All Forum Posts by: Scott Krone

@Scott Meyers - thank you for the shout out.  @Nicolai Grebencio.  To answer your question, operations are important when evaluating a facility and managing it once it is acquired.  There are a few ways to manage this (some better than others), but depending on the size of the facility will impact the options you may have.  Either way, there are companies that specialize in this, and their cost structure can be built into your proforma.  I will agree with your broker that management is critical for the business.  That being said, for a first time buyer it is not impossible.

@Mark Eichenlaub - they are two entirely different investment classes.  I have associates who invest in notes but are transitioning and building a self storage portfolio.   I agree with @Taylor L. position regarding your goals and challenges.

Having done both, I prefer self storage.  As much as it is a real estate investment it also has a retail and technology component to it.  Having studied self storage's performance over the last four major recessions, I noted it as Recessionary Resistant, while others go further and describe it as Recessionary Proof.  On the other hand, notes tend to be more cyclical in nature.

@Chip Stroz, I second @Steve Cheslock position.   We are currently seeing all three asset classes come across our desk.  Some important things to consider are:  area of interest, size, asset class, and each persons goals and challenges to see if a partnership aligns with what you desire.

@Marc Estepa When considering a new construction or any construction, we break the expenses into three categories:  land, hard and soft costs.  It appears you have the first two covered.  Soft costs are:  architectural, engineering (structural, mechanical, plumbing, electrical and civil), real estate taxes, appraisal, survey, insurance, permit fees, miscellaneous, title, legal, and construction interest.  It does not appear you have factored these into your expenses. 

If the site is as challenging as you suggest, it would seem a civil engineer and site work are required.  $165/sf for a standard home is not unreasonable (basement, two story, stacked floor plan design), but water mitigation and control are also significant code issues in the Pacific NW.  A civil engineer would assist you with that as well as water and sewer.

@Scott Meyers thank you.  @Cole Simpson CAP rate is only one metric point to review with self storage. The CAP rate will vary by asset class: A, B, and C. @Scott Meyers makes many great points as to how to evaluate.  We also look at the existing conditions (physical occupancy versus economic occupancy) and market saturation to determine the value as Scott notes.  The CAP rate will reflect these conditions as well as the asset class level.  

For instance, we recently evaluated a class B facility in North Carolina that was 25% occupied after 3 years. They were asking an appropriate CAP level for a stabilized asset, but the market saturation was too high for us (and reflective that after 3 years it was 25% occupied). We passed on it because of all the other factors.

@Nathan Gesner @Griffin Schermer @Austin Hurwitz @Zach Quick @Tracy Selfridge @CJ M. @Steve Cheslock @Ola Dantis.  We have been active in the self storage market since 2013.  It was at that time, we began our migration out of MF to self storage.  We develop and convert underperforming assets into self storage, as well as acquire existing B and C class facilities.  I have sent a connect request.  Enjoy connecting with fellow self storage advocates and operators.

@Honglian Wu  We have either purchased or worked on homes damaged by fire.  More times than not we tore them down as the value of the property was worth more than the structure.  That being said, fire restoration companies can address your concerns regarding smoke, chemicals etc.  Not every home damaged by fire is a tear down.

The owner should have/would have received compensation from the insurance company for restoring all the services. We would take that number and deduct it from the FMV of the home. We then figure out what it will cost to renovate the balance of the home to get it to market value. That is how we determined what we could afford to pay.

If the fire was in the basement, the first floor, floor joists could be impacted.   First step is to remove any damaged drywall to inspect joists.  The fire restoration companies typically remove any drywall that absorbed smoke.  Keep in mind, if you open a wall, you are typically subject to bringing that portion of the building up to code as well.

Work the numbers and see if it is a deal.  It is possible to restore a damaged home.  In our state, I do not believe there is not a disclosure for fire, just flooding.   If the basement had water or still has water in it, there may be mold, and that is typically disclosed.

@Elijah Williamson  Our first step is to look at the zoning to determine what is allowed.  This will ultimately set the value on the land combined with the market.  Your costs for the trailers looks reasonable, but does that include utilities, permits, etc.

My mentor told me - consider three possibilities.  Best case, Worst Case and What most likely to occur.  Seems your potential partner/friend has the best case modeled out.  What is the worst case.  What do you expect is reasonable.  If you can live with all three, then go for it.

@Ijeoma P.  In the MKE (Milwaukee) market, may I suggest @rebecca knox Brew City RE Investor network to connect with people in that market.  Great group of investors.

@Jon Coleman welcome to BP and investing. There is a great RE Investor Group in MKE, Brew City REI Club run by Rebecca Knox. They do a great job of facilitating meet ups as well as educational material. They are a great resource for both new and more experienced RE Investors.

Near West Side Partners also is a great resource in the City.  They have a real handle on affordable housing and the community.