Self storage investors, is it getting harder to find deals?

Question

Self storage investors, or anyone interested in self-storage investing, what hurdles are you facing right now? For me, it is finding deals that make financial sense. Most investors, acquisitions pros, and developers are looking for the facility that is mom-and-pop owned, roughly 30,000 square feet, with land to expand and possibly double the size of the facility. In other words, we're all fishing in the same pond which makes it hard to make reasonable offers.

Are you able to make those deals work financially? What about markets - are you able to find those deals in good markets with sustainable population growth? What your biggest struggle when it comes to finding deals?

Are you able to make those deals work financially? What about markets - are you able to find those deals in good markets with sustainable population growth? What your biggest struggle when it comes to finding deals?

Michael Wagner · Answer

Great thread, another strategy to consider is broadening your search criteria when the lickings are slim. This could be adding in warehouses for conversion...or smaller properties that you could expand to get to your desired size, etc. My small group of investors (11 of us) are buying about one deal per month right now...and I'd say only 7-8 of us are ACTIVELY looking to buy. They are out there!

Zach Quick · Answer

@Kris Bennett I don’t think it’s any harder than it has been the last year or so. Staying consistent, pounding the pavement, direct mail, phone calls, word of mouth. Nothing you don’t know or do I’m sure.

I do think the recent virus scare will potentially cause some owners considering selling to be more motivated if they think they can get close to their price.

Gotten a couple under contract recently, still going after more. I’m also middle of the map, slightly less capital chasing than you have in NC so maybe part of my optimism.

Kris Bennett · Answer

@Paul Moore Yes, you're right. I'm talking with people in residential and it's starting to slow down. Some buyers are pumping the brakes and sellers don't want people walking through their homes.

On the storage front, you're 100% right. Yesterday I forwarded an email from a large MFR PE firm that was putting a halt to ALL acquisitions activities and closings! The reason: they wanted to adjust their market expectations and pricing. Translation: those sellers were about to get re-traded at a lower price.

Mom-and-pops need to get realistic (have been needing to for a while now), but as you said, buyers need to be ready. I remember 2008-2009, as you do. I'm sure we both wish we would have jumped in more than we did.

Great comment, Paul!

Paul Moore · Answer

Kris and others,

I'm curious to see how you think the current hysteria will affect the opportunity to acquire mom-and-pop owned self-storage? Seems to me that if this madness goes on awhile, some of them will wish they had taken the "low" offer they got a year or two ago and may be ready to sell in a panic. The question then will be "are we (as buyers) prepared to catch a falling knife?" I know I am.  This Tuesday WSJ article on self storage being a rare rising stock in this market selloff gave me hope!

https://www.wsj.com/articles/investors-flock-to-self-storage-rental-housing-as-safety-plays-11583780432?emailToken=3310aa650e834270dcef581eb698c5a2OOhudGeYJU3JUfoqdycTr9JWj3A8MgMeaFBun++KiJzn9mdCUPA1ihUk/SDDc+QQ+mwCmkBPWiqPX5kObTNPidMJHgy3gMy+jPeSCu5sy1uvNlTmCiEOmCG21CRVQBOl&reflink=article_imessage_share

Justin Frank · Answer

@Kris Bennett

My biggest struggle is that a lot of sellers with value add deals want you to pay for the value add potential upfront. If their property “could” produce $18k/mo of revenue, they want you to pay as though it already is. The worst part is; people are buying them up left and right. What the hell lol.

Kris Bennett · Answer

@Zach Quick yeah, you're right, it's been like this for a while. Like you said, we have to stay in front of sellers to be top of mind when they decide to sell. I talked to a seller yesterday that wanted a ridiculous price for his facility which is under 100 units and has a 10% expense ratio. It was kind of comical, but we still had a good call.

@Michael Wagner You're right too! Gotta keep pounding the pavement and looking for deals like conversions, etc. We're working on a mom-and-pop right now so our fingers are crossed we can get it under contract this week.

Thanks for the contribution guys!

Kris Bennett · Answer

@Justin Frank yeah, that's super frustrating, especially when other buyers are willing to pay for it as you said. I was preparing to make an offer on a facility, but the owner told me he had received one for roughly $2 million above what I thought it was worth. There was adjacent land that could be bought and built on. I get that, but the facility wasn't worth $2M, not including the land that was owned by someone else.

Justin Frank · Answer

@Kris Bennett

Unfortunately, I don’t think there is much we can do besides continue to search for the deal that meets the  criteria we are looking for. You just have to sort through a lot more deals right now to find the right one. I keep being told to be patient which Is very hard to do when you are hungry for your next deal.

There is a lot of money circulating right now and there are a lot of new buyers/people looking for self storage. With SS becoming more popular it just naturally becomes more competitive driving cap rates down and values up. There are a lot of folks that have hundreds of thousands, if not millions who will in my opinion overpay for a property in this market. Some folks can afford and are ok with buying facilities that only provide 4-6% returns. One of the most interesting thing i see is the folks that are paying for the potential of the property. Similar to what you had mentioned in your post. I don’t understand it but maybe the folks who are doing this are in a Much different spot than I. I am sure Most of these folks will fair well, however some may not and if they become distressed I hope to be there to buy 😏

Tracy Selfridge · Answer

Kris, maybe the other buyer was already in talks with the owner of the adjacent land?

Kris Bennett · Answer

@Vincent Chen thanks for asking, but I want to make sure I understand the question: are you asking what strategy owners can use to sell their facilities?

If that's the question, normally a seller (owner) can talk to a self-storage broker and go through the process of an on-market sale. Some owners use Loopnet to market their facility For Sale By Owner. Occasionally, an owner will have a friendly preexisting relationship with another local owner, and decide to give them a call to see if they would like to buy.

I hope I answered the right question. Thanks for commenting, Vincent!

Self storage investors, is it getting harder to find deals?

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