Scott owns two companies, Coda Design + Build and Coda Management Group. With Coda Design + Build, they act as a developer and design build-up for both retail and their investment portfolio. His other company, Coda Management Group, acquires distressed underperforming buildings in the Midwest to convert them into self-storage facilities. In today’s episode, Scott tells us how you can get started in the self-storage industry.
Scott took up architecture and eventually worked with one of his professors for 6 years building multi-family developments, condominiums, and townhomes. In 1998, he started Coda and built single-family homes then later, he built multi-family homes and helped churches.
He got into self-storage because they can go at it with greater confidence and certainty compared to single-family or multi-family homes. Self-storage costs also a fraction of the amount compared to condominiums.
Scott looks at a number of factors when looking at an address for a potential self-storage facility. He looks at the median income, the saturation level of self-storage compared to the population, and climate control versus non-climate control.
In terms of numbers, they look for a population of 100,000 within a 135-mile radius, massive developments, a significant student population, 12,000 cars driving by their site, and a median income of $40,000 per household.
There’s also an unmet demand for climate-controlled products that they plan to meet.
The general statistic in the U.S. is that 10% of the population are purchasers of self-storage. Scott uses that data to compare the availability of storage products in a city. Right now, the price is at $16 per square foot.
Instead of buying raw land, they purchase an existing building and divide the building in half with half of it being turned into a flex warehouse space. That way, they keep the income in that building.
The other half is converted into self-storage that will rent for $60-200 a unit per month. Smaller units rent out for a higher square foot rate. Prices also vary depending on what floor the self-storage is in.
One example of a converted building they did was a 90,000 square foot one they bought for $1 million. It was basically bought for $11 a square foot, way below their replacement costs.
They had to put in a couple of million dollars into the building, but they were able to get opportunity fund zones and PACE financing for it.
Scott works with the Small Business Administration (SBA) and local banks to get financing for their projects.
They put a 30% down payment between the equity, and they also get PACE financing.
It takes them 9 months to get the project built. They’re usually in cash flow by year three.
PACE financing typically allows up to 20% of the end value of the property to be done on energy improvements on a building. The costs are funded then amortized over the lifespan of the product. Then it gets applied as a special assessment to the real estate taxes.
The PACE is like a bond, so it has a low interest rate. There are two principal providers, one is the local governing authority, and the other ones are private.
There are three different classes of self-storage. Class C is located in rural areas. The facilities are not climate-controlled and have smaller units with low appreciation.
Class B is newer and is climate-controlled.
Class A is located in urban settings, predominantly new construction or remodeled, and is climate-controlled.
Scott looks at self-storage from the point of view of appreciation and cash flow. They hold onto the facilities for some time, but they have strategies for whether they’re in an opportunity zone or not.
They also won’t go into a project unless they can get at least a 20% annual rate of return.
Self-storage is seen as a 3-5 year investment for them, but they will go longer for those in opportunity zones.
Their buyers are real estate investment trusts or those in the U-haul space like CubeSmart, Uncle Bob, and Extra Space.
There are natural barriers to entry that protect what they’re doing. Some buildings have been zoned for self-storage, so they didn’t need to get special permits for it.
It has also been getting harder to rezone properties.
They make sure to find a compatible building or a large enough plot of land.
Their company uses a combination of different avenues such as mailers and local brokers to find leads.
They do most of their bidding in Chicago and have a network of 30,000 people that they can reach out to create the right team for the project.
When making climate-controlled, self-storage facilities, working with elevators is the most difficult because they have to be ADA accessible and passenger compliant. Most of the buildings were probably built in the 1920s or 1930s, so they have to bring in a new elevator.
Climate-controlled facilities have a loading dock and let people have the ability to drive into buildings. This means the people are totally out of the elements.
Since the 1970s, self-storage facilities have been the most stable investments in recessionary markets.
Self-storage was deemed essential by the federal government. Their velocity is slower now than normal, but they are still open.
Auctions or evictions are not being done with shelter-in-place. But while there were some deferrals, collections were mostly consistent.
Some larger operators even paid people to leave, so they can get good tenants in.
For Class B or C, the biggest thing is to look at what the property is doing in relationship to the overall market. You need to know what will be your true revenues and expenses, and how those compare to what the marketplace is providing. Do the due diligence to know what exactly it is you’re buying and what the deferred maintenance will be.
For Class A, the due diligence usually involves understanding the marketplace and making sure there are no conditions with the building.
Those interested in knowing more about getting into self-storage can check the free information they have at Coda Management Group. BiggerPockets is also publishing a book by Paul Morris on self-storage.
Depending on your goals and objectives and what you’re looking to accomplish, you could be putting down between 10-30%. For subscription investors, it could be anything between $7,500-100,000.
Self-storage is first and foremost a business as well as a real estate investment. There are two programs, the 7(a) and the 504. Paycheck Protection Program (PPP) falls under the 7(a).
The SBA has a cap of $5 million for the amount you can borrow within each program.
Getting a loan involves a 3-step approval process. The first one is with the lender, then with the certified development company (CDC), and finally the SBA.
They would usually look at your debt-service coverage ratio (DSCR), your personal credit, and ask you to put a 10-15% down payment.
A bridge loan is just basically through construction or stabilization. Then it’s into a perm.
With self-storage, they’ll look at collateralized mortgage bonds and financing.
The great thing about SBA is that they buy the loan from the lenders. This allows lenders to reduce their exposure and cost basis. Plus, they get fees from the SBA.
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Would love to talk, I am real! and came across you, your company by "accident",... I have always wanted to have a storage facility. Have 2 commercial properties, in St.Louis metro. (MO & IL) I am an auto mechanic of 30 plus years/ self employed 20 plus.
Retired by cancer 2017, 3+ years ago. I have ideas to convert/add on to a 1500sf former Sunoco station (c.1957) 63033 on a 125' by 125' corner, of 2 minor arterial roads, that I got a clean phase one for when purchased in 1994. I do not want to/will not sell my building for a loss. Would rather keep and start doing what you are doing. btw, I got here by accident by slightly mis-typing in my email access,..."by accident" thank you for reading. I first thought to offer you my .com someday, not now. But, my son has the same name. I also have a second property 2800sf on a half acre in Madison Co. IL. Partially being used for personal storage, was going to be my second shop, and to retire from, five minutes from home. Keeping this for investment in booming area 62025. Hope to hear from you, and very respectfully! Scott Krone
My phone #'s 314-830-2222 Krone's Auto Repair Inc. and 618-659-2300 < both "Traditional" old school land line #'s,
and my cell 618-659-0300. All are answered by me. Call/text 24 hours. Have a great day!! Scott Krone