The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
When performing due diligence on a self storage facility, or any asset class, it helps to know just what you’re after going in to any property. This saves time as you quickly realize that if a property doesn’t suit your use or needs, it can be skipped over in favor of one that better fits your investment strategy or plan. Know the type of investor that you are, what you want out of your investment commercial real estate properties, and use this information to streamline your due diligence process.
Richard Wilson: What is the number one thing that you look for in due diligence on a self storage facility that determines if it’s worth your time?
John Manes: So we buy undermanaged, under enhanced, under expanded properties. So what I look at is whether it’s undermanaged and under enhanced first. So, and if it’s too small I look for the under expanded piece of things to be able to expand it and get the numbers to where they need to be to support the infrastructure that we do. But I am not a buyer of 42nd and Main downtown New York self storage property. I buy off of existing cash flow knowing that it is undermanaged, so for me I can do back of the napkin kind of stuff knowing the different markets knowing what their revenue per month is versus my expenses, and be able to look at it and see if it has some hair on it that gives me a value add type of play. So for me it’s I love the bruised banana type self storage properties, and what I mean by bruised banana is that worn out tan with the chocolate brown doors that they did back in the 70’s, I want to buy those properties. So when I see that, I get all excited. I’m like “Oop! That’s got some opportunity!” because we paint them pelican tan and bright red doors, so they pop out in the community where that bruised banana just looks so worn out and drab. So that’s the kind of stuff I look for before I even get the numbers. Like, I don’t buy anything that’s cinderblock, I don’t buy anything that has drywall inside the unit, and not that you can’t make money on those because you can if – one you’re not going to pay a 6 or 7 cap for them, you should pay an 8 or 9 cap for them, but so if you buy them at an 8 or 9 you can make money off of them, the difference is you’re not going to exit them at a 6 cap. You’re just not. So, for me, I’m trying to build a re-portfolio with undermanaged stores, I clean them up, I make them pretty, I group them all together and sell them in one big shot to somebody. So, because of that, the rete quality VCs or the actual retes or these large pools of money, they don’t want cinderblock buildings or drywall inside the units, or stick built. So when I ask those questions, and the answer is yes to concrete, stick built, or drywall, I don’t even bother looking at it.
Richard: Right, right. Saves a lot of time.
