The last three episodes have covered my deep dive into the previous 35 to 40 years into exploring how creating goals and achieving them can work.
Let’s talk about one of my most crazy experiences in this world of creating a self-storage business and what it can look like on the court.
I wrote about it in the second section of the book Creating Wealth Through Self Storage, but I will tell an abbreviated version of the story inside the context of the last three episodes.
On Dec. 31, 1999, I formed a group and closed on my first self-storage project. I was able to quickly put another two into service under the first self-storage brand I was ever a part of.
By 2004, we received an unsolicited offer for their brand, and given how we were organized (majority vote ruled), I was quickly out of the business.
It was a great experience, but I returned to focusing on my commercial real estate brokerage business.
However, around 2007, I realized if I was going to really create wealth, I needed to set a goal to get back into self-storage.
The impetus for this was the realization in early 2007 that my Father’s “estate” was not anywhere near enough to make a difference for me as he told me it would be. I set a goal to be in the business by the end of 2007.
The Deal
I think it was around the second quarter of 2007; I found a self-storage project in my market (I had never owned one in my hometown yet) and set an appointment to see it.
I was excited because my preliminary numbers worked, but one never really knows until we take an honest look.
It was listed for $6,500,000, and the current owner had built the project about five years before. They constructed the approximately 86,000-square-foot project all at once, and what they did with part of the project during the lease-up was not to put units in but install racking and use it as a record storage business.
That business had really taken off for them. They were growing that portion of the projected revenue at about 15% to 17% yearly income increase.
Now, keep in mind that we had experienced well over ten years of growth in the economy since the last real downturn in the early 2000s with 9-11 and the dot com bust. I had primarily known self-storage growth since my getting in the business, then selling, and then trying to get in again.
I had also only raised capital to purchase before. I needed to know as well.
When I went to see the project and meet the seller, I had a curious sensation, almost as if I knew I would be one of the new owners of this project. As soon as I got out of my car, that feeling came over me.
The Organization Of The Deal
I had one father and son group I had sold investment real estate to, including a self-storage project over the last five years or so.
They told me if I ever had a self-storage deal, they would invest with me. I contacted them, and they indicated they had $200,000 to put in a deal.
I next went to a family I knew that had sold an office supply business. There was a Father and about four children. I presented the project to the Father and a few of the family members. They said they would invest the rest of what I needed up to $1 million.
Almost immediately, I had my equity.
I next went to a mortgage broker I knew who helped me line up a CMBS (non-recourse)
Loan.
The due diligence was going well.
I had everything in place.
I thought.
Every morning, I would get up and see the deal closing and myself back in the self-storage business.
Every time I thought about the deal or went there during the due diligence, I had that same sensation of knowing I would be the owner of this project.
I had a clear goal in mind, and it looked like the universe was conspiring to make the goal be realized.
Then weird things began to happen.
The Collapse Part 1
The first major blow was two weeks before my due diligence period was up. I got a call from the family, putting in the central portion of the money. The Father indicated there was a lot of upset with the children, and to keep the peace, he would not be able to invest in my deal.
Bam! Just like that, almost all the equity went away.
That was on a Tuesday or so. The next morning, when I was with my vision and goals, I still had the feeling I was going to close on that property, but I had no idea how.
I called people I knew but was getting very little interest.
On that Thursday morning, I went to a real estate marketing session at the Kentucky Real Estate Exchangers. This is a group of creative professionals, and I wondered if they may have an answer.
Sitting there, I saw someone present a building for sale. It was an industrial building of 36,000 square feet, empty, but it had no debt. It was listed for $1,200,000.
In 2007, it was nothing to get an 80% loan from a bank.
I raised my hand to ask about the ownership, and the agent said it was owned by John B.
I knew this guy!
Early in my career, I had a building for sale by owner, and it was one of my first commercial listings (I called on FSBOs back then). I had sold the building for him. By 2007, he was a retired CPA but had invested in real estate.
I told the agent I was a taker for the building, but I had to meet him immediately.
The agent and I went to his office by noon. I presented my deal on the self-storage. I told him I would exchange 70% of my deal to him for his building. But he had to hold a second mortgage on his building for about $200,000.
I had non-recourse financing already lined up on the storage project, which John seemed to really appreciate.
I was going to take title on his building, refinance quickly the 80%, and use that as the downpayment on the storage project.
Once John got my predicament, he said he would give me the building and hold the second, but he wanted 80% of the storage project for his building.
I agreed on the spot, and we wrote it up.
I had to get an extension from the Seller of the storage project to give me time to “crank” the industrial building.
I called the father and son investors who were going to put in the $200,000. I told them exactly where I was and said rather than use their $200,000 in the storage (the 80% refinance proceeds were all I needed as a down payment for the storage project), I would split the ownership of the industrial building with them and give them half my ownership in the storage project.
Instead of their $200,000 going into the storage project, let’s use it to pay the debt on the industrial building until we get a tenant, any tenant improvements needed, and commission if an agent brings the tenant.
They agreed to it.
It took some time to get an extension from the Seller until the end of 2007, but I did.
Just as quick as the deal blew apart, it seemed to be back together.
Then, December 2007 rolled around.
The Collapse Part 2
I received a call a week or so before the scheduled closing from the mortgage broker. He said something I had never heard before.
“Your funding has dried up.”
Having no idea what he was talking about, he said with banks starting to close (the Great Recession was on), funding on Wall Street for the CMBS markets had frozen up. No lending was going on.
It would be well over a long time before this market started lending again.
So, there I was the proud owner of an industrial building. John was expecting 80% ownership in a storage facility in a few days, and my loan went away.
I called John and explained the situation and the call I had had.
He was very cool-headed and said he needed to close on the storage. The refinance proceeds I got from putting a first mortgage on the industrial building were sitting in a 1031 intermediaries account in his name, and for him to be able to defer the capital gains due, he had to close on the storage project.
John said he would use his connections to get a regular bank loan, but I needed to extend the loan with the seller again.
I can’t tell you how excited I was to do that again.
The seller of the storage facility blew a cork and said the only way was for the money in the intermediary account to go hard, and he would give us 60 more days.
It was John’s call, and he agreed.
John helped get a loan with a local bank for 80% LTV when banks were going under left and right. Amazing.
One last twist.
On the day of the closing, day 60, the local bank decided that morning that since 20% of the business or so was “record storage business,” and record storage is not a “real estate deal,” 20% of the loan was to be over seven-year amortization period, not the standard twenty years of a real estate deal.
Bam again! Debt service went up over $10,000 per month on the day of closing.
But we closed at the start of the worst recession since the stock market crash of 1929.
Conclusion
I learned in my bones during that time that anything is possible.
I had this weird feeling that I would be able to do the deal, but everything seemed to be going against me.
This was not the easiest deal I ever managed. The record storage business was a mistake for me. It is a B-to-B business that really dropped off in the recession.
We never hit the proforma numbers but did sell the project for a profit in 2016.
More importantly for myself, it proved to me that if I can keep my focus on what I want and not what I don’t want, often, if not always, people and situations can show up that can help me achieve the desired goal.
Also, the deal has to benefit everyone.
I ended up giving a lot of my portion away to do the deal, but I did because it seemed the right thing to do to move the deal forward.
My ownership in this deal allowed me to begin to grow in the self-storage business. Even though I only owned 10% of this deal, that 10% started me on my building of a $60 million plus storage business with two brands.
It was also imprinted upon me that I just needed to do the next thing in front of me without figuring out how everything was going to fit together. I could have never seen or organized all the pieces together that needed to come together to have this deal close.
I learned my job was to keep my eye on the end goal, take the next step, and just keep breathing.
Sometimes, that’s all we can do.
This is a rather dramatic example of how goals can manifest themselves, and I hope it helped.
Fortunately, most of my life doesn’t have anywhere near that kind of drama.
My wish for you is to have fun and exciting self-storage adventures.
