Site Selection for Storage Facilities | Guest Tim Hadley, ALC

         

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Intro: Welcome to the Realtors Land Institute podcast, the Voice of Land, the industry's leading land and real estate organization.

Justin Osborn: Hello, this is Justin Osborn, accredited land consultant with the Wells Group in Durango, Colorado. On today's episode of the Voices of Land podcast, we're talking to RLI member and accredited land consultant, Tim Hadley. Tim started his career 10 years ago focusing on working cattle ranches. He had a great client that insisted he help him buy a self storage facility. Once he fully understood the ROI, Tim and his wife bought three facilities themselves. Welcome to the podcast, Tim.

Tim Hadley: Welcome. Thanks for having me.

JO: Man, this is cool, I'm definitely looking forward to having this conversation with you today about storage facilities and warehouses. My family is involved in this outside of the Dallas area where they buy little farms and ranches along the interstate and go through the transitional land process and get them permitted to do this very thing. But I personally don't deal with a whole lot of it living up here in the mountains in Colorado, so I'm excited to hear what you have to offer.

TH: Yet.

JO: Not yet, I mean, if you can educate me on how to buy land at $20 a square foot here in Durango and make money off of it like the way you are, man, I'm all over it. Tell me a little bit about this, man. Like how did you go from working cattle ranches to focusing on storage facilities just from this, this one client that got you into it? 

TH: Because he had, I had sold him several ranches or farms, and he's like, "I'm gonna do self storage." I'm like, "I need to refer you." And it's the old classic. "I know and like you." I said, "Okay, well, I'm gonna do a deep dive. I wanna understand the numbers. We don't wanna get out of our depth." Well, after I really started looking at self storage, the normal cap rate on a farm in Missouri is like a 2.3 cap, and most of your self storage is like an eight or eight and a half. So I'm not a real smart guy, but when I figured out you actually make four times the return on your investment, that got my attention, like, "There might be something to this."

JO: Yeah, definitely, man, and you know I guess depending on the level of involvement, but it could either be more headache or less headache than farming, so props to you for figuring that out.

TH: Well, and the biggest thing is once I figured out the technology, because people now... If COVID did anything good for the world, big if, they expect to be able to rent online, pay online, not meet you. So when you take over grandpa's facility where grandpa would meet you on Saturday, sign a paper lease, maybe you'd cut him a check. And then I take over, I'm like, "Hey Justin." "Yeah." "Go to my website, put in your credit card, auto pay. You never have to meet, talk to or think about me ever again." For you, that's easy. And for me it's easy because then you forget you have stuff in storage till your credit card declines because it's aged out.

JO: Man, that's a great model, and so are you focusing doing this mostly in a certain part of the country or are you all over the place? 

TH: I'm focusing on rural areas, to be honest. I mean, I live in Kansas City area, but most of mine, or the ones I still have are in Missouri, Ozarks, like Truman Lake, Lake of the Ozarks, you may have heard of. Because the rural areas, you don't have the giant competition from the Fortune 500 companies 'cause I can't outcompete them.

JO: Sure. That makes sense. And are you and your wife managing this stuff yourselves or do you have managers at each location or? Kind of talk to me a little bit about that.

TH: We manage it ourself. Like I say, the first month or two is intense, getting everybody signed on a new lease. But then once you get people, my software does 80% or more of it for me. Like one of the things I do is if you are one that used to cut a check, and then you call me because your check was late, because life happens. Right? And say, "Justin, tell you what, I will just waive that late fee and we can just put it in your credit card, so this will never happen again. We don't want you to be embarrassed. We don't have to pay you that $25 late fee." I make it as a value to you, and yet it's worth the credit card processing fee to me to not ever have to worry about when your check's gonna get here in the mail.

JO: Sure. Yeah. No, that's great, man. And are you mostly doing all kind of different sizes or do you have a little bit of everything from the small storage facility to, yeah, here's where you can park your class A motorhome? 

TH: Well, and that kind of leads into, there's really kind of four kinds of self storage. If we're just gonna do customer archetypes. So traditional drive-up mini storage is your value add, probably what you think of is little steel boxes to roll up doors. Then you've got climate control facilities. Usually like in your metro areas, that's your premium, if you're gonna put your furniture or something, that humidity would damage. You've got boat and RV storage. And then there's contractor buildings also. That's all "self storage." I focus on boat and RV. The reason I do that is I get the least amount per square foot, 'cause all my units are huge, if I'm gonna fit your Bass Tracker or your Fifth Wheel, but no one ever abandons their Fifth Wheel for two months rent. Your skinny clothes, your Christmas tree, you can walk away from, you're not leaving me your Bass Tracker.

JO: Yeah. That makes sense, and it's, and obviously a lot cleaner if you're dealing with your contractors, those guys are gonna have paint and oil and all kind of stuff that's being left behind. But yeah, you're storing anywhere from a $30,000 to I guess hundreds of thousands of dollars motorhome, people aren't gonna necessarily be sloppy if they're owning that type of equipment.

TH: And the same, I've got a couple contractor buildings, it's not my biggest focus, but they're sticky, because when I bought one of my properties, I literally doubled the rent, which we can get into later. But the guy wasn't happy with me, but at the end of the day, he had a 2,000 square foot shop set up with air compressors and welders and miter saws, I bet it would've taken his crew an entire week just to move if he had somewhere to go. He'd already been there 15 years and you know what? He pays the new double rent and has for the last three years, so.

JO: Wow. Yeah. Well, props to you for figuring that out, a lot of times people stay in there that long, they don't get the rent raised on 'em.

TH: Yeah, and that's it. He didn't say nice things, but he pays. So.

JO: Now are you doing this just mostly for yourself for the return or are you trying to build a portfolio and then sell that to investors? Or talk to me a little bit about that.

TH: My strategy, because the big, the REITs, the big investment companies, they don't want any self storage that's less than 150,000 square feet. And so many of these rural areas, you've got these little 10, 15, 20,000. But if you have five, six, eight of them, all under one management with one software, now you don't have Tim's one-off boat storage facility, you have eight facilities all in one county near Truman Lake, then the disposition can be selling them as a portfolio. On land, you'd call it a consolidation.

JO: Sure.

TH: If you put multi partials into one bigger ranch, this is kind of the equivalent of.

JO: And your stuff that's out there by the lake, is that all dry storage, there's electric with one bulb? Or do any of them have spots to hose off their boats and clean up and that type of stuff? 

TH: No, it's pretty much everybody has a one 10 charger for your deep-cycle battery, and a light bulb. A few people just have outdoor inside the six-foot fence. We kind of have three levels, we've got the Fully Enclosed, which is like your Bass boat crowd that has electronics on the boat. Then we have Covered Only, which is more, to me, the wakeboard boat crowd, where you've got a nice boat, you don't want the sun on it. Then you've got your outdoor storage, which is your older stuff, if you've got a Fifth Wheel that you just take out on holiday weekends, you're like, "You know I can leave it down here for 50 bucks a month, saves me that in gas."

JO: Sure. That makes sense then. And so are most of your leases gonna be 12-month, or are people signing up for 36 months, or how is that structured? 

TH: Just the opposite, we do month to month.

JO: Oh, really? Okay.

TH: Now with that said, I have one guy that has a houseboat, and he has stored in that facility since it was built, before I bought it. He stored there for 23 years.

JO: Wow.

TH: But the good thing about month to month is, if prices go up, guess what? Your rate goes up next month, there's no waiting, there's no turnover.

JO: So do you have the prices triggered to like the CPI or some type of other index, or how is that structured on when rates are raised versus when they're not? 

TH: It's just market studies, which once again, in a rural area, you have to do it manually. If you were gonna just do self storage in Denver or Kansas City, there's software programs that can monitor the competition. In these rural areas, it's just like you do in land sales. You've gotta talk to people and actually know what they're charging. But if you know that everybody else is getting $150 for a unit you've still got 120 on, time to raise rates.

JO: Sure. Well that makes sense, and are you strictly buying these, are you developing any by building them from the ground up? Or what does that process look like? 

TH: Usually if, the best ones that I buy have room to add on, that's the value add, like the first, first second one I bought had four and a half acres, but it only had 30,000 square feet of buildings. So that way I could add another 30,000 square feet on the existing lot, work within the setback requirements, which are pretty minimal. Then we actually got into, for a while, I was buying portable structures, meaning they're steel floors, not concrete.

JO: Okay.

TH: But that was working with our accountant because that was considered personal property, we wrote it all off in one year, versus if we built from ground up, it would've been a 39-year depreciation schedule.

JO: Sure. So, that's like Zircon or some of those units where you would bring them in. Okay. I'm with you.

TH: Exactly.

JO: Gotcha. And did they stay there or do you, are you able to then relocate those units to other places if you saw more demand being there? 

TH: You can relocate them. I mean, usually the cost of trucking them is beyond the pale.

JO: Oh yeah. Okay. I would imagine so. So let's talk about financing, are you working with you know, lenders or banks or institutions when it comes to acquiring these or what does the financing look like? 

TH: Typically local or regional bank is your go-to.

JO: Okay.

TH: And, if you've done commercial finance, they're typically, we'll do a 20-year amortization, but they'll only fix your interest rate for about five years.

JO: Okay.

TH: So about every five years you have a balloon note, you have to refinance, pay it off. There is an SBA loan that we'll do a 30-year fix, but that's like the holy grail of self storage financing and everybody's heard of it, very few have seen it.

JO: Yeah, I can imagine. I mean, we've got some pretty good SBA loans that we've dealt with out here with businesses and owner-occupied investors, I'm part of the Rocky Mountain Commercial Real Estate Group, and we've got several of our sponsors that do SBA loans, and they'll do them with as little as 10% down, 90% LTV. But the key is the borrower has to guarantee to occupy, owner-occupy 51% of the office complex, and then they can turn around and lease out the other 49.

TH: Right.

JO: I'm struggling trying to imagine how that would work in, in this instance, with strictly a hundred percent investment.

TH: Yeah, it doesn't really work. A lot of the older facilities actually have a house or an apartment on it because there was a time when you needed a manager, and so typically that's gonna become a rental for you, or maybe you'll turn that into a small climate control, even though that isn't your primary market. If you, but I don't see any way where you could really occupy 51% of it.

JO: Right. Yeah, exactly.

TH: But just to get your wheels turning, you're talking about you, you know about the portable buildings.

JO: Yeah.

TH: Have you ever seen somebody do a land play with them? 

JO: A land play? What exactly do you mean by that? 

TH: If you know that growth is coming to the city in your area, and there's a four or five-acre commercial lot. If you put portable self storage on, usually you don't have the setbacks, so you can put them clear up the fence, or to the property line like a fence. Your only infrastructure is some security lights in the gate. With the idea it pays, the taxes, it breaks even for five years, and five years from now that the... You can sell that five acres and turn it into a Buc-ee's or something nice. So that is a use I've seen a lot in developing areas, if you're like, "I see this dirt, I don't know what to do with it, or I know something's coming."

JO: No, I haven't seen that. I mean, I've had some clients that have made cabins out of those shipping containers. They'll take them down and drop them down by the river and then if floodplain starts coming in, they'll pull them back up out of the river, come springtime, if it's a real high snow melt. So I've had multiple clients that have made little hunting cabins and fishing cabins out of them. There's an investor right now that's trying to build, I guess, we'll call it like affordable housing. Two stories, stacking two together, combining two on the sides making four units for affordable housing. It hasn't really gotten approved yet. I've, we got a lot of red tape out here where I'm at, so not quite as rural as some of the stuff out on the other side of the country. But we certainly have some rural counties where I could see what you're talking about would be phenomenal, like totally phenomenal business model.

TH: Well, I mean, this just gets you in conversation with people, because let's face it, you sell them the land today, and they're gonna do self storage, but self storage is, isn't what makes their heart sing, but they know that land's gonna be worth more a few years from now, you stay in touch with them, you're like, "Hey, are you ready to sell that and have it become a Howard Johnson, or whatever the best use is once this project comes through?"

JO: Yeah. So that's a great, great point. Are you trying to focus your stuff, you talk about the Buc-ee's, the Howard Johnson's, the more higher demand stuff at some point in the future, so are you focusing more on future-projected growth areas? Or is it just kind of like, "Yeah, I see demand around this lake, let's find some stuff where people wanna park boats."? 

TH: There's two different ways to look at it. I mean, a lot of operators just want monthly cash flow and they don't care. But I also feel like if I'm gonna be a good broker, I'm gonna push you to at least think about it. It's like I say, when I started in ranch sales, if you bought a good cow-calf operation, but it was six miles down a gravel road, it's worth how many cows you can raise, versus if you bought a cow-calf operation next to the interstate, then your retirement strategy may be completely different. I don't care what you pick, but it's my job to get you thinking about that 20 years before it happens.

JO: Yeah. No, that's a great point, I think so many people, especially in our industry just focus on the deal. They don't focus on like the long-term relationship. What the, what is the exit strategy gonna look like 15, 20 years when this is hopefully still my client or maybe I'm working with the next generation younger than them because they've passed. But I think that's a great point, Tim, that we really need to spend more time as real estate brokers, not just focusing on the deal, but focusing on the long-term relationship, because man, I mean, these people could be sending you business over the next 20, 25 years if you treat them right.

TH: Well, that story, the guy that pushed me into buying self storage first time, and we were able to buy a self storage, and the sellers, it was off market, the sellers, like, "I've had a dozen people wanna buy it," but they used to run a moving and storage company. They also have like a 60,000 square foot warehouse. Would not separate the two properties no matter what. And my buyer's client is like, "How are we gonna cross this hurdle?" Well, we came up with the strategy, we ended up buying both together, even though the warehouse is now empty, so all it is is a money pit. Taxes, insurance. It's set and empty. But we were able to convince the local bank where we were buying the package, the two together for what the self storage facility down the road was worth.

JO: Nice.

TH: Then it turned around, sold the warehouse, for I think it was $575,000. Was able to convince the bank to a partial release. So now that client says, "Tim just made me a half a million dollars." Guess what, he wanted a 1031 and invested into another property. So now I've got a client that sings my praises and he's got some money and he's ready to go buy more, those are the kind of people we wanna work with, but.

JO: No, that's great, man, so then the domino kind of just kept falling on down the line with them, huh? 

TH: Exactly. That's when I decided, "Well, maybe you ought to get on this too instead of just... " The guy making the most money at the closing table is never the broker.

JO: Yeah. If you're doing your job right, it shouldn't be. Right? 

TH: Exactly.

JO: Well, let's talk about, I mean, you've obviously got your ALC designation. Let's talk about the educational classes that you've taken over the years that have really benefited to help get you to this point. Are, is there one or two or three that stand out more than some of the others? 

TH: Probably the top two would be your Investment Analysis. The long, hard one that everybody is half intimidated by. And the Site Selection both.

JO: So you're able to take the education you got from those two classes and actually go out in the field, apply it, and turn around and make your clients what sounds like a lot of money? 

TH: Absolutely. I tell people that Land Investment Analysis made me my second million dollars.

JO: That's awesome, man.

TH: Yeah.

JO: A million dollars. Now, that...

TH: That's a good hook, but it's true.

JO: So what made you your first, if I can ask? 

TH: The first was just simply grunting out the work for years and years as a broker, getting a commission, going on to the next deal, doing it. Nothing wrong with that.

JO: Right.

TH: But the day you stop going out and showing properties, the day you stop going out listing ranches, you're income stream dries up.

JO: So the site selection, educate me a little bit on that, are you just kind of looking at maps, or are you looking at certain websites when properties come on the market? Kind of what's the model without giving away too much of your secret on how that's working for you.

TH: It's a lot of maps. Staying in front of... Every county I've worked with has a masterplan, that tells you what they project 10 years from now, where the power lines are going, where the water lines are going, because that's going to drive your demand. Therefore, like I've got a commercial site selection right now, they wanna build a daycare in Kansas City Metro area. And they came to me and said, "Hey Tim, we want average age of households between 35 and 42, and we want average household income of $85,000 or more. Once we know where we live, then we're gonna see where they work, and we're gonna build a daycare on that commuter path between where you live and where you work."

JO: And that information's pretty easily accessible now nowadays just finding it online, isn't it? 

TH: It really is. It's just a matter of applying it. First, you find it, and then wrap it up, for this out of state, this is a Florida-based company, they wanna know when they fly to KC for three days that we've got some stuff that makes sense, that they're not wasting their time.

JO: Well, folks, I definitely want our listeners to pay attention to that site selection course that's offered both virtually and in person at different RLI chapters around the country. It does count towards the education requirements for the accredited land consultant designation, and you can learn more about that course and some of the other courses by going to rliland.com, and then click on the Learn tab that's at the top of the menu, so y'all be sure to do that. Tim, what other stuff do you have for our listeners here as we're getting a few minutes from wrapping up? 

TH: Gonna say, you need to work with somebody that has some experience, but more importantly has that motivation. I've seen too many people who say, "I'm gonna hire... The local broker, he does self storage." Well, the truth of the matter is, he's 70 years old, he only does $5 million and up properties, and you're trying to buy your first one for 400,000, and he barely takes your phone call. You need to go out and find somebody that will go and work with you and be a partner to help you select that right location.

JO: Yeah, that's so true, it's find somebody that you're gonna have that good relationship with, that's gonna take you under their wing no matter what size the transaction is. And we started the podcast, Tim, and I, I'm paraphrasing here, but I think you said, "That's great, you wanna buy this, I can refer to you to somebody, I know of somebody." And, and that's the right thing to do when you're practicing outside your wheelhouse. But I think that that's such a strong value in our RLI network is that, we do have these people that specialize in stuff, whether it's self storage, or horse properties, or wetlands, or hunting properties, like find somebody that specializes in it, don't get yourself in a lawsuit by practicing outside your wheelhouse, or bring them on to help educate you and work it together so that you help represent your client's best interest.

TH: Absolutely. Because the best part about ROI is I've met smart brokers of all kinds of industry all around the country.

JO: Yeah. And they're willing to share. That's the one thing is that there's a lot of successful realtors across the country, but there's a lot of them that kinda take a model and sit here and just kinda wrap it up in a box and keep it all to themselves, and most guys that I've met at RLI are very, very willing to share because they, they wanna see everybody be successful, it's a kinda all tides rise mentality and I love that. Well, what's next on the agenda for you, man? Do we have some other stuff in the pipeline where we're gonna be seeing more storage facilities opening up or is it just managing the ones that you have? 

TH: Personally, I'm probably gonna focus on paying off the two I've got now. Just for cash flow, I'm in that stage. But I've been doing more and more RV parks. So once again, the two kind of go together like peanut butter and jelly, so when you wanna nerd out on RV parks, I'm your guy.

JO: Nice. Well, yeah, that sounds like another podcast in the making, man, I'd love to hear more about RV parks, but thanks for joining us today, Tim, and I really appreciate the expertise you shared with the listeners. If somebody wanted to get in hold with you, what's the best way for them to do that? 

TH: Gonna say, they can always give me a call, phone number, I put out for everybody, 816-507-5784. Or they can visit my website, trumanlakestorage.com.

JO: Trumanlakestorage.com. I'm gonna check that out, man. Well, folks, for more expertise on land real estate topics, be sure to check out the RLI blog, follow us on social media, and of course, tune in for upcoming episodes of the Voices of Land Podcast.

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