Rich Kids of the SEC - part 1

I only looked at the storage market in Auburn Alabama because when I was still working full time at a multifamily REIT we came close to financing a student housing project there.

Because I was furthering my self-storage side hustle, I noticed storage rents were very high, there were multiple storage REITs in town, and incomes were high. I loved the manicured feel when the student housing developer toured us through. He explained that if you look at the household incomes that the students come from, it’s very much a “rich kid” school in the Southeast.

First step I took was to find the highest incomes in town and find an underserved pocket in or near that area. Well, I found that pocket immediately, and it looked like my idea just wasn’t happening. There was no land left on a busy road, not even a couple acres, unless you kept driving until you were on the outer edge of civilization.

Finally a broker I called on said “That makes sense, but why don’t you look at this site I’ve been trying to sell for years, it’s going to be the one closest to those neighborhoods.” He was right – I had done a lot of cold-calling and turning over rocks, and I wasn’t going to get any closer, even though his listing was on the other side of the interstate from my target customers. I didn’t love that it put me in a 3-mile ring of a shit ton of other facilities. Think it was 25 square feet/capita in a 3-mile ring … like 800k square feet of storage for 34k people. The market study politely skipped that stat, focusing instead on 0.5, 1.25, and 2 mile radii.

BUT: I’d be “cutting off” ALL those comps from the nicest part of town in terms of their having to pass me first.

Besides, it was just “good dirt” as they say. You have to pass it if you’re coming into town from the east. Punch Toomer’s Corner into your GPS coming from Atlanta or anywhere like that and it’s one of the first things you see as you enter the Auburn city limits. Nearly a thousand feet of frontage on one of the busiest roads in town.

Average household income in a 1-mile ring was $100,000+. Asking price only $600k or so. It was time to kill.

The prior surveyor apparently also had an engineering firm, so I had him throw together a cheap layout. It was funny how a parcel shown as 11 acres ended up being more like 7.5 after accounting for the insanely wide right-of-way owned by ALDOT and then more like 2.5 when you remove the hilly parts or the impossibly skinny sections of this long property.

Before going under contract we sketched a layout that might support a split-level or single-story layout – which is better for leasing plus cheaper to build – IF firetruck requirements didn’t exist. I ran it by someone at Griffco Design/Build; a few months later I overheard him telling someone “that thing will never get built.”

Admittedly, I knew the layout was a stretch at the time and that it would probably end up being multistory, but the rents were great, and this was back when you could build multistory for $65/sf.

In the hopes of keeping my options open for a multistory concept during approval, I took that spread-out plan and had my rendering guy make it a multistory. The result was monolithic, fucking MASSIVE, almost brutalist, like a Soviet ministry building. Makes me laugh today. When asked if we should pretty it up a little, he shrugged: “If you make it pretty, they might force you to build it that way.” I’d never built anything, what did I know?

When I got it in front of the planning commission during a ‘work session’ (fortunately not a public hearing), some were a bit horrified. One guy said, “Somethin’ needs to get built there, and I don’t know what, … but it ain’t that.” The head of economic development piped up and supported me. “This thing has been sitting for 12 years. I’ve shown it to every corporate user. Retailers don’t want it because of access and the lack of a traffic light. Let’s have him take his plans to [the city planner] for revision and come back with more detail.” God bless that lady. So I got an extension. Another urgent matter was a Geotech report, especially because I had been told the site was potentially on a former “inert landfill.”

Or tried to jump on it, I should say. The ideal firm for the job was well-known in town and had done a ton of work related to the expansion of the airport runway which was very important to the community – because it’s how Gus Malzahn was flying in 5-star recruits to visit Auburn. This caused them to hem and haw endlessly about whether they could do some borings – a very routine assignment in their world. I felt like I was crazy, encountering this odd resistance, until my design/build contact stepped in. Turns out they were afraid we would mess with the embankment supporting the oh-so-valuable runway (and of fucking course I was not going to, because that would be ridiculously expensive). We talked some sense into them and they agreed to do the borings.

The Geotech guys, mid-boring, called me while they were in the field. “The top layer of soil is just SHEEIT, and below that we’re hittin all kinds of blockages like buried wood n rocks n god knows wut.”

Called my contractor. He got with them, and had them do some test pits in addition to the normal Geotech work.
“Sure, there’s rock, but we can still build on it. You don’t need deep foundations, and that’s what matters.”
That is what I had been taught when underwriting ground-up multifamily deals before getting into storage, and I trusted him.

Due diligence was complete. Zoning was in place. Full steam ahead.

[to be continued]