First Self-Storage Deal Underway

Commercial Real Estate Investing
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First Self-Storage Deal Underway

Chris Piette
Green Bay, WI · Member since 2019 · 22 posts · 23 votes

Hello everyone, as the title states I am working a deal for a 200 unit self-storage facility here in Wisconsin.

It is by all means already a profitable facility which includes and newly paved entrance/security system/roofs, as well as room for massive upside due to the fact that the rents haven’t been increased in at least the last decade (well below local market rents) as well as the fact that the facility currently has no website or marketing strategy other than word of mouth.

-Currently an 8.5 Cap

-My projected rent increases will take it to a 13 Cap (emphasis on projections of course)

I am currently in the process of gathering insurance quotes and talking to lender and

1. The first quote i got back was twice as much as the current owners current premiums

2. The first lender I spoke with told me that because it is a “single use facility” I would more than likely need 15% Downey opposed to 10% (utilizing SBA 504), but I was under the impression that self storage was classified as “multi use”

If that were the case, I will not be able to come up with the additional 5% down and the seller doesn’t want to carry THAT much..

What are my options in creatively coming up with the difference? I don’t currently have any investors doing the deal with me, and am not really sure how/where to go about seeking investors for commercial deals like this.

Aside from that, any and ALL tips/tricks and advice is welcome, this is my first time venturing into commercial and I’m in complete new territory here..

Thanks!

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Greg W.
Buy and Hold Investor · Alexandria, VA · Member since 2013 · 180 posts · 48 votes
5y
Hi Chris, great job finding your first storage deal! It sounds like it's going to be a really good property for you.
1. Insurance; why not use the insurance company the current owner is using? You can also try, Trustant Insurance (formerly AB Schmitz) in Kenosha.
2. You can use an SBA loan for a storage facility with only 10% down. Talk with Nick Collins at Bank 5 Nine in Oconomowoc.
Good luck!
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  • Greg W.
    Buy and Hold Investor · Alexandria, VA · Member since 2013 · 180 posts · 48 votes
    5y
    Hi Chris, great job finding your first storage deal! It sounds like it's going to be a really good property for you.
    1. Insurance; why not use the insurance company the current owner is using? You can also try, Trustant Insurance (formerly AB Schmitz) in Kenosha.
    2. You can use an SBA loan for a storage facility with only 10% down. Talk with Nick Collins at Bank 5 Nine in Oconomowoc.
    Good luck!
    2Reply
  • Chris Piette
    OP
    Green Bay, WI · Member since 2019 · 22 posts · 23 votes
    5y

    @Greg W.

    Thanks for the awesome information, I reached out to them and they seem great!

    0Reply
  • Jackson Babcock
    Investor · Charleston, SC · Member since 2021 · 120 posts · 108 votes
    5y

    Sounds like you found a nice value add self storage facility.  It looks like Greg has pointed you in the right direction.  Another bank that specializes in Self Storage is Live Oak Bank out of Wilmington, NC.  Side Note...If you plan to get a SBA loan and use third party management, the management company has to be SBA-Compliant. 

    1Reply
  • Chris Piette
    OP
    Green Bay, WI · Member since 2019 · 22 posts · 23 votes
    5y

    @Jackson Babcock thanks for the heads up!

    0Reply
  • Francis Louis Vogel Jr
    Banker · Saint Clair Shores, MI · Member since 2011 · 131 posts · 53 votes
    5y
    Great question and answers. A SBA loan is in order for the Self Storage. SBA loans are full recourse, please keep that in mind.
    0Reply
  • Joseph Johns
    Tucson, AZ · Member since 2018 · 10 posts · 13 votes
    5y

    @Chris Piette

    DM me. Hard money lender here. I love storage facilities.

    2Reply
  • Mike Meisner
    Member since 2021 · 8 posts · 2 votes
    5y

    I feel like you could easily find someone to lend the 5% as an LP, right? 

    I'm currently searching for my first storage facility - looking for a smaller one, 50-100 units probably depending on the area. Can I ask how you found this deal? 

    0Reply
  • Chris Piette
    OP
    Green Bay, WI · Member since 2019 · 22 posts · 23 votes
    5y

    @Mike Meisner true an LP would be easy enough to set up, I sourced it from a family relationship off market essentially

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Hi @Chris Piette. Congratulations on finding this deal. I recommend you speak with Terry Campbell at Live Oak Bank. They are an SBA lender specializing in small to midsize self storage.
    You may also want to get involved with the Scott Meyers self storage investing group.  They have an impressive network of investors and operators who work together to do deals. You can find him on bigger pockets. Good luck!

    Podcast Guest on Show #533
    0Reply
  • Jim K.
    Rental Property Investor · Charlotte, NC · Member since 2017 · 271 posts · 259 votes
    5y

    @Chris Piette Good responses on insurance and lending above. It sounds like you could use a capital/balance sheet partner who has a long track record in commercial.

    8.5% cap based on actuals is quite strong. I would be interested in looking at the deal if you'd like to bring in a partner.


    1Reply
  • Chris Piette
    OP
    Green Bay, WI · Member since 2019 · 22 posts · 23 votes
    5y

    Posting a general comment for anyone following this post with a bit of information I have learned:

    By utilizing an SBA backed loan product you prevent yourself from setting amortization terms for seller financing for anything less than what the SBA offers. The SBA won't allow anyone else on a note to get paid back before them (with the exception of the lending institution I'm assuming). So in my case where the seller was going to carry back 10-20k, it's really unlikely they'll want to wait the 20-25 year schedule I'm hoping to attain. 

    Sad face again..

    0Reply
  • Greg W.
    Buy and Hold Investor · Alexandria, VA · Member since 2013 · 180 posts · 48 votes
    5y

    Figure out a way to come up with enough money for the 10% down; Family, friends, whomever. Then get the SBA loan.

    0Reply
  • Chris Piette
    OP
    Green Bay, WI · Member since 2019 · 22 posts · 23 votes
    5y

    @Jim Kittridge I just sent you a PM

    0Reply
  • Scott Meyers
    Investor · Fishers, IN · Member since 2012 · 520 posts · 499 votes
    5y

    Hey Chris!

    Good job on finding a Mom & Pop Value-added Facility.  Now you need to get it across the finish line.

    As others have mentioned, if you cannot come up with the additional monies needed for a down payment then you ought to lean on friends and family.  Find out if they want to be the bank or an equity partner (or both).

    You really should be open to stacking capital IF the deal warrants it.  When you purchase your next Facility and then the next one and so forth, you're most likely going to need to bring in partners, so check it out now and structure it where it makes the most sense for all of you (think win/win).

    Please let me know if me and my Team can be of any help.

    @Paul Moore thank you for the shout out. 

    Scott

    1Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    5y

    @Chris Piette

    Definitely pull all of the info and actions from the above.

    Recommend the following:

    1.  The longer a deal stays open the less chance it will occur.  Put an earnest money deposit down for 6 months.  Or;

    2.  SBA loans take a while, plus now they take longer.  About 2/3 to 3/4 of all SBA people got moved over to help process PPP payments.  Loans are going through a lot slower.

    3.  Identity the Bank you will use that will process the SBA loan.  Tell them you want to do a Construction loan with interest only payments until the SBA is approved.  Use this to buy the facility and to make upgrades.  If you do the loan and then do upgrades you will need to foot the bill, which sounds like you will be pushed even for the 10%.  Example:  Fence, security systems, website, any repairs or road work, etc.  This will allow you to buy the land quickly.  Not have to pave P/I until SBA involvement.  Check with the bank to see if a construction loan is allowed with a pre-existing location.  SBA 7 versus 504; ask them.

    4.  Insurance- go with a specific Self Storage insurance company.  Call Ponderosa insurance who is owned by Uhaul. There are others out there, just google. Example:  your 200 unit location, say $1,500,000 value, metal construction might be $5,000 per year.  They will have coverage for Auction claims, normal commercial coverage, etc.

    5.  Whatever Storage software you use, make sure they have a Customer Insurance program tied to it.  Otherwise you will double the work recording and tracking customer insurance payments.  Also see if they have an SEO function for website development.

    6.  Collateral.  Do you have any other investments or home equity?  You might have to refinance with the bank you will use for SBA.  I don't like pulling family in, but you might see if anyone has some land or an investment the bank is willing to use as collateral.  Pay the family 5% for 5 years.  At the end of five years you should have enough equity to refinance using your original down payment and your new equity position in your location.  Might cost you for a new appraisal $3,000.

    7.  Do a risk analysis on this location from a new competition standpoint.  Check out zoning, future development plans, land availability, land price, topography, 2 acres or more, distance to population, etc.  We passed on a location that was 4 miles out of town, that was full and had extra land; and the numbers worked.  We are building closer to town and the people and cut them off.  We are completing Phase 1 of a location that is in a very hilly area, lot of people and no zoning allowed for Self storage, except for this particular location.  Check your risk out.

    0Reply
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