Storage-industrial flex condo units, trying to work out what the collateral actually is
Been reading through an offering on a flex condo project, the larger owned units with power and water aimed at people who want more than a standard storage unit. Boat and RV owners, car collectors, small contractors. Units around 1,200 to 2,000 square feet, sold rather than rented, with a condo association over the top.
What's pulling at me is that this changes the asset from an operating business into a for-sale product with a homeowners association attached. The offering treats it as storage, and the sponsor's comps are storage comps. But the exit isn't a cap rate on an NOI, it's absorption on 34 individual sales at $185 to $240 per square foot, and the residual risk sits with whoever holds the unsold units and pays association dues on them.
The condo documents are where I got stuck. Reserve study assumes a 30-year roof and a 20-year seal coat on the drive aisles, and the initial dues are set at $0.11 per square foot per month which reads low to me for a project with utilities into every unit. Sponsor subsidizes the association shortfall for 24 months. After that the owners eat it, and if absorption is slow the sponsor is the biggest owner and the biggest payer.
I don't have a question so much as a list of things I can't price. Absorption pace in a market with no comparable product. Whether the dues step up hard in year three and sour resale. What a lender does with these as collateral if a buyer wants financing on a single unit, because that's not a house and it's not a commercial building.
Title and condo formation rules vary by state and I'd want a real attorney on the declaration before anyone signs anything. Still working through the reserve study. Posting mostly because I want to come back to my own notes in a month and see if I still think the dues number is wrong.