How I Vet Storage Deals: An A-Z Guide
Breaking down our 8-figure process:
At MAK Capital, we’ve done more than $21,000,000 in storage deals.
Today, I’m breaking down my A-Z process for how I vet those deals.
OK, ready to start?
Let’s dive in.
Step 1: The Vetting Call
The first thing we’re doing is looking for “boots-on-the-ground” partners to help us develop and build in new locations.
We have 5 boxes our boots-on-the-ground partners can check.
For us to move forward, the partner has to have at least 2 of the 5:
Is in a growing market
Has capital (or knows capital partners)
Owns land (and is willing to contribute)
Can build the deal (land owner, capital, builder, or engineer)
Has skills in storage operation, management, or construction
If we can check at least 2 of the 5 boxes, we’ll move on to Step 2.
Step 2: The Vetting Process
We move forward with a 30-day due diligence period.
This is a stage where a lot of developers would be bidding out contracts, but since we’re vertically integrated (with both MAK Capital and MAK Construction), we’re able to do the construction ourselves.
So we start our due diligence with a Radius+ report.
Radius is a data and analytics tool that specializes in self-storage location intelligence. The Radius+ report breaks down things like:
Demographics
For luxury storage specifically, we like suburban areas with thriving small businesses.
We’re also looking at things like population density, income levels, and employment data. We’re also curious about homeownership vs. renting, as renters are more likely to need self-storage than homeowners are.
The key demographic data points are a little nuanced depending on whether we’re looking at standard self-storage or luxury storage, but there’s naturally quite a bit of overlap.
Per square foot/per capita
Per square foot (PSF) is a metric that expresses rental rates and property values for storage facilities.
Rental rates are usually quoted as a monthly rate per square foot (e.g., $1.50 PSF/month), while property values are expressed as a price PSF (e.g., $100 PSF for the entire facility).
PSF helps you make easy comparisons between different unit sizes and facilities. It’s also important for planning out your space and modeling construction costs.
Per capita, on the other hand, asks how much storage space is available for each resident in the area. It helps with understanding supply/demand.
From a 30,000-foot view, these metrics help us determine if a market is oversaturated or underserved.
We build a lot of our storage facilities in more rural areas, which has a major impact on how we evaluate opportunities.
Urban areas might have a healthy range of 7-8 square feet per capita while rural areas might be 10-15 square feet or higher.
Job growth + other factors
Areas with strong job growth naturally attract more people. As new residents move in, the need for storage increases.
Other factors include things like migration patterns, local economic drivers (diverse economies are more attractive than economies that rely on one sector), and more practical things like property accessibility.
Once we have the Radius+ report, we have a few more things we need to take care of.
Identifying the land
Ideally, this is already well underway with our boots-on-the-ground partner, but we need to find parcels of land that check our boxes for size, zoning, and location.
In rural areas, people are willing to (and expect to) drive further to get to a storage facility, but in more densely populated areas, you’re ideally finding locations that are easily accessible from highways and residential neighborhoods.
Identifying land efficiency
Land efficiency is all about maximizing the use of the property’s footprint. We’re looking at the shape of the land and the topography, among other things.
The last thing we want to do is overpay for land that we can’t use, so we’re trying to make sure we can build enough rentable square footage while leaving room for things like parking, driveways, drainage, etc.
Gathering rent comps
What are other storage facilities in the market charging? Are the unit sizes similar? What are the occupancy rates?
Are they doing value-adds, like the climate control in our luxury storage facilities? Do they offer 24/7 access?
You have to understand the comps before moving forward.
Completing a pro forma
A pro forma is an initial financial projection based on our estimated costs and potential revenue.
It’s a quick snapshot of:
The project’s profitability.
The breakeven point.
Cash flow.
ROI.
Rating the market
Once this is all done, we have a simple 1-10 rating system that we model out a spreadsheet to put a stamp on the overall attractiveness of the market and opportunity. The higher the better.
Partnering with the landowner
We want to understand what the landowner is looking at in terms of an exit strategy.
Generally speaking, are they either:
A) Willing to fully contribute the land as equity in the deal?
Or
B) Looking to exit the deal after a specific amount of time?
The level of commitment from the landowner can play a major role in financing, deal structuring, and long-term planning.
Step 3: If everything looks good…
We send the Memorandum of Understanding (MOU). An MOU is a formal agreement that outlines the terms and intent of the partnership.
If you want to learn more about luxury storage and how you can partner with me on a deal, check out the short video below:
Any questions?
Feel free to leave them in the comments below!
See you next week!