It was 2007, and I realized I needed to get back into the self-storage business.

I had put a small portfolio together in the early 00s but ended up selling it to a fund.

I did OK, but my investors at the time did great.

On that 2007 morning, the economy was blowing and going. I was making good money in commercial real estate, and I realized I had no retirement really set up.

My parents had set up a “trust” that was supposed to handle retirement for myself and my sister, but it became painfully obvious that it was far short of providing the lifestyle I saw myself providing my wife and family.

I realized that morning shaving that self-storage was what I was going to use to create the wealth I needed, and I was behind the curve.

In the summer of 2007, things were still going strong in the economy.

I started looking for storage deals again.

I found this property like many others: An alarm went off on my computer that a new self-storage property had been listed in my target area.

At the time this property was beeped to me, I was discouraged. I had looked at a lot of self-storage facilities and had been unable to find one that I could purchase at the returns I needed to get back into the business. I was beginning to doubt my abilities.

There was nothing to indicate this was going to be the one I would purchase when that alarm went off. In fact, there were many reasons to think it was not.

First of all, it was listed for more than $6 million. It was only 86,450 square feet. That alone did not look promising. I almost passed right then and there, but I had promised myself I would look at every self-storage property that became available in my target market.

I called the real estate agent who had it listed and asked questions.

It turns out that this property was owned by the father and son team who built it. The son had run into some money selling a business, and the father was a builder.

The son told the father he could bankroll him in constructing their first self-storage project if he could be a partner. They started constructing.

As I showed up for the tour, something went off in my head that I would own this one. I cannot say what it was, but I have felt it before. It is like an intuition. I knew as I walked up to the door that it was a trip I would make many times.

They were around 85% occupied, and they had a “record storage” component to it. I was unfamiliar with record storage, but the owner told me it was great and that if I didn’t like it, he could break it off because he would love to keep it.

He said if I did my research, I would see that record storage grew at an average rate of 18% per year (his project had increased higher than that over the past two years) and that it was very difficult to lose customers because it cost a lot for them to leave and go to a competitor (perm out fees), all of which turned out to be true.

He also loved the record storage business because it took square foot income (self-storage rent) and turned it into cubic foot income. (Record storage is charged by the cubic foot of storage, and boxes can be stacked to the ceiling).

I was very intrigued. How hard could it be? I went to work analyzing the project.

The economy is still rolling strong; the numbers looked good, so I put an LOI on the deal, then went to contract for $6,250,000. It was about an 8% CAP on the storage and record storage income.

Plan B

I immediately went to work (1) doing due diligence, (2) getting a loan, and (3) raising the money.

I had a father and son who wanted to invest and help me “run the business.” They were going to be my co-sponsors.

Given this was back in the days when one could buy self-storage and not always have to do a value-add-play, I went into the permanent market and found a CMBS loan with good terms, and it was non-recourse.

Next, I had a family (a father and numerous sons) that had sold an office supply business, and the father had said they would put the money needed (down payment less the capital my co-sponsor said they were putting in the deal), totaling about $1 million.

I was sitting pretty and looking forward to returning to the self-storage business.

I thought.

Headlines were breaking about the housing bubble and something called “derivatives.”

All hell in the world economy was starting to unfold.

Two weeks before the contingencies were to be removed, I received a call from the family saying there was a lot of internal squabbling and they would not invest in the deal.

Now what?

I had to get some partners quickly if this deal was to happen, but I had no idea where or how.

A few days later, I attended a Real Estate Exchangers marketing session. (This is a forum of commercial real estate agents and owners of commercial real estate who get together and market income-producing real estate using creative methods, such as exchanging).

Around 10:00 a.m., I saw a vacant industrial building with a value of $1.25 million, no loans on it, being presented by an agent.

This could work…perhaps.

When someone asked that agent who the owner was, the agent said the name of a person I recognized. When I first entered commercial real estate, that person was a “for sale by owner” (FSBO), and I listed and sold a commercial building he owned.

I raised my hand and said, “I am a taker for the building, but we have to meet today.”

That owner was a retired CPA. He had created wealth by exchanging his equity, deferring the capital gains, and putting all his equity to work, getting in larger and larger deals every time.

By taking his building, I knew I could “crank” or refinance the building and put an 80% loan on the building, thus raising my needed million dollars for the down payment.

He could complete a 1031 tax-deferred exchange, put his equity into this larger deal, and potentially make even more money.

He was retired, so I thought the non-recourse financing would be particularly appealing to him. It turned out to be.

What I saw as the risk at the time was the empty building, but I saw a plan for it. The father and son team would put their money into this building rather than the storage project servicing the debt while we sought a tenant. They would most likely have to put less in the deal than they originally planned, and we would now have two assets.

There would be enough for the down payment for the storage project with the refinance proceeds.

Rather than the exact process, what I think is important here is the thinking. I had been taught, and believe, that there is always a solution to every problem if we focus on benefits to each party.

All was right with the world. I just needed a few more extra weeks to get the financing on the industrial building in place.

I went to the seller of the storage facility and indicated I could remove most of the contingencies but needed a few weeks extra. I was surprised at how hard he was to deal with at that point. He was at first a “no,” wondering what was going on and not believing what I was telling him. Then, finally, after lawyers, letters, and calls, I got a few extra weeks with the good-faith deposit becoming non-refundable.

That was way harder than it had to be, but it worked.

After getting the financing for the industrial building in place, I removed the contingencies, we closed on the industrial building, and the funds went into an “accommodators” account (like an escrow account for 1031 funds so our CPA partner didn’t touch the proceeds, thus invalidating the 1031 exchange) and we were ready to close on the storage facility.

Plan C

It’s been said the key to success in life is plan B. Plan A is all that stuff in our heads, and life doesn’t unfold that way.

Sometimes, there needs to be a plan C or D.

The real storm in the economic downturn started hitting at this point.

I don’t know if you remember the meltdown toward the end of 2007 and the beginning of 2008, but I do.

It was as if this deal was at the center of it all.

On a Tuesday, I got a call from the mortgage broker who had placed the non-recourse conduit loan we were going to use on the storage facility. We were trying to schedule the closing of the storage facility, and he was being a little evasive.

Finally, that morning, he called and said we had “lost” part of our funding. That was a term I had never heard. Is that really a thing? Losing funding?

Well, apparently, he had not heard of it either until that day.

Apparently, the financing we had arranged was to be placed into a package of loans that were “securitized” (sold) on Wall Street. That is where the lender’s money was going to come from to fund our loan. Wall Street was melting, and there was no market for these loans. By the end of the week, all this type of financing had stopped.

It would be close to 2010 before it would start up again.

So, there we were: one million dollars of the 80% partner’s money in an account ready to close, me and the father and son team, the proud owners of a vacant (operable word here) industrial building, no financing for the storage in place, and two weeks to close.

I remembered how much fun the seller was before; I knew we were going to have a ball now.

I had never seen anything like this happen before, and we were all in uncharted territory.

There was no resource to help us. I couldn’t Google what to do, because this had never happened before.

It is still amazing to me how, in less than a week, things so totally melted down.

I went with my hat in my hand to the CPA partner and told him, “I really need some help now. Anything—any coaching you could give me—I would appreciate.”

I will always appreciate how cool a head he had during that time.

His coaching was simple (“keep your eye on the ball”), but who he was being at that moment gave me hope. He just said, “Take one step at a time and do what is necessary not to lose my money and close the deal.”

The seller was as much fun as I anticipated. The short version is this: The million dollars had to become non-refundable; if we did not close in 60 days, he would get it.

The CPA partner was so certain he could get the financing through his bank that he was willing to risk it.

His bank, in essence, gave us two loans: one for the self-storage and one for the record storage that was on paper—very close to the original financing I had in place, but with one major difference: Everyone had to guarantee the loan.

We thought this financing was going to take a few weeks to get. It turned out to be much longer.

The banks were very scared at that time. A lot happened between our Wall Street meltdown and the closing that took place on February 28, 2008 (seven months after I first saw the property). Lehman Brothers collapsed, AIG was bailed out, and—well, you know the story. Suffice it to say, banks were jumpy.

Finally, we had been “approved,” and I was attempting to schedule the closing of the storage facility.

The bank had to have the appraisals looked at again, the facility’s year-end numbers had to be looked at again, and on and on.

The closing got moved back. January’s numbers were now required. February 28 was the last day before the CPA’s money would go to the seller.

The seller of the storage facility didn’t care if it closed. In fact, he was better off if it didn’t.

On the morning of the closing, on the last day before the money was going hard, I received a call from the CPA partner. He said that the bank had decided to change the amortization on the second loan (the one for the record storage business portion of the deal) from 20 years to six years because “it wasn’t real estate; it was a business.”

On the day of the closing!

This sent our loan payment up more than $10,000 per month. If we did not close, my partner lost his million dollars. We had to close, and the bank knew it.

On February 28, 2008, I was back in the self-storage business, but it was not like I pictured it would be.

Conclusion

We ended up selling the project about seven years later.

The record storage was a B to B (business-to-business), so it really dropped in the recession.

 The storage lost about 6% or so of occupancy.

We did not hit the cash flow projections, but the project was profitable. We also ended up selling for a couple of million over acquisition.

In some ways, it was not as good a deal as most others I have done.

In other ways, I am most proud of this deal.

This time, we are nowhere close to the turmoil we were in back then, but I have noticed I have the same feeling at times that I had.

Doubt in myself and my abilities.

But one thing I learned was when needed, I can find a solution to almost anything life can throw at me.

I just have to remember that.

Here is the takeaway: you can too.

Ask yourself, how would you get a loan if all banks shut down today?

If all your investors went away, how would you get equity?

How I did it is just one possible solution.

The questions, at this point, are more important than the answers.

As Tony Robins says, most people ask the wrong questions. Change your questions, change your life.

Hard money loans, joint ventures, having sellers stay in the deal for a time but remove risk for them… these are all solutions I am using today.

I recommend not just thinking outside the box today but specifically asking:

• What are the benefits I can offer each party that enhances their position or reduces their risk and allows me to achieve my goal?
• What is an alternative to how I did things last year?
  • Alternate financing.
  • Alternate equity.
  • Alternate deal structures. 

I hope this inspires you and motivates you to realize that you have many alternative ways to approach any given deal in any given market environment.

Be creative, cover your downside if you can, and use what the market throws at you as fuel for your thinking.

For many of us, this will be the time we can do deals others can not or will not.

I am reminded of the buffalo story.

When a storm is approaching, cows get scared and run away from the storm. It always seems to follow them, and eventually, they are caught in it.

Buffalos run toward the storm, charge it, and run through it much quicker than cows who are trying to run away from it.

I am clear: most of us in the storage business are buffalos.