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TRANSCRIPT
Creative Investment Strategies
for Self-Storage
Presented by
John Gilliland, President and CEO
Investment Real Estate LLC
InsideSelfStorageWorldExpo.com
Today’s Presentation
What do you need to invest in a self-storage property?
What should you have in place before you buy/develop?
Typical acquisition strategies
Creative acquisition strategies
Case studies
Lessons learned over 17 years
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Why Should I Listen to You?
Listed and sold more than 300 self-storage facilities
in last 17 years, valued at more than $850 million
Managed more than 80 stores (top 15 operator prior to 2010)
Built more than 2.5 million square feet of self-storage
Own and operate 15 stores
SSA chairman in 2007; SSAF currently
“We live, eat and breathe self-storage.”
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Audience Poll
How many of you are currently owners? Raise your hands:
• How many own one store?
• How many own two to five stores?
• How many own more than five stores?
How many of you are vendors?
How many of you are IRS agents?
Disclosure: I am not a CPA, nor an attorney (no advice).
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What Are Your Goals?
Think about why you are attending this session. My guesses:
You want to own a self-storage property.
You want to own more self-storage properties.
You want more time by owning a passive investment.
You want more cash flow/passive cash flow.
You want to increase your net worth.
You want to limit your risk.
You want to limit the amount of your capital you put at risk.
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What Does It Take to Get in the Game?
Three main ingredients:
Money
Expertise
Time
You need two out of the three to be successful.
What is the most critical factor in self-storage ownership?
“To get what you never had,
you must do what you have never done.”
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Money
Question: “What does it take to get in the business?”
My answer: “25-30% of the purchase price is typical.”
Typical transaction:
Purchase price of $1 million
Down payment of $250,000
Bank loan of $750,000: 5% fixed, 20-year, due in five,
75% loan-to-value (LTV), 1.25 debt-coverage ratio (DCR)
Closing costs of $15,000-$20,000: Transfer tax, legal,
title insurance, miscellaneous
Takes 90-120 days to close once you find the property
Expect cash-on-cash return of 8-12% the first year
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I Don’t Have Any Money!
Easiest of the three ingredients to get!
Savesome until you do have money!
Borrow against your assets: house, other property
Borrow from your business or your investment portfolio
Borrow/partner with your parents, family or friends
Partner with someone who has money:
• College buddy, co-worker, friends, acquaintances
• Doctor or dentist
• Local business person
• Form an investment group
Joint venture (JV) with institutional money
Crowdfunding is the latest idea
“54 units in a cornfield”
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Time
If you have money and expertise, hire someone with time!
If owning a self-storage property is one of your goals, make the time to make
it happen.
It’s not a matter of enough time; it’s a matter of making it a priority.
Do you own other real estate or business that takes too much time?
Apartments? Employees? Vendors? Customers?
Self-storage is a relatively passive investment once stabilized.
• Management company or manager
Remember: “Sleep is practice for death.”
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Expertise
How do you get expertise in the self-storage business?
• National a state associations: Join and go to all functions!
– Education
– Networking: YLG, MSOG, LOG, committees, boards
– Functions
Tradeshows
Metal-building company seminars on development
Internet research
Books, CDs
It’s important to fully immerse yourself in the business
once you make the decision to invest!
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Expertise for Hire
Who do you need on your team for a successful transaction?
Self-storage broker (with experience!)
Self-storage management company/consultant
Real estate attorney
Accountant/CPA, accounting firm
Loan broker
Banker
Environmental consultant (conduct Phase I study)
Appraiser
Civil engineer/architect if developing or expanding
Construction/maintenance company
Industry mentor or adviser
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Ready for Action
You have committed the time to invest successfully.
You have a team of professionals ready to assist.
You have developed your writtenbusiness plan for action.
• Vetted by your mentor and/or professionals
• In presentation form for your partner and banker
(and wife/husband)
You have determined your price range, geographic range, return parameters,
investment structure and timeframes for action.
Now let’s get started!
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Case Study: Moove In Self Storage
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Case Study No. 1
Moove In Self Storage
54 units; one 30x220 building; 3,000 in 10-mile ring
Paid $13,200 for the land (cash, no financing!)
Borrowed $90,000 from Tel Mark (Wells Fargo)
to build the building
Filled in nine months; appraised for $250,000
Refinanced out $175,000; paid off first loan
Had $85,000 cash to do the next deal!
Still owned this property which was cash-flowing well!
Management: “satellite”
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Case Study: Harrisburg Self Storage
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Case Study No. 2
Harrisburg Self Storage
Basement of shopping center, leased premises, no RE
Five-year lease with five-year option, 147 units, 12,000 SF
Sale price: $125,000
Manager is buying the property
100% financing, 6% over six years; installment sale
NOI $34,000; loan pay $25,000; cash flow $9,000
CF year 2: $16,177; year 7 after loan payoff: $52,000
Seller: CF for six years, protected, tough to sell leased SS
Buyer: No money down, kept job, great CF, got his start in SS
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Case Study: Xtra Space
and Montgomeryville Self Storage
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Case Study No. 3
Montgomeryville and Xtra Space Self Storage
Older properties, undermanaged, two managers, owners using
20+ units, no Internet presence, deferred maintenance
No tenant insurance, late fees waived, few auctions
Market is highly occupied (90+%), great location 40K/D
Sales price $5.2 million, 5.8% cap on actual NOI
Run with one office, satellite store, 1.5 managers
Reduce/reallocate expenses
At stabilized occupancy increase NOI by $300,000!
New value in 18 months? $7.5 million
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Case Study:
A Space Center Self Storage
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Case Study No. 4
Beautiful, owner-built facility; built in 2003; Beacon Falls, CT
Phase I of 27,000 SF is 95+% occupied, phase II is 39,000 SF
$17 annual rents, competitors full, 21,000 pop in 3 miles (thin)
Sale price of $4.25M: $3.9M for SS (7.6% cap), $350K for land
Issue: Expenses on 27K SF, small market, demand?
Current expenses only $115,000, off-site management, full-time manager
Solution: Build half of expansion (20K SF gross, 17K SF net)
Addition generates additional $202,000 in NOI
Value added $2,700,000 less cost $1,000,000 = $1.7M equity!
Still have 19,000 to build out; full expenses now in place
Total value is now $6.8 million; refi out 75% = $5.1 million
All of your investment is out; property still owned and cash-flowing
$93K per year
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Case Study:
Beltway/Security Self Storage
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Case Study No. 5
Beltway/Security Self Storage
Nearly 1,000 units, built in early ’80s, managers 73+ years old
No computers, no advertising, no Web, only phone number!
73% occupied; district magistrate did evictions
88-years-young owner; partner’s daughter mid-60s
$6.7 million sales price set; capital gains tax: $3.2M
Trade for REIT stock to avoid tax; no takers
Lease for term of owner’s life; sale occurs within 120 days
Controlled with $500,000 in cash; CF $118,000 in 2015
Owner out of management, great cash flow, exit defined
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Lessons Learned
Get your team together first.
Money is the easy part.
Those who act (buy/build self-storage) win.
There is no perfect deal.
The first one is the hardest one.
Control the transaction; be the general partner.
Follow the REITs. They are smart!
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Lessons Learned
Brokers can be your friends.
Banks are a tool, not your friend.
Set your “protection” as you ascend the financial net worth ladder. Any
climbers in the room?
Brain damage is the same for a $200,000 deal as it is for a
$20 million deal.
Development is risky.
Perseverance trumps all. You either win or learn!
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Contact the Presenter
President and CEO
Investment Real Estate LLC
717.779.0804
www.irellc.com
John Gilliland
Thank You!