Part II: "I Love L.A." - Randy Newman

[continued from here]

I was transparent with the seller about how my capital bailed but I was happy to keep pursuing.

My partner Ryan got through to Public Storage, which I thought could be a fit for this location knowing that they had stuff within the 25-mile ring they like to have. The projections they sent back were beautiful: they supported our rents, projected 90% occupancy in <2 years, and they are one of the few big companies out there who can run these facilities at a reasonable expense ratio. Ryan got drone shots and banged out an amazing package.

At some point we had ourselves a 100% set of civil engineering construction docs. In this business, for a basic single-story metal building, that is enough to budget for your costs (plus or minus), because the real variable is not in the metal building, it’s in the sitework. I found a Mobile-based construction company who had done storage before and, by all indications, they seemed great for the job - they were at about $85 per gross SF. My go-to GC out of Georgia was in the same ballpark.

This is not necessarily cheap for single-story, but it’s not crazy these days and there was a substantial wall involved in the hill we’d be building on.

But you can imagine the responses I got from the equity folks:

• My equity won’t go to Lower Alabama

• Where’s the debt coming from if you aren’t rich enough to be the guarantor?

• It's not buttoned up enough because we don't have hard bids on the pricing of the construction cost

As for the first two criticisms, I got nothin for you (other than: equity is stupid for only going to places like Orlando and San Antonio, because most parts of Orlando and San Antonio have mediocre storage rents). As for the third, I didn't have full pricing because my go-to architect was gonna be $65,000+ and, well, I don’t know about you, but I think that's kind of a lot of money to throw at something that doesn't look like it's going to get built.

I couldn’t believe that the deal was not getting worse with time - a rare thing at that point: rents had barely fallen, if at all, checking our competition (who are/were plenty sophisticated at constantly adjusting rents), and then I found out Chick-fil-A was going in two doors down along with a new hotel and some other thing.

At one point the seller introduced me to a very successful hotel developer who had built multiple deals at this exit and had expressed an interest in storage, suggesting we co-develop this thing. We spoke, he was great, but seemed stretched thin, noncommittal, and hard to pin down.

Finally, after several PSA extensions, two options were seeming to materialize. One, a capital group out of the NY area with a decent reputation, but they were moving slowly (typical). The other, a sketchy hard money lender out of Nevada that a friend/possible “co-GP” was introduced to, telling us we needed to sign their equity term sheet or move on. They were very strange. Asked for a decent-sized deposit (which my friend was willing to pay, so we just ran with it), much of which was spent on nonsensical 3rd parties … and after four months of dicking around finally admitted they didn’t have the money. Wild.

At this point the seller had given me maybe 8 extensions, over a year and a half. Granted, I was a bit of a unicorn for spending this much time and money, and I’d be bringing substantial value to his land/’remaining outparcel’ by developing things like a decel lane, pond, boring under the road to bring sewer, etc. But they were just about ready to put the thing back on the market.

But I finally had a closer in hand. I can’t even remember the exact series of conversations that led to it, but a couple guys I know well, who have done way more storage deals than I might ever do, had been waiting to jump into action. They brought an absolutely massive family office who would fund the equity and bring great banking connections and a willingness to co-sign on the construction loan. I’d have to co-GP with them, but it would get done.

[Side note, rents were still high at the competition… amazing]

They also brought a nearby GC they had done business with, whose in-house architect would finish our design package for a mere $25,000 and who would build the whole thing, including the great wall of Mobile County, for a shockingly low number that was substantially less than the other guys I had circled.

We got one more extension, for a grand total of 11 of them (which excludes a termination we signed early on to get more time to evaluate the soil) over 2 years. This was a first for me.

An interesting little design note: I pushed for lots of climate-controlled drive-up units on the building. Something like 60 of them, more than I’ve ever built at once. But I guarantee they’ll fill up fast.

There was no way the bank brought by the family would be ready to close, so we would close all-equity. Before we had closed on the land, but had signed a construction contract with the GC, the GC made a $500,000+ deposit to the metal building supplier for the steel. Not only did we not have a construction loan closed, or all of our building plans stamped,… we didn’t own the land yet. This, too, was a first for me.

Wasn’t that scary, because we didn’t authorize it, and knew we’d close, but still funny.

Last but certainly not least: we started construction and basically got the building erected, funding everything with equity, before closing the construction loan. Yet another first for me. But again - not scary, because we knew the family would come through with the debt.

As of this writing we’re less than two months from completion and have no reason to believe the market has gotten any worse after all this time, so lease-up should be good. Public Storage sign package is in the works.

I love this project. And I love Lower Alabama.