The Biggest Mullet in the History of the Planet - part 3 (fin)

So again, lease-up was going great, we got multiple unsolicited offers… Then a broker quietly brought me a really good one. $14m from a huge buyer. It was driving me crazy how much I was being asked about selling, as I felt invincible and planned to take it all the way through stabilization, squeezing every penny out of the exit. I thought we’d eventually get 16 ($246/sf).

Well, we wouldn’t. Remember that pad I contemplated ground-leasing? Some idiots out of Louisiana did it, and started building a big old 100k sf Extraspace.

Then TWO MORE multistory, REIT-managed facilities went up in the other direction of our LifeStorage, in little pockets that I didn’t think had room for a big storage deal.

Remember the feasibility study that said there was a 188,000 SF shortage of storage? Now we were really testing the limits of that theory. And it wasn’t holding up well.

Occupancy was stagnating around 57%, and my "client relationship manager” at Life was acting like all was well in her updates. Then occupancy started going backward. But we were still asking high rents.

I had to beg them to drop them, so they finally did, but occupancy was still limping along. I alerted all my equity folks in the project that it was time to fire these monkeys and try something new.

It wasn’t that Life sucked. It was that it was a dire situation and I needed to roll the dice with someone else.

I went crawling back to the private management company that had gone the extra mile at other projects and told them everything. They were happy to help.

But what to rename it? Something that would play off the mullet, they suggested. I googled for mullet-related landmarks nearby, and there was a creek on the same side of Niceville called Mullet Creek.

My capital partner was greatly skeptical about the name Mullet Creek Storage, but I responded enthusiastically that the more ridiculous we could be, the better we could differentiate ourselves.

I put the new team on it. LifeStorage never took their signs down, they left trash everywhere, cameras hanging off the building, and a slew of other issues, but the ASM staff got the ship turned around after about a month and occupancy finally started going up again.

They took rents pretty far down to accomplish this, but I was more than relieved to see occupancy rising meaningfully for the first time in months. They were also engaged in guerilla tactics a large corporation wouldn’t bother with.

As we got occupancy up into the 70s it was time to list this bitch. I could tell it was going to be years before all this storage got absorbed, and the clock was ticking on my investors’ preferred return in the meantime.

Too much off-market nonsense had arisen surrounding the asset and I wanted to get as many eyeballs on it now as possible; “sunlight is the best disinfectant” as a friend of mine would say about a situation like this. I hired a broker who I knew would work hard and not oversell it, but would plaster it everywhere (linkedin costar etc).

Amazingly, I got a few great offers that were backed by platforms in the tens of billions of dollars. This probably occurred because

1. My facility was still wonderfully located in terms of demographics (6-figure median incomes etc) and growth (sprawling mixed-use project was underway behind the facility that basically dumped their traffic out into our front door)

2. It was very prominent, perhaps moreso than most of my competitors at that. Above-grade, a hundreds-of-feet long building running parallel to the road, positioned on a curve that forced you to look at it. One of my offers came from a $50+ billion operator who explained to me the importance of this characteristic.

3. They expected good times to return to Niceville, but had the patient capital for it

At the time of sale we were 76% full. I took a $10.5m offer ($162/sf) and we’d built it for about $8.1m. We got some money from unwinding the “swap” and overall got a project-level return of about 17% and an equity multiple of about 1.98x. We had left millions on the table by my decision to not sell early and I missed my underwritten exit by probably 30% - but, considering all the new inventory that had flooded into a relatively small area, this was a fantastic outcome.