I saw this property on Loopnet in mid 2012 for 1.1 million. It was a competitor of our existing facility down the street. It was part of a REIT deal that went bad and now being sold by the servicer as part of their REO property. There was an existing management company there who had an option to purchase the property and was activelymanaging the property. The manager ran a good operation and the property cash flowed from the bank’s perspective however, the manager had been milking the bank with excessive management fees, and had also been hiding money under the table. The manager was unable to obtain the required financing to close the deal himself because of prior bankruptcy issues. When the bank realized the manager would not obtain financing, the bank terminated the agreement with the manager and put it on the market. Because it was REO property we were able to get it at a 14.25% CAP Rate that cash flowed at current occupancy. In addition, we structured the deal so that we could reduce the property taxes by an additional $2,100 a year through cost segregation. Essentially, what this amounted to was that we got a 44,000 square foot storage facility with some climate control units that cash flow nicely as is. We also have 9 retail spaces that were part of the deal that are essentially thrown in for nothing. These spaces are generating around $3,000 a month currently but are below market and could easily generate close to $7,000 a month in retail.
Exit Strategy/future plans – Buy and Hold for at least 5 years. Put profits back into improving the facility and/ acquiring additional facilities. The bank appraised the facility almost $1.2 million so we have significant equity in the property that we can use to acquire other facilities and grow.
The moral of this story was that we were in the right place at the right time. The academy taught us the skills we needed to execute quickly and lock the property up under contract. We were able to close within 60 days.