supply of in fill locations continues to decline. Cities are not approving additional outdoor storage yards, but they are desperately needed for construction, heavy equipment, fleet parking, etc. We buy based on in place cash flow, combine seller financing or local bank debt with fixed 5 year terms. All recourse debt.

I have some staff to manage the tenants, but rely primarily on Easy Storage software for booking and cash flow/receipts.

Anyone have questions?

[Jay Hinrichs]

love that model.. our dog gone land cost out our way is SOOO high its very difficult if not impossible to do these. along with all the land use issue and improvements the govmit places on you for access drainage  fire protection etc etc.. half our battle is fighting the fire marshals :(.

I think out this way excess land at airports may work.. but anyway congrats sounds like a big winner. 

[Ronald Rohde]

Quote from @Jay Hinrichs:

love that model.. our dog gone land cost out our way is SOOO high its very difficult if not impossible to do these. along with all the land use issue and improvements the govmit places on you for access drainage  fire protection etc etc.. half our battle is fighting the fire marshals :(.

I think out this way excess land at airports may work.. but anyway congrats sounds like a big winner. 

 Yeah, we're focused on buying early. Bought a 4 acres in 2021 for $2.5, cash flowed like crazy, just got a broker offer from a regional PE group for $4

[Bruce Lynn]

How do you prevent or insure against environmental contamination.   I've thought about this on some land I own, but really don't want a bunch of oil leaking trucks parked there?

Is there some kind of barrier you lay down, before gravel?

[John McKee]

Interesting.  I assumed you were doing flex space.  How much value add cost did you put into the existing outdoor storage.  What was the initial cap rate that you purchased the property at?  What is the biggest thing you have learned thus far?

[Ronald Rohde]

Quote from @Bruce Lynn:

How do you prevent or insure against environmental contamination.   I've thought about this on some land I own, but really don't want a bunch of oil leaking trucks parked there?

Is there some kind of barrier you lay down, before gravel?

 The trucks all must operational and running. These trucks do not leak as they are the source of business for these guys. other than that, no oil changes in the yard, no barriers.

[Ronald Rohde]

Quote from @John McKee:

Interesting.  I assumed you were doing flex space.  How much value add cost did you put into the existing outdoor storage.  What was the initial cap rate that you purchased the property at?  What is the biggest thing you have learned thus far?

 No, I looked a great 50k flex deal in 2022, should have bought it for $9m, easily worth 15 now. We put about $30k into improvements since we purchased. Cap rate was like7.

Most important thing is to understand management and reserves. Lots of things that I paid for in 2020 or 2021, have doubled in price, that kind of changed my capex spend and not for the better.

[John McKee]

@Ronald Rohde How many tenants do you have sharing the yard or is it just one?  What length are the leases and are they all triple net?  Is there room for a small building for those tenants that want coverage or is it worth the cost.  Love to hear more

[Derek Bell]

@Ronald Rohde roughly how much are you renting out the yard space? How long is the lease term? I would think you would want to keep the lease on a shorter term in order to keep the options open for a potential buyer. If you had a buyer that would want to go vertical, but the property had a land lease set for lets say 5 years, I would think that would not attract buyers. 

[Ronald Rohde]

Quote from @John McKee:

@Ronald Rohde How many tenants do you have sharing the yard or is it just one?  What length are the leases and are they all triple net?  Is there room for a small building for those tenants that want coverage or is it worth the cost.  Love to hear more

 Which yard? the 5.5 acres has about 10 tenants, ranging from fleet 10-20 trucks, some 5s, rest is 1-2 single owners.

Truck parking is on gross lease. Yep we already have a 6k sq ft building with 16' roll up for a truck service bay.

[Ronald Rohde]

Quote from @Derek Bell:

@Ronald Rohde roughly how much are you renting out the yard space? How long is the lease term? I would think you would want to keep the lease on a shorter term in order to keep the options open for a potential buyer. If you had a buyer that would want to go vertical, but the property had a land lease set for lets say 5 years, I would think that would not attract buyers. 

Google for trucks. Costar with a listing broker for a single tenant NNN listing.

All current tenants are month to month.

[John McKee]

How is the bank able to finance you on month to month lease?  

[Ronald Rohde]

Quote from @John McKee:

How is the bank able to finance you on month to month lease?  

We did low LTV, around 60%, partially due to economic risk, partially due to M2M tenants, but they have been there for years. The larger tenants are regional with multiple locations. At the end of the day, we have not had a problem with collections even after raising rent. This is a regional bank I've borrowed from before.

[Account Closed]

Hey @Ronald Rohde - would love to connect on this.  We are active in the space in South Florida, currently working on yards totaling about 800 slips 

Best, 

Jake 

[Michael Sylver]

How do you go about buying these type of "yards"?  If you were starting from square 1 then what are your initial steps?  Do you buy the land then build the business, or buy existing yards for sale?

I'm not local to DFW so not competition :)

[Ronald Rohde]

Quote from @Michael Sylver:

How do you go about buying these type of "yards"?  If you were starting from square 1 then what are your initial steps?  Do you buy the land then build the business, or buy existing yards for sale?

I'm not local to DFW so not competition :)

We buy existing yards. mainly for cash flow. You can go to google, look for truck parking. Find an operator, count the spaces or call them and ask for pricing/vacancy. Then you can calculate NOI and a value. start at a 10 cap.