Self Storage Business Experience

[ynottravel]

An associate has offered to buy my building and is wanting to sell his Self Storage Business to me.
Has anyone got experience in this type of Real Estate/Business. Seems to me this is a great Business/Real estate with the best tenants, who look after themselves for the most part, 90% of transactions are Debit or CC, Managed by 1 MGR.
Gate Access by Tenant, easy to remove unwanted tenants (delete their access codes and change locks on unit)
What would a bank be looking for to finance this type of deal as the business is cashflow positive with 10% vacancy and has room to grow.
In commercial real estate the "cap Rate" is used a lot to evaluate a business, as comps. are not readily available.
The way I understand the cap rate is ..divide the NOI (net ordinary income) by the asking price.
The Cap Rate for the business I am looking at is 9%.
I will need to raise some capital for the down payment, maybe private lenders, or is the BDC a good option for this?
Total value of the business is $4.5 million (NOI is $407,000.00)

Any advise on this topic would be helpful

Thanks
In Advance!

 

[Thomas Beyer]

QUOTE (ynottravel @ Aug 30 2008, 03:52 PM) An associate has offered to buy my building and is wanting to sell his Self Storage Business to me.
Has anyone got experience in this type of Real Estate/Business. Seems to me this is a great Business/Real estate with the best tenants, who look after themselves for the most part, 90% of transactions are Debit or CC, Managed by 1 MGR.
Gate Access by Tenant, easy to remove unwanted tenants (delete their access codes and change locks on unit)
What would a bank be looking for to finance this type of deal as the business is cashflow positive with 10% vacancy and has room to grow.
In commercial real estate the "cap Rate" is used a lot to evaluate a business, as comps. are not readily available.
The way I understand the cap rate is ..divide the NOI (net ordinary income) by the asking price.
The Cap Rate for the business I am looking at is 9%.
I will need to raise some capital for the down payment, maybe private lenders, or is the BDC a good option for this?
Total value of the business is $4.5 million (NOI is $407,000.00)

Any advise on this topic would be helpful

Thanks
In Advance!

Where is the property ? small town ? big city ? room to grow rents ?

In general, I`d look for a 10% MINIMUM CAP, better 12-15%, even higher in small centers.

You can buy this REIT today, InStorage (IS.un) at a CAP of over 10% and it is totally liquid.

Ask a mortgage broker re mortgage, I`d think you get 60% LTV max, at rates about 2-3% over prime .. so high 6% to mid 7% range .. 15 year amortization.

 

[ynottravel]

QUOTE (thomasbeyer2000 @ Aug 30 2008, 05:15 PM) Where is the property ? small town ? big city ? room to grow rents ?

In general, I`d look for a 10% MINIMUM CAP, better 12-15%, even higher in small centers.

You can buy this REIT today, InStorage (IS.un) at a CAP of over 10% and it is totally liquid.

Ask a mortgage broker re mortgage, I`d think you get 60% LTV max, at rates about 2-3% over prime .. so high 6% to mid 7% range .. 15 year amortization.
Thanks for the input, I am doing my due diligence in next couple of wks.


The business is in a bigger centre 680,000, business started 15 yrs. ago located within 5-7 mins from a new subdivision that will eventually have over 3,000 homes.
It is located on 3 acres in the middle of established Industrial Park
There is a lot of potential to grow. Many existing condos and apts in area, business has not been agressively marketed. Has approx. 2,000 sq ft of undeveloped climate controlled space left with all the material on site to build 4`x8` units to fill this space.
Also has some lot space available

 

[Thomas Beyer]

QUOTE (ynottravel @ Sep 1 2008, 08:42 PM) Thanks for the input, I am doing my due diligence in next couple of wks.


The business is in a bigger centre 680,000, business started 15 yrs. ago located within 5-7 mins from a new subdivision that will eventually have over 3,000 homes.
It is located on 3 acres in the middle of established Industrial Park
There is a lot of potential to grow. Many existing condos and apts in area, business has not been agressively marketed. Has approx. 2,000 sq ft of undeveloped climate controlled space left with all the material on site to build 4`x8` units to fill this space.
Also has some lot space available
yield is a combination of going in yield PLUS upside potential. Hence, in growth areas we buy at low yields because we know rents can climb. In mature areas going in CAP would be higher as there is little to no rental upside !

9% yield may be OK if you think rents can go up 20-30% in a few years .. but be mindful of mortgage LTV and interest rate .. likely LTV is lower than you think it should be and interest rate is higher than you think it should be !

So, do a 5 year view up to re-fi .. and see if numbers with all true costs make sense to you !