Anchor Self Storage: You Could Buy It Today!

As I type this, the auction for Anchor Self Storage is live.

A couple months ago, before they decided to auction it, a partner and I kicked it around and couldn't quite get comfortable with the price.

I know a good bit about the storage market in Mobile, Alabama, and I like it a lot. There's a lot of growth there and rents can be surprisingly strong compared to other bigger 'metros' in Alabama.

So when I found this <37,000 square foot, mostly drive-up/non-climate facility for sale - called Anchor Self Storage - asking only $51 per rentable square foot, I had to look into it.

For context, some partners and I are spending over $145 per rentable square foot elsewhere in this same county (Mobile County) to build single-story self-storage. Granted, I think our achievable rents are higher at our ground-up location (hopefully justifying that $145 cost), but still, $51/sf should be a no-brainer, right?

My first thought was yes, but upon further inspection it's not a no-brainer for me.

The first issue is the leasing office - or lack thereof. I think they said that previously the owners were leasing the storage out of the little 'end cap' space on the end of the retail strip that touches the gate to the storage units in rear.

That would've been a perfect setup for operations going forward, but by the time I found out about this facility, the retail portion had already been parceled off and was under contract with another buyer. That would mean the only way we could lease out of that end cap space would be to rent it from them long-term, or maybe condoize/buy that suite.

Another idea I had was building a leasing office behind the retail, but then it would be less visible and made inaccessible by the gate, and would still cost money (say, $100k) that the deal couldn't handle. Our model was skinnier than I expected so I didn't want to further burden the deal cost or the recurring overhead with something like that. Specifically, that could prevent me from safely modeling a 9+ percent return on cost.

Why were the returns tighter than I expected? Well, upon looking at the totality of rent comps, the rents were more inconsistent than I remembered. Some are still good, like the Life Storage or 'the Storage Center' nearby. But some others just sucked, such as some Public Storage locations; I guess their performance softened during this housing slowdown, like in so many places.

So top-line, maybe we stabilize at $10-11 PSF (less than I'd originally thought but probably fair looking at comps), but it could still easily cost $155,000-$175,000/year to run a store like this including gulf coast-style insurance premiums, a little bit of part-time leasing personnel, etc.

$175k is almost $5/sf, so your operating expense ratio could be nearly 50% for something like this.

You might ask, why not run it cheaper, without on-site leasing personnel? Well, it's only 75% full, which is pretty terrible. Maybe I'm old fashioned, but personally I don't trust the remote leasing model for a 'turnaround story' like this. Even if we got it stabilized, the dogshit visibility of this facility would make me want to give it a little extra juice in the form of some kind of permanent on-site leasing, even if part-time.

When I told the broker we'd want to come in 100k below his guidance because of the lack of a leasing office, he said the owner wouldn't take it, and eventually got back to us informing us the facility would be auctioned on ten-x.com . This is generally a waste of time because it requires a fast all-cash closing and most people aren't going to do that.

The auction is live right now; I hope someone out there figures it out, but the current bid is only at $650k last I checked which is below their required 'reserve' price. Let's see how it goes the next couple days [update: it’s now at $750k].

I like to say that when you're just getting started, you might do a deal or two that a salty veteran wouldn't do, but that doesn't mean it's a bad deal. I might put this one in that bucket. Someone could make it work. The visibility and occupancy just make me a little nervous.