A six facility storage portfolio where selling three and keeping three is what makes it work

Numbers first, then the part that nearly breaks this kind of plan. Take a six facility portfolio in secondary markets in one state, assembled as two separate deals about seven months apart. Total basis $23.7M, about $61 a net rentable foot, average physical occupancy at acquisition 78 percent, average street rate about 11 percent under what comparable stabilized product in those towns commands. Going in economic occupancy is worse than physical, 71 percent, because the prior owner ran concessions to hold the occupancy number for a sale. The work is unglamorous. Consolidate onto one management platform, put all six on one revenue management setup, kill the standing concession and accept 4 points of occupancy loss for two quarters to do it. Existing customer rate increases move from ad hoc to a schedule. Payroll drops from 5.2 FTE across six sites to 3.1 with remote leasing on the three smallest. By month 40 a portfolio run this way shows NOI up around 41 percent against trailing at acquisition, with the expense ratio down to 34 percent from 41. The exit that makes sense is selling the three with the least room left, around $14.1M gross in this example, and refinancing the other three. That split is the right one. The three to keep are the ones where a new competitor is unlikely because the towns cannot absorb more square feet per capita, and those are the ones an operator can hold into whatever 2027 looks like. What nearly breaks it is the concession removal. Occupancy can drop 6 points at some sites rather than 4, and stay down five months rather than two. A lender testing coverage quarterly on trailing three months rather than trailing twelve would trip a covenant. Surviving that on how the loan happens to be written is luck rather than planning. The concession decision is the right one. The refinement is to stagger it site by site rather than doing all six in the same month.

hannah_west29 SS2APRO 16

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omar_haddadPassivePRO

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.

omar_haddadPassivePRO

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