Question #
What issues arose from neglecting the operating agreement in partnership management within the self-storage business?
Answer #
Again, weak partnership management on my part plus letting the operating agreement become a document we signed and shelved instead of the rulebook we actually ran the business by.
A partner made a decision, although a well-intentioned one, to release a vendor and hire a spouse to do a job for less money.
However, our LLC agreement spelled out the compensation that sponsors and their families could receive, and this job was not one of them.
One of my investors knew the document better than I did and got upset when they realized we were paying a sponsor a fee outside the scope of the agreement.
This mistake on my part took a long time to rectify and caused this particular investor to double- and triple-check everything we were doing.
Investor trust is absolutely critical, and when tough decisions need to be made, if the trust is not 100% there, problems can arise.
I learned this the hard way in this instance.
It has stuck with me ever since.
In an effort to be “investor friendly,” in the early days I would give in to a lot of investor requests that I wish I hadn’t.
Perhaps the biggest one was in a syndication where I had raised funds to purchase about three or four facilities, and the investors wanted a board.
The board was initially to approve the acquisitions but later morphed into an oversight board.
I spent a lot of time creating useless reports, totally useless financial models, justifying selected vendors and having to entertain their recommendations, and so forth.
Source: The Five Biggest Mistakes I’ve Made Over My 31 Years In The Self-Storage Industry
