Two facilities with a manager against an LP slot, and the fee drag surprised me
Been building this model for a month and I want to write down where it landed before I talk myself out of it.
Direct path. Two existing facilities in the same secondary market, 62,000 and 48,000 NRSF, both single story drive-up with a small climate controlled building added later. Combined asking is $9.4m, trailing NOI $571k, so 6.07% going in. Both are at 91% physical, 84% economic, which suggests the seller has been holding physical with concessions ahead of a sale. Expense ratio 34%. I'd need roughly $3.1m of equity at 67% leverage, which is more than I have, so this version requires two or three partners and me running the sponsor role for the first time.
Operating assumption is a national third-party manager at 6% of revenue with a $2,500 per facility onboarding cost, plus about $28k a year I have to carry in asset management time that nobody pays me for. Their revenue management should get me the economic occupancy gap back over twelve to eighteen months, call it $40k to $55k of NOI, which is a 60 to 90 basis point lift on the entry yield if it works.
LP path. Same money split across two funds at $250k each, 8% pref, 70/30, no operational work.
Where it got uncomfortable. Once I honestly priced my own time, the sponsor role at 3.1m of equity, and the fact that I'd be raising from friends on my first storage deal, the direct path only beats the LP path if I actually close the economic occupancy gap AND rates hold. If rates go flat for two years, the LP path wins on a risk-adjusted basis and I've spent two years being a landlord for free.
The expansion pad is the thing that might break the tie. The 62,000 site has about 1.4 acres of usable dirt behind the back row, and the town has one competing facility with no vacancy. Adding 15,000 NRSF at maybe $58 to $70 per foot all in, if the market absorbs it, is the only part of this deal where I'd be creating value rather than buying someone else's.
The question I can't answer is whether I should be doing my first storage deal on a property whose upside depends on a development I've never done, in a market I've visited twice.