All Forum Posts by: Ken Jernigan

We've found good luck in buying existing underperforming properties in tertiary markets with an economic driver, like a university, hospital or military base. Many times we can pro forma these units to a 10-11 cap which you won't get in the larger markets. 

Funding has been coming from SBA loans which allow us to acquire with 10-15% equity. Each transaction is a separate LLC to accommodate varying investors.

You can PM me if you'd like more info. 

@Joseph M. I'd be careful about throwing around the 10% equity for SBA loans. That's the minimum required under the SBA 504 loan program and only for businesses with two years operating and general use properties. Fortunately, the SBA has yet to classify self storage as limited use, but you still need 2 years operations to qualify for that downstroke. To get the 25 year term, you have to use the other SBA program--7(a). SBA requires 7(a) loans to be fully collateralized, so to get to the 90% advance rate, your property would have to appraise for 111% of cost. Add transaction closing costs and SBA guarantee fee and you're closer to 120% of contract price. As this is unlikely, SBA lenders will ask for side collateral to get to the one to one collateralization. Be prepared to give up liens on any other assets you own including your personal residence. As with all money matters, the devil's in the details.

My own view of SBA--and I was an SBA lender for over 10 years--is that it should be used as a halfway house to get your projects started. Once you've added value and developed consistent cash flow, you can seek cash out financing freeing up equity for future projects. With 2-3 years of operating history and good cash flow, you should be able to get a conventional loan much cheaper that SBA.

If you make a greater return on investment than your cost of debt, then you should go for the 30-year deal with 25% down if that's available. If you can't get a better return on investment than debt cost, you shouldn't do the deal.

This doc request is normal. The worry is that your other businesses or personal obligations may suck money from the properties. They'll want your personal guarantees as well as those of the affiliated businesses.

Have you sought out mission-based community development lenders who are interested in green enterprises? I've worked with a couple but they only lend in the southeast. I could reach out to them to see if they have any counterparts in your area. PM me if interested.

If you occupy 60% of the square footage, then it would be considered owner-occupied commercial real estate. The Small Business Administration has loan programs for this with as little as 10% down and up to 25 year term. PM me if you'd like more details.

At the height of the recession in 2008, self storage properties delivered a total return of 5% while general real estate dropped 38%, based on REIT performance. Might want to consider alternative assets at this point.

Think you need to do a more in depth market study than calling the place down the road. They're full up but not expanding? Your numbers assume full occupancy for your project. It usually take s several years to get to that point in most markets.

I'd like to know this too. Where and when?

You would take the rents from the entire property, subtract the operating costs to arrive at your NOI. It's important you validate the expenses through the seller's tax returns. If you want more info on how to do this, PM me. Also keep in mind taxes are likely to go up when the property changes hands.

Since this is a gas station, you should look into the environmental history. Many of these had leaking underground storage tanks which will subject you and your lender to environmental liability if not cleaned up.