All Forum Posts by: Christopher Brown

All sounds right to me - thanks guys.

Thanks Michael,

Re: rates - the best quote I have right now is from a local lender.  Obviously final terms will depend on where rates are when we close.  Best as I can tell, you pay higher rates for longer fixed terms, not really for longer amortizations.  Lender expects we'll be between 4.75 and 5.25 for a 5-7 yr fixed term, versus prime (currently 3.75) + 500 basis points for a floating rate (with a floor of 4.5).

I'm working on financing for my first CRE deal (~$2m self storage property). The acquisition is a cash flow play for me, and I hope to be able to put the cash into more SS properties.

I am wondering about the pros/cons of shorter v. longer term amortizations in CRE. Obviously from the near-term cash flow perspective the longer term and the lower payment is attractive. What other considerations are there? Tax benefits of the larger interest payments on a shorter term? Paying it off sooner, obviously, with a shorter term, but paying it off seems a long way off no matter the term. What else do folks pay attention to?

I teach in the English department at Wake.  Enjoying our first snow here in NC!

• I'm not paying a buyer's broker fee - my understanding is that for most SS deals under a certain amount, say mid-six figures, the seller's broker is going to split their fee.
• I've found the local lenders to be between 500 and 750 basis points underneath the institutional lenders so far.  The rates have obviously moved a lot over the last eight weeks, so who knows where we'll end up.
• Basically any real property held for business or investment purposes counts as like-kind for 1031 purposes, and while it can get complicated at the margins, real estate for real estate is almost always considered like-kind.
• I think in SS "value" is in a lot of ways in the eye of the beholder.  If the seller and I both know that I can turn a $2m property into a $2.5m property in two years with better management, what's it worth right now?  That was how most of the conversations we had with sellers brokers went.  Particularly with lease-up deals on new development, where we couldn't get anybody to move off their Year 3 stabilized projections.  And so we passed on all of those.  We finally found what we think are a couple of under-managed (read, non-professionally managed) properties in tertiary markets that have upside: under-occupied, no tenant insurance, no UHaul, no web presence, etc.  So while demographics and competition are obviously the threshold considerations, as @Michael Wagner suggests, the management/expansion upside is where the deals are.  I'd also suggest to you that because an increasing amount of SS customers come from the web, don't overvalue the vehicle counts.  Obviously location and visibility matter, but they don't seem to be the final determinants in the way they were once understood to be.  
• And 100,000+ population counts are 5-6 CAP markets in SS these days and those properties are priced accordingly. The institutional money gobbles those properties up - SS REITs are huge players in the A markets. SS is still interesting in that there are so many mom and pop players, but that's less and less the case in the big markets.
• I'd love to stay in touch about the deals I'm working on now; I'll shoot you a direct message and we can talk more.

Good luck!

Keep in mind when considering how to allocate your purchase price that you can only depreciate the building...

@Jon Q. - I am also working on a first time SS acquisition (as part of a 1031 out of SFR). I am also just getting into SS as an asset class and I think the short answer to your question in my experience is that there is no one source that aggregates SS listings. I found that to be very frustrating as I worked through my search for a deal.

I have a deal in contract right now (50k sf / 300 units) and it took awhile to find anything that worked. I initially was looking for something local through loopnet that I could manage myself alongside my regular (non REI) job. But couldn't find any deals in my local market that made sense. So I expanded my search by contacting brokers who had listings (loopnet, argus, and marcus & millichap) and just telling them what I was looking for and seeing what they had. I finally found a broker I liked working with - Michael Morrison at Midcoast Properties - and we worked together for about 4 months looking at deals across much of the southeast US - he brought me deals to look at as they came to market and I continued to look on my own as well and passed these deals I saw on to him and he contacted the listing brokers on my behalf. By that point I had made the decision to focus on properties that were big enough to justify third-party management, which generally seemed to be about the 40k sf threshold, though some regional companies seem willing to take on smaller properties.

My experience across all the deals I looked at was that most sellers were looking for premiums above what I expected to pay based on market caps.  Generally that took the form of facilities that were valuing themselves on proformas that required real value add - whether in the form of management or capital expenditures.  I was seeing very little realistic discounting of properties to reflect their current economic performance.  Our valuations based on current NOIs were consistently 15-20% less than ask, and our offers got counters that were just marginally less than the original ask.  The SS market, as @Michael Wagner suggests, certainly seems to be humming along.

My takeaway from the deals I looked at (mostly in the $2-$5m range) was that I had to be willing to pay a premium above what I thought the properties were currently worth that I could swallow based on the upside we thought we could coax out of it.  And we finally found a couple of deals that I was comfortable with.  Within my 1031 timeframe, I had to decide whether buying into a deal with a premium was worth it to get my tax deferral, and at the end of the day we found a deal that worked.

As for financing, I'm still working through that. I talked with some big banks directly, some brokers with CMBS and life insurance lenders, and local banks near the property. It seems to me the local banks will be far and away the most competitive option. The bank that currently holds the note on the property wants to keep it and I expect that is where we will end up. They want 20% and will offer a fixed, 25yr term.

Happy to talk more about my experience if you want to contact me...

Yes, thanks Scott.  He's on the list.  Devin Huber at BSC.  John King at Green Commercial Capital.  Jack Connell at Jernigan Capital.  I suppose this thread could be a good resource for folks down the line looking for lenders/brokers that other people have had luck with.  I'd love to have a fuller list so by all means everyone should add their own experiences and referrals.

Anybody have good contacts they can recommend for a mid-seven figure self storage development deal?  I've reached out to a couple of the big players in the field - looking to cast my net wide and would be happy to have referrals to lenders and brokers others have had good working relationships with...

I'm working with my attorney on putting together a purchase offer for a local self-storage - my first.  Anybody willing to share a sample version or a template they've worked with, or a good resource for making sure I've got all my bases covered?  I'd like to be able to compare my attorney's contingencies and legal language against some versions that others have had success with.  I appreciate that every contract will have its own details and be deal specific...

Thanks!

I'm considering putting in an offer on a SS in NC.  I'd love to find an attorney with some experience on these kinds of transactions who can work with me on industry specific issues (contingencies, due diligence period, proprietary and IP assets, etc.).  Anybody have an atty they can recommend or other resources for purchase offers?

Appreciate any help.