Case Study: West Valley and Magna
The year is heating up and we are starting to look at more acquisition opportunities in self storage. Our target markets are secondary and tertiary markets in California, Utah, and New Mexico. For value add, our business plans are focused on ways to add revenue and reduce expenses. I thought it might be helpful this week to walk you through one of our recent deals.
In December 2021, we purchased two adjacent self storage facilities in West Valley and Magna, Utah with our partners Frontera Real Estate Investments. We benefitted from economies of scale by combining two smaller undermanaged facilities bringing the combined 77,000 sf facility under our asset management with Public Storage operating the day to day.
We executed on the following initiatives:
1. Sale of Unanchored Retail: West Valley had an unanchored retail strip that came as part of the acquisition. We parceled it off and sold it to one of the tenants which allowed us to return 29% of our investor’s money within a few months. The disposition price was higher than what we had projected and we saved on the money we anticipated would have been spent on tenant improvements to lease the vacancies. We love seeing funky additions like retail, car washes or homes as they present an opportunity to get creative and it often is a turn off for pure self storage players.
2. Combined Operations: We saved an entire salary right off the bat by having one property manager operating both facilities. Given the sites are a block apart, one manager can operate both.
3. Increased the Rent: We knew the rents were below market when we purchased the property. Since purchase, we have increased the rents over 60% at West Valley and are in the later stages of leasing up Magna.
4. Reconfigured Layout: We took some of the larger units in Magna and split them into smaller units with an interior corridor to increase the effective rent per square foot.
What we do is not rocket science, but it does require meticulous attention to detail. The revenue management systems are not perfect, and our asset manager manually goes through and spot checks rental increases. Each project has a particular plan we set up at underwriting to execute over a 2-3 year period. Once we stabilize, the property is ready for stabilization and eventual disposition.
I think it is important to highlight that things do not always go according to plan. In the case of this project, we had a water intrusion issue at Magna that cost us both time and money (since been fixed). We always try to be as transparent with our investors updating them on the good, bad and the ugly every quarter. For me as an investor both on the venture and real estate sides, it is a red flag when sponsors only tout their wins. Even for a great project like this one there are usually a few hiccups along the way.
As always, feel free to reach out with questions or to talk shop.
