CREPN#183 – Self Storage Real Estate Investing with Scott Krone

J. Darrin Gross Podcast, Real Estate

Self Storage real estate investing is an attractive alternative to low cap multifamily.  

Scott Krone, Managing Partner of Coda Management Group, is an architect and developer based in Chicago, IL.  He has experienced the boom, bust of residential cycles..  Recognizing the compressing cap rates in Multifamily as a sign that values would likely not increase, he sold his entire multifamily portfolio.  Now his focus is finding underserved markets with unmet demand for self storage and filling this gap.

Self Storage Investment Strategy

Before you invest in self storage, it’s important to get educated on the basics.  For starters, the property values and capital required to get into self storage is a fraction of what is needed to get in to multifamily.  Otherwise the investment works similarly, NOI, cap rates, etc.

Traditional self storage is located near the edge of town  Usually a series of one story buildings with exterior entrance for all units surrounded by a perimeter fence.  

Scott creates class A self storage facilities in underserved urban markets.  The ideal opportunity is an existing building with current zoning in place that allows for self storage.  An ideal property is 80 – 100,000 sq ft building with high ceilings. When completed, the user will be able to drive into the facility to load and unload their vehicle, protected from the weather in a safe and secure place.   

By purchasing existing structures with zoning already in place, Coda is able to quickly close on a property, renovate and get the facility open to generate income.  This is a significantly shorter timeline than what is required for ground up construction, which could literally take years.

The building renovations typically include: new roof, HVAC and lighting.  Like any market, understanding the opportunity better than your competition is key to your success.  Scott has been able to leverage programs like the Department of Energy PACE  program which have provides unique low cost financing for energy savings updates.

Renovating versus New Construction

The difference between renovating and new construction are staggering.  

Timeline

The risk timeline  faced by a developer for a new construction are frightening, especially if you look back a to the last market crash.  Consider the risk of what could happen if your project takes longer than you planned and you miss the market opportunity entirely.  You could be left with a building that you cannot rent or sell.

Starting with an existing building significantly shortens the time line from start to completion.   Depending on your renovation schedule, you can be generating income in a fraction of the time it takes to develop a new construction project.

Value

The numbers really make sense when you compare to the cost of new construction.  If you buy a vacant building for cheap and add the cost of renovations, they are a fraction of the cost of new construction.  As Sam Zell illustrated in his book Am I Being Too Subtle, when you can purchase an existing building for substantially less than you can build, that’s a good value.

Successful Renovation Conversion Projects

Managing Self Storage

Coda sub contracts the management to REITs with self storage portfolios.  These are nationally branded, with all the marketing and systems in place to create a top performing property.  Ideally, the REIT becomes the buyer when Coda is ready to sell.

BIGGEST RISK

What is your Biggest Risk: Leverage

How do you manage the risk: Don’t over leverage your project.  

Bonus Risk: Too much competition

How do you manage the risk: Paying attention to the marketplace.

Know the saturation point of your market.

For more go to: https://www.codamg.com/