All Forum Posts by: Scott Krone

@Kelly Beasley  Our primary investments are self storage.  To simply answer your question, there is too little information provided in order to properly assess the situation.  Based upon the lower dollar figures you are discussing, it appears to be an existing Class C type facility.  There are many factors that should be reviewed to assess if the stated goals are possible.  Some things to review would be saturation of the market, market rental rates vs current rental rates, operations, how much vacancy, etc.  We have free information on our site that helps explain the self storage industry.  

Class C is not a segment of the market we are currently pursuing, but the overall concepts apply.  That being said, we do have many associates that solely focus on Class C, and enjoy the returns it generates.

@Colton T.  Congrats on your new opportunity.  A 100 unit development is a significant endeavor from an experience as well as a financial perspective.  The first question to address is, "a 100 what" - condos or rentals, etc.  When dealing with large developments in Downtown typically require significant municipal involvement and approvals.  They may not allow 100 rentals or condos.  They may have different requirements and objectives for those unit types.

I agree with @Franco Tonelli that you should be seeking professional advice, however, I would not start with an accountant.  I would start with commercial real estate developers or planners to help you get a better sense of whats all involved as well as what is possible. 

 My pleasure

@Jordan Santiago   - Self Storage is our main focus.  

Storage is a very demographically driven industry.  We study the demographics of a city for a specific site and location.  It is that specific.  What makes them a good deal?  If there is unmet demand which you can provide the product.  The other reason they are historically a good deal is how they perform in a recession or recessionary markets. 

Ultimately, with the three different asset classes in self storage, understanding your investment goals and objectives will determine which one best fits your criteria.  We just did a webinar on this which we posted in Bigger Pockets.  If this interests you, I can send you a recording of it.  It covers the various asset classes within self storage, and how each performs.  

What we do?  We are converting large commercial buildings into Class A self storage through out the Midwest.  

@Traci Penkala  As a developer, design + build firm here in Chicago, I have seen trends over the past 30 years.  When the markets are hot, many GC's, attorney's, dentist etc all became "developers" of speculative single family homes.  Many got caught with large over priced inventory during the changes in the market.

To specifically answer your question, there are not too many investment firms that seek the luxury single family market.  Simple answer, too much work and overhead for a small deal.  Deal size in relationship to risk is the largest factor.  It is an all or nothing proposition.  Firms that build apartments, can sell if the market changes.   Or if they build condos and the market changes they can switch to apartments.  

The way most GC's make the transition to becoming a developer is by acquiring the property, and facilitating the project themselves.  In order to do that, they have to have good systems and team in place to demonstrate they understand the market and associated risk.  Anyone can buy property, buying it at the right price, understanding the zoning to determine the proper size of home for the market, demonstrating the home sale price is inline with the market, who will be selling the home, and then having the liquidity to provide equity and carry in the event the home does not sell.

While your group has a strong team on the build side, is it as good with real estate brokers (to assess acquisition price, location, zoning, etc), architectural team, title company relationships, lenders and equity (friends, family, or themselves) to put together the deal.  

Currently, in the luxury market, I am only seeing a few speculative homes in the Chicagoland area, and those developers have gone from 5-10 homes per year to 1 or 2.  The size and value of the homes have decreased as well.

@Caleb Bryant  We just hosted a webinar last Wednesday on the market as well as our product type - self storage, and how it has historically performed in recessionary markets.  More importantly, the "why" behind the reason for its performance.  In addition, we review where the market currently, and which direction it appears to be heading.   If this is of interest to you, PM me, and I can forward you a recording of the webinar.  

@Jordan Meyer .  Midwest is a broad term.  It is the "market" where our focus is for investment.  That beings said, Michigan is in the Midwest.  Detroit until recently has been in decline and is almost 600,000 people remaining.  However, western Michigan, Grand Rapids area has exploded.  I agree with the other assessments you have to look deeper than a quick overview.  To that end, I we look at the reason for the decline - is it political, taxes, job market, etc.  People point out that IL is in decline but Chicago is increasing. I would agree that overall declining is a major concern especially when it is over 169,000 people.  Yes, IL needs to figure out how to attract people.  

To that end we do study growth in a city, but also growth within an area of a city, as our model is predicated on a small area within a city - typically 3 to 5 miles.  We desire areas that are looking to attract people through incentives - opportunity zones, PACE financing, TIFS.  Where jobs are being created Grand Rapids, Louisville, Dayton are the areas we are focusing upon.

@Brie Schmidt  - Could you clarify your post if you were pleased with the MKE performance.  Going from a 5% cap to a 3% is impressive.

@Rudy Curtler  - within the BP community, there has been much debate as to whether self storage is Passive or Active income.  I agree with what others like @Scott Meyers and @Paul Moore have stated about self storage.  

Personally, within real estate, and I will make an assumption you are asking in the context of real estate since this is a real estate blog, I have been involved with MF condo, MF apartment, SF new construction, SF fix and flip, retail, flex space, institutional, commercial and self storage over the past 30 years.  I can say definitively of all the asset classes self storage is the most passive income class. That is not to say there is no work.  Every business requires work.  What makes it more passive compared to other asset classes is the ability to automate it or train someone to run it with relative short training period.  

Another reason, we prefer the asset class is how it has historically performed in both a growth and a recessionary market.  We just hosted a webinar on this topic which discussed the various asset classes within self storage, and how they have performed over the past 30 years.  More importantly, why they perform better than other asset classes in a recession.

@J Polanco  Glad you were able to receive it.

@Zach Cummins  I started in real estate while getting my master's degree in architecture when I was 21.  Let's just say that was a while ago.  I have been blessed with both mentors and coaches.  My mentor was also my professor whom I worked for for 6 years.  I got to learn a tremendous amount about real estate development, architecture and contracting.  I started my own firm when I was 28.  I soon realized I needed a coach.  

Here in lies the distinction in my mind between a mentor and a coach.  A mentor teaches you the business.  A coach teaches you how to own the business.  There is a huge distinction between being an employee and an owner.  Much more at risk not only for yourself but also for those that work for you.  A completely different set of pressures to learn to navigate.  

Well you could say, I only want to be a (1) person show.  That is fine too, however, you still need to understand the market, risks, positioning your company, etc that most employees don't have to think about or deal with on a daily basis.  

My mentor taught me a great deal in 6+ years.   My coach has taught me an immense amount over 20 years.  Most of what my coach has taught me is NOT real estate specific, but rather business specific.  I look at my business totally different today than I did when I first started in in 1998.  

Did I pay for being a mentor and having a coach.  Certainly.  I took the job with the mentor at a lower salary because I knew how much I would learn in a short amount of time.  If I hadn't worked for my mentor, no way I start a real estate development, design build firm at 28.  Have I paid my coach - yes, because I valued his time and wisdom.  The payments were used for a scholarship fund he created.  Do I consider my coach to now be a friend - without a doubt.  I also know my business would not be where it is today if I had not invested with my coach.  I do agree with @Jay Hinrichs that just because you pay for coaching doesn't mean it will work.  I have taught college architecture.  Everyone pays to go to school, yet not everyone applies themselves the same.  You still have to do the work, but a mentor or a coach can help you avoid mistakes that could cost you more than what you have paid them.