Sold three of six facilities and kept three, which is why it worked

Numbers first, then the part that nearly killed it.

Six-facility portfolio, secondary markets in one state, bought as two separate deals about seven months apart. Total basis $23.7M, about $61 a net rentable foot, average physical occupancy at acquisition 78%, average street rate about 11% under what comparable stabilized product in those towns was getting. Going-in economic occupancy was worse than physical, 71%, because the prior owner had been running concessions to hold the occupancy number for a sale.

What we did was unglamorous. Consolidated onto one management platform, put all six on one revenue management setup, killed the standing concession and ate 4 points of occupancy for two quarters to do it. Existing customer rate increases moved from ad hoc to a schedule. Payroll went from 5.2 FTE across six sites to 3.1 with remote leasing on the three smallest.

Month 40: NOI up 41% against the trailing at acquisition. Expense ratio 34% down from 41%.

We sold the three that had the least room left, $14.1M gross, and refinanced the other three. That's the split I'd keep. The three we kept are the ones where a new competitor is unlikely because the towns can't absorb more square feet per capita, so I'm happy holding those into whatever 2027 looks like.

What nearly broke it: the concession removal. Occupancy dropped 6 points at two sites, not 4, and it stayed down for five months instead of two. If our lender had been testing coverage quarterly on trailing three rather than trailing twelve, we'd have tripped something. That was luck in how the loan happened to be written, not planning.

I'd keep the concession decision. I'd stagger it site by site next time instead of doing all six in the same month.

Answer

1omar_haddadActivePRO11

The 71% economic against 78% physical is the whole deal and I want to make sure people reading this see why. You didn't buy an underoccupied portfolio, you bought a mispriced one. The prior owner had already found the customers, he just wasn't charging them. That's a fundamentally different fix than filling empty units, and it's faster, because the demand is proven and sitting in your unit mix already.

Which makes me push on one thing. You say NOI up 41% at month 40. How much of that came from rate on existing customers versus new-tenant street rate? If it's mostly existing-customer increases, you've harvested a pool that doesn't refill, and the buyer of your three sold assets is now underwriting a growth rate you already took. That's fine, you got paid, I just wouldn't tell myself the operating improvement is repeatable at that pace on the three you kept.

Second thing, and this is the one I'd have gotten wrong. If the concession removal had gone 8 points instead of 6, or held down for nine months instead of five, does the trailing-twelve test still save you? Trailing twelve just delays the arithmetic. It doesn't forgive it.

Staggering site by site is right. I'd also stagger by unit size within a site, small units churn faster and tell you within six weeks whether the market takes the new rate.

Sold three of six facilities and kept three, which is why it worked

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