My first storage deal - part 3 (finale)

The first couple months of operations was such a slog it caused Andrew, my on-site partner, to question what he was doing with his life. Cash was tight and it’s hard to quickly lease up a facility when you’ve spent almost nothing on marketing and so many of your “down units” need to wait to be fixed with future cash flow from operations.

I thought back to my time in asset management modeling future cash balances at distressed buildings and whipped up a daily cash projection:

It was just an excel sheet, but it made both of us realize “there is light at the end of the tunnel.”

Until we could replace all the doors, Andrew would do his best to hide the units with missing or broken doors from prospective customers 😅. Partly because of the staggered nature of our various capital projects, it took us over a year to fill up.

When we hit 100% occupancy Andrew sent me a video on his phone of blasting Future’s “Tony Montana” in the leasing office.

When we started, we’d both imagined managing this location, and others, for many years. At some point, perhaps when we repeatedly failed to “bolt-on” other stores in Nashville at a reasonable price, Andrew decided he didn't want to be doing that - even if we hired someone or remotely managed somehow - and that he would be happier exercising our purchase option and flipping this bitch.

Who was I to argue?

It was time to apply to subdivide this property. It was still part of the same tax parcel as the adjacent gas station. First step? Get a survey.

That survey revealed that multiple buildings, perhaps built illegally/without a permit by the politician’s son who developed this thing before eventually killing himself, encroached on the “right-of-way” held by the DOT.

Nashville/Davidson was not going to approve this request to subdivide. I asked around and some people in my network cringed and shook their heads. Andrew just stared at the wall of the leasing office. This was the lowest point.

Not to be deterred, we reached out to TDOT. No lawyers or consultants. Filled out the application to the “excess land department.”

Months went by.

Then BOOM. $12,000 was their number. We wrote a check to the state out of our operating account and bought back that stretch of frontage and we were free.

Time to sell. By our math we could ask $750k; substantially above our $475k option.

For such a small deal, we didn’t want to pay a broker. I drew on my experience as an analyst at a brokerage and built the most magnificent offering memorandum anyone has ever seen for a 91-unit facility: https://drive.google.com/file/d/131bKsoB42uzL2Z5M6mZ125IAaVWybvrr/view?usp=drive_link

I blasted it to everyone I knew of or could think of in the space. Buyers like Red Dot, property management companies, appraisers, brokers, … threw it up on Loopnet and listselfstorage.com , you name it. A residential realtor reached out via Loopnet on behalf of a couple who owned trailer parks … we went back and forth but they kept wavering.

Eventually we felt like the pool of buyers was a bunch of lowballers looking for 10-caps. I didn’t want to hire a storage broker; the experienced storage buyers were not going to “pay up.” So we talked to a KWCommercial guy who seemed perfect. He talked about 5-caps, he talked about 1031 buyers from California; he knew how to say the right things and somehow I fell for it. We signed a listing agreement and waited for him to work his magic. But it wasn’t happening.

We were running out of time on our purchase option, which we had already extended. I reached back out to the trailer park people and said, “If you’re still interested, we need to be under contract in the next couple weeks, or else this will go away forever.”

They bit. They offered low 700s, we got them up to $726,000. We exercised our purchase option, signed a purchase and sale agreement with the gas station owner, then signed a PSA with the buyer, and ultimately pulled off a “double-close.”

The KWCommercial agent ended up doing practically nothing, but we had to pay him $40k. They seemed likely to sue if we did not. We later learned it was the guy’s first closing, possibly of his career:

As for Andrew, the whole thing drained him so much he just wanted to take a W2 again for a while. He ended up doing commercial leasing and management for a bit, then got into industrial, went off on his own, and makes more than I do now.

I just kept doing storage deals.