Anyone ever successfully sell a self storage to a storage REIT?

Question

Hi everyone,

I found a large warehouse in an up and coming area of Philadelphia. I think this would make a perfect self storage conversion opportunity. The owner is willing to hold a mortgage for a few years. I am wondering how does one go about finding construction financing. Or a JV partner to cover the construction costs. Purchase price would be $1.9MM. Construction I think $3-4MM. Then sell for around $9MM to a cube smart, extra space or public storage.

Michael Patti · Answer

Hey Michael. So this is where I am at. I have two comps I found of brand new fully built storage facilities that sold. One sold for $215/square foot. Another sold for $240/square foot. Both to public storage REITS.

I'm looking at acquisition cost of $2,000,000. The building has good bones but would need to be reconfigured on the inside. It's currently a 3 story warehouse with 20 foot ceilings on the 1st floor and 16-18 foot ceilings on the 2nd and 3rd floor. Needs a new elevator which is fine. You want a new elevator anyway. I thin I'd ideally want to wrap it in metal. I got a quote from someone who said I may be in around $90/SF for the construction. I feel like that's high but maybe that's what it would cost in Philadelphia. Owner is willing to hold a note. I have the downpayment money of $600K, but where do i get the construction financing from? Or should I just try to flip it to a storage developer. This deal is off-market and thus hasn't been looked at on a national level.

Michael Wagner · Answer

Thanks for the shout out @Taylor L., And you make a good point. While the REITS are one potential exit strategy.  There are plenty of non-REIT buyers who would be interested in the end product described above.

Taylor L. · Answer

I'm in the pro-partnering camp. If you can find and partner with an established investing group, so much the better. You can get a piece of the action while continuing to do what you're good at. Rather than learning the renovation business from the ground up. If you model the whole process, from acquisition through development and lease-up, what return figures do you come up with? CoC, IRR, figures like that.

Scott Krone · Answer

@Michael Patti.  The answer to your first question is yes, we have.  The answers to your other questions are as follows:

1.  You are on the right track in your analysis.  That being said, there are other factors to consider:

a.  Market demographics - how much competition is in the market place, what is the supply and demand.

b.  Zoning

c.  How big is the building

d.  Construction type of the building

e.  Access to the building

f.  Existing condition of the building

g.  Height of the building

These will all factor into the cost of the conversion.

"How do you go about finding construction financing".  First step is determining the viability of your concept.  The second step is assembling a team to work with you - mortgage broker, architect, GC, attorney, etc.  These types of transactions are not done by individuals, they are done by teams.

Feel free to reach out with questions.

Kathy Diamond · Answer

What’re some ways you find non-REIT buyers for commercial properties, like medical offices for example?

Taylor L. · Answer

Value add on self storage is super common. What leads you to believe a REIT needs to be your buyer? I'd look further into @Michael Wagner's content if you want to learn about underwriting.

Anyone ever successfully sell a self storage to a storage REIT?

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