Episode 134: The Pitfalls of Private Real Estate Deals with Tom Dunkel

Tom Dunkel has spent his early career as an accomplished corporate finance leader with over $1.2B of middle-market M&A and financing transaction experience and a proven track record as trusted decision-making partner to C-level executives. He has turned his entrepreneurial energy and enthusiasm toward building a self storage investment business. His transactional experience, financial savvy and leadership training by top executives have provided him with the foundation to build a world-class organization focused on helping alternative investors build wealth while improving communities. He creates value for his partners by developing and executing disciplined real estate investment initiatives with open communications style and unwavering integrity.
Get in touch with Tom: belrosestoragegroup.com
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hey folks this week on the pre-real

podcast we're joined by Tom Dunkel he's
the chief investment officer for
Belrose Storage Group if you're
interested in investing as an LP in
self-storage deals uh Tom has got a a
really sound strategy
um we talked a lot about the safe uh
pathway that they describe in great
detail on their website it's sponsor
asset financials exit the reason I
enjoyed this conversation so much is is
Tom's very much focused on education and
teaching investors that you've got to
look hard at the sponsor uh not so much
just the asset but the sponsor you know
I've seen over the years great great
properties get running to the ground by
not so great sponsors and I've seen not
so great real estate perform beautifully
with a great sponsorship team so if
you're interested in investing in Self
Storage Tom Dunkel this week it's a good
episode to check out folks are you ready
to bring your real estate game to the
next level my name is James Prendamano
I'm the CEO and founder of pre-real and
over the past 25 years I've closed over
a billion dollars in transactional real
estate each week I'm meeting with
outstanding investors High performing
individuals and Visionaries operating in
the real estate space these are the
people that are actually out out there
in the real estate game right now
getting it done this podcast aims at
bringing anyone's game to the next level
this is the pre-real podcast
welcome everyone to the pre-real podcast
uh we're joined today Folks by Tom
Dunkel he's the chief investment officer
over at Belrose Storage Group
belrose is put together over the last
couple of years several hundred thousand
square feet in the self storage space uh
and something that I thought was
interesting and I wanted to to touch on
today folks is an acronym safe that Tom
talks about quite a bit in his
literature and it's something that I
think as LPS we should be paying a lot
more attention to so with that Tom thank
you very much for taking the time and
joining us today
Thanks James it's great to be with you
and the listeners yeah no it's a
pleasure I mean anytime we can have
someone uh on the show that has
a significant background and it is
undertaking one of these specific
typologies like Self Storage uh it
really is a highly specialized field uh
over the years we've seen a lot of uh
these these smaller funds
diversify and dip their toe in waters
that on paper look outstanding but if
you're not really an expert in those
areas when you get into these kinds of
markets you can have a a bit of a tough
go in it so really appreciate you
sharing your knowledge with us today
that's right yeah yeah happy to be here
and uh happy to dive in as much as he'd
like we uh we're really enjoying the
Self Storage Niche and uh and I'd love
to get uh some more investors involved
with us into it well anytime we can
connect the audience to to really strong
sponsors we're happy to do that so why
don't we spend a couple of minutes if
you don't mind Tom let's go back and
give the the audience a little bit of
history of how you ended up where you
are today
yeah sure uh so thanks again yeah I'm
Tom Dunkel Chief investment officer here
at Belrose Storage Group and uh I've
been uh out I was in Corporate America
left Corporate America about going on 17
years ago man time flies uh but if you
do the math I I left Corporate America
and uh it was 2006 so went into uh real
estate it was something I had always
wanted to do I had a great run in
Corporate America during doing mergers
and Acquisitions and corporate finance
stuff so I loved doing deals and raising
capital and so I thought I would just go and do
that on my own and you know it was going
to be easy right because I had a you
know MBA from a top school and had this
great background uh with you know
working with some incredible people but
of course you know went into real estate
2006 my timing probably couldn't have
been worse and so proceeded to get my
butt whooped uh those next few years
um and you know crashed and burned and
uh you have those have those Battle
Scars to to show for it but um I had to
reinvent so I uh around 2009 I started
learning about distress Mortgage Debt
and uh connected with my partner Joe
Downs we've been Partners 13 years now
and um so we started a distressed debt
company in 2010 and we were able to grow
that and uh it was a great business but
it's very volatile business and it's
very unpredictable business so it was
hard for us to you know especially me
you know kind of being you know a little
bit academic minded you know NBA all
that you know I wanted to you know
figure out you know what's the business
plan what are the metrics we should be
tracking you know what are the kpis and
those kinds of things and we just
weren't able to do that and to stressed
out now we had a successful business
despite that but along the way we wanted
to find a business that we felt had some
longevity and we could build a team and
build a business plan and you know climb
that mountain and so we we looked at
hard money lending uh we looked at uh
fixing and flipping Residential
Properties we looked at a title company
and as we tried out a bunch of different
things but when we found Self Storage
that's when the light bulb really went
off because of course it's a real estate
asset it's in commercial real estate uh
which of course the value there is
driven by net operating income it's a
highly fragmented dislocated kind of
Market because you've got the big guys
uh that uh that you've heard of public
storage extra space Etc but what a lot
of people don't realize is that those
big guys only control about 25 30
percent of the Self Storage markets so
really you know 65 70 percent of the
market is is more Moms and Pops or like
smaller Regional players and so there's
a lot of really mismanaged self-storage
facilities out there and so that really
caught brought our attention as as
business operators wanting to get in
there and leverage technology you know
leverage our team and their backgrounds
and their expertise
um you know we we really saw it as a
Target Rich environment uh to to build a
really nice uh self-storage business
so it's interesting the
there's a bit of a misnomer that folks
that are not really in the business
don't understand
um the big companies offer
certain benefits and there are certain
depending on your investment strategy
there are certain boxes that you can
check with those big guys but in in my
experience I've found that they also are
often carrying tremendous overhead they
are not uh so quick to adapt and adopt
new strategies when you're in a a niche
that is really poised for massive
disruption as Self Storage was and is at
least in my opinion uh so having a
smaller more Nimble company uh for us
has been a strategy that's worked and
it's worked for us personally it's
worked for us as we've invested
alongside others because it's difficult
you know those big ships take a bit of
time to turn you know a lot of a lot of
uh ocean and you need a really wide wide
span to be able to turn those big guys
and the smaller guys are able to Pivot
quickly and take advantage and I think
the the mark marketing and the
technology certainly in the real estate
business across all the typologies
um right now it's it's like the most
exciting time I think to to be in real
estate if you understand those
components of it because there is just
this whole universe that is still
figuring it out on the Fly and you know
when you're able to uh adopt these new
strategies and and build them into the
program with relative efficiency it does
give you a real Advantage man
100 and that and that's something uh
James and you're wise to point that out
and that's something that we're
certainly exploiting uh because uh a lot
of a lot of the of course the big
companies yeah they're kind of playing
their own game but they are they they do
take on a lot of overhead they have
full-time managers they've got you know
all the you know the fancy uh stuff
going on at their facilities our
facilities are very plain vanilla uh I
mean I tell people all the time you know
hey we're we've got uh metal boxes on
concrete pads and roll-up doors it's not
a complicated business but we can still
come in and apply technology uh to the
to this industry and where that shows up
and why this is important for investors
is we're able to really drive down our
operating expenses so I know a lot of
people are are interested in
multi-family I've actually been a
multi-family investor as an LP myself
since 2013 so I do know and and uh and
like really like that industry uh one
place where Self Storage I think is um
is is it has a market difference is in
that operating expense area so a
multi-family facility or even like a big
you know Public Storage type facility
you know their their expense ratio is
going to be for every hundred dollars
that they bring in of Revenue their
expenses are going to be
you know 60 70 bucks it's going to leave
you know 30-ish dollars to go to the noi
and then which of course goes to pay
debt service and investors well ours is
the inverse of that uh our expense ratio
is typically in the 30 uh percent range
maybe a little higher on smaller
facilities but one of the facilities
that we were able to exit last year
James we we were able to drive the
operating expense ratio down to 18
and that was because we we leveraged
technology and we had a kick butt uh
manager who we we use a hybrid
management structure because we're able
to leverage technology so we don't need
a full-time person there so we're able
to drive down those expenses pumps up
the noi and we had a really nice exit
there and delivered some great returns
to our investors so it's interesting you you touched on
uh the multis which for a good run that
was kind of the bell of the ball right
yeah and it's it's important to be
Diversified and I think it's smart to
have a a little bit of everything if you
can from an LP perspective as long as
you have the right team running the deal
but there were a lot of advantages that
that I saw in self-storage that were
uh really the kind of if you took the
sexiness out of it the core principles
of why uh Maltese to me were a good play
is as we got to these inflationary
periods
um you had the ability to recast your
income level right you didn't have these
long-term fixed leases you know five
percent increases or ten percent
increases every five years with these
corporate deals and I do a lot of retail
and believe me I believe there's a a
really important place for that in the
portfolio but with Self Storage you had
the ability to recast
the price Model
monthly if if you wanted to and you
could take advantage of inflation in
real time and you didn't have this
massive legislative risk there's some
legislative risk with Self Storage but
uh for us as we began to uh divest and
pull back from our Holdings in the
Northeast the New York in particular
legislative risk became this was
something that over the years was five
or six on the analysis and then it
became three or four and then it became
two or three then it became number one
it was our number one thing that we had
to be careful for uh when we were
forecasting this stuff much of the
legislation you know I'd like to say
it's well intended and you hope that it
is but the
the impacts in the real world can be
staggering and being from New York uh it
just became too much risk to pencil
these things out you had you had
mentioned volatility in the defaulted
note model which there absolutely is
it's it's one of those markets I love
that market but
um because I'm a deal junkie right so I
love that idea but you have you have two
or three year runs and then it dries up
almost completely that's right three
four or five years uh I do believe we're
headed into another one of those crazy
periods where these small and mid cap
banks are going to have a hard time uh
staying within their Charter uh as these
notes come due and the big guys are not
refinancing out and they're offering
these discounts and sucking cash
reserves out of the smaller Banks so it
does create that neat Market
um but it's tough to forecast and and
when you're you're trying to have having
this you know ivy league background that
you come from it's tough to forecast
those things when you have such an
incredible uh
just bogey that is hard to identify and
constantly changing in the legislative
risk and Self Storage uh while it has
some it is pretty well insulated that's
not the focal point of most of the
legislation we're seeing coming out of
Albany into the city uh and I wonder was
that a part of your analysis as you pick
Self Storage
oh sure James it was definitely uh on on
the you know probably the top five or so
uh list of benefits we we saw in Self
Storage is it's it's not governed by
landlord tenant law it's governed by
lean law so when a tenant uh goes
delinquent uh there's a very clearly
defined uh period of time uh it's
typically it varies a little bit state
to state but typically it's 60 days uh
if they're if they're uh delinquent 60
days they get a notification hey your
stuff's going auction in 10 days and
Bing Bang Boom you know uh we can
auction that stuff off and then whoever
wins the auction they have a couple of
days to clear out the unit and then we
just get it broom swept and we can get
it up and rented a lot of times later
that same day
so as uh just for the benefit of the
audience I want to spend another minute
on explaining why in an inflation every
period Self Storage is such a killer
model
um as as that upward pressure is driving
costs up and look folks we've all felt
it right we felt it at the pump we felt
it at the supermarket you're able to
recast on your vacant spaces or any
spaces that are not under agreement the
asking price is to be reflective of the
inflationary remarks for that month even
if you wanted to theoretically it could
be for that day but that might be a bit
cumbersome to manage so as inflation's
driving prices up you're not stuck in
those fixed uh rental amounts you're
able to recast and enjoy that run up
um so you you decide Self Storage is is
the place that you're going to live it's
it's an easier thing to model than the
defaulted notes for sure can you walk us
through through you know like day one
when you've made the commitment okay
it's going to be self storage what's the
first thing that you do where did you
start sure yeah it's a great question
um and yeah I love uh you're
highlighting a lot of the great things
uh about self storage but uh really
James having having been in business for
a while by the time we you know ran into
self storage and wanted to make a run at
it uh we knew we had to do a couple of
things up front before we got out over
our skis was number one was we had to
get educated right so you know we're
pretty smart guys we've been around the
block a few times but still you know
Self Storage was a different asset class
for us so uh so we went and got educated
you know we went to the conferences
we've done the uh you know the academies
and the and was part of a self-storage
Mastermind groups uh since 2019
um so we really wanted to
um
uh just immerse ourselves in the
industry so we went to the industry
events you know we joined the
self-storage Association for our state
and other states and and so we just
really you know jumped right in and
immersed ourselves and in that process
James we realized hey you know what
we've got us we've got a kind of a good
starter kit for the team but we don't
have all the pieces that we need to
really go and do what we want to do with
storage because my partner Joe and I
yeah we're deal guys you know kind of
like you mentioned earlier deal junkie
so you know I've been doing deals my
whole career you know I'm I'm the
numbers nerd so I you know run the
spreadsheets and and then I you know do
the projections uh you know do all the
sensitivity analysis and then you know
run that up against our investors and
you know get their feedback and such and
arrange for the financing and you know
so that Joe and I we've done that in
multiple Industries but the uh one thing
that we weren't good at uh was finding
the off Market deals so to generate that
those leads we we really needed to go
out and find that component so through
our self storage Mastermind group we
were able to find Tim Hayne so he's our
our third partner in uh our self storage
business uh and he's an expert at not
only the lead generation so that we can
find the off-market deals which are the
ones that everybody wants but he's also
experienced in development so to the
extent we acquired a facility
where there was an additional space to
either add on new units or
in the case of a facility we're looking
at right now down in Georgia there's a
there's a warehouse on the property
that's just kind of full of a bunch of
random junk so what we're going to do is
we're going to clean that out we're
going to convert that warehouse into uh
temperature controlled storage so he has
that experience as well
now of course James you've been around
the block as well but you know it's it's
pretty easy to buy real estate right if
you if you pay cash close tomorrow uh
and pay asking price or better right you
can buy as much real estate as you can
get your hands on problem is now you got
to operate the thing right so that was
the last piece of the puzzle for us was
we really needed to get that operating
expertise in-house so so we hired
Catherine she's a now a 17-year veteran
in the Self Storage industry uh former
executive director of the Missouri Self
Storage Owners Association and she's
done uh transition and operating
operations management consulting work
and auditing work on storage facilities
all around the country in our tier of
the market right she's not working for
the big boys she's she's working on kind
of the
the smaller you know middle the lower
tier uh facilities that that fit our
model so when we brought her in that's
when we knew okay now we now we are uh
ready to rock and roll and so that's
when we acquired our first facility we
didn't acquire our first facility until
August of 2020 so it was about you know
three years after two to three years
after we really started diving into the
space
um and so
getting educated up front getting the
team together uh also allowed us to line
up the capital so that's why we've been
able to acquire uh 12 facilities in a
little over two years
so I love that you started with and
ended with really education
um we have so many tools available to us
today that we're not available just 20
years ago oh sure um to be able to join
these masterminds and get into these
proper uh groups you really can
bring yourself up to speed on any
investment typology and if you're smart
enough to know what you don't know which
it certainly sounds like you guys are
you brought in lead gen you brought in
Ops you brought in development uh you
had Finance now you've got a team and I
love the fact that it was two years from
the commitment to the first acquisition
we've seen too many of these decks come
through over the last few years that you
know they look great on paper and and
people there's something about investing
in real estate Tom and and people forget
this the decks are created to look great
right thanks Sharon someone put that
together and they're highlighting just
the best of the best of the best
um and if you don't have a responsible
sponsor they omit a lot of the things
that you really should be taking a look
at and the fact that you've been through
a bad run I think you know you had said
and I certainly understand it you picked
the worst time to to get involved in
real estate but in retrospect it was
probably the best time because anybody
that tells you that came out of 2008
unscathed is a liar uh this this touched
everyone right and it's it's those scars
that have for us and it sounds like for
you uh they're painful and they remain
and they Define our strategy going
forward uh you know right but when you
you see these decks and everything looks
wonderful and and you you see that
they're banking on 25 depreciation in
rents and they're banking on three
liquidity events in the next six years
and they're uh banking on cutting costs
on operations and management by 40 in
spite of the fact that we're headed
headlong into an inflationary period
something's wrong there and as you
started to to push through these things
and ask the right questions a lot of
bright folks but many of them candidly
had just gotten involved in real estate
you know yesterday and now they're
raising Capital tomorrow
um and that's dangerous because if you
don't have sponsors that have been
through these Cycles folks you cannot
understand it there's no way that you
can tell a proper story that covers uh
what really went on in the trenches
during those years but being there and
having gone through this is now a third
turn in the market each time you get a
bit smarter and and you're gonna fail
and you're gonna make mistakes and
that's okay as long as you're learning
from them and you're failing forward and
you're picking yourself back up so for
me the fact that you got involved in
2006 is a blessing and and the fact that
you started this thing two years before
you actually took down your first asset
I think is brilliant uh so let's fast
forward here now we're in August of 2020
uh you've got a good team you're you're
you're working on lead gen because a
healthy pipeline is is everything in
this business
um was the focus going to be uh you know
the mom and pop sites that that could
use technology and be repositioned were
you interested at all in ground up
development what was the focus
yeah good question
um and and if you'll allow me a second
I'll answer that in one second but if
you allow me it's a little second you
opened up uh kind of an interesting
topic which is you know the cycles that
we've been through
we kind of glossed over my corporate
background at the beginning but I'll
just throw out uh that I joined a
technology Investment Bank in 1999 so so

I I lived through the internet bubble
and uh you know was a part of that as
well so it's like like you mentioned
James you know it sounds like both of us
have been been through a little a little
bit here and there and for sure that
that that that that paints you know
gives us a little you know different
lens to look through when we're when we
are looking at real estate deals and
real estate businesses so 100 have that
have that DNA
um but yeah we we uh very similar James
to multi-family right when we're looking
at uh opportunities in self-storage
we're looking at
We Stand we look at the market right so
we want to see that the populations is
steady or growing we want to see that
you know there's a decent uh level of
income in that market we want to see you
know low crime low poverty you know
those kinds of things we want to see
jobs that are steady or growing uh we
want to see infrastructure Investments
being made uh so that so that it's you
know a robust and diversified economy
there it's not a one-factory kind of
town right
um so we're looking at that it doesn't
necessarily have to be a super hot
Market you know everything's you know
going through the roof I mean that
certainly helps and is and is attractive
but we just did a deal in Upstate New
York and Carmel actually which is just a
solid you know basically a suburb more
or less of Danbury Connecticut and uh
you know certainly not a super hot you
know growing Market but man it's steady
really solid income there uh low crime
and low poverty and I'll tell you too
there's not enough storage up there so
that of course is the other thing we
look at is what is the supply we call
the supply index for storage so we the
supply index is simply the the amount of
Self Storage square footage in that
market
we divide that by the by the population
and that gives us a square feet per
capita in that market so it varies
different markets here and there but
generally speaking about eight feet uh
per person uh is equilibrium
and so if we go to a market and we see
that it's you know 18 19 20 feet per
person and we're gonna have to take a
little extra look at that because it
sounds like that market might be over
supplied it's not a it's not a black and
white thing
but in the case of Carmel New York it
was like two feet per per capita and so
we're like okay wow and and when we do
our next layer of due diligence when
we're actually
contacting the facilities in a 10 mile
radius they were all full so we knew
that there's low Supply and there's high
demand so what does that tell you we can
push rates and so we can push rates uh
until we you know kind of see that
I guess pain point if you will whereas
customers are you know starting to
starting to leave the facility but in a
in a in an area where incomes are pretty
high and self-storage is scarce and you
can kind of boil that frog slowly over
time score quickly if you want uh and uh
you can really kind of
put the customers in a position of well
am I Really Gonna Have to empty out all
my junk and try to move it somewhere to
save 25 or 50 a month or am I just gonna
you know kind of grin and bear it sort
of thing
so I'm curious
um
and thank you for that that background
those are some great metrics you you had
talked about
um a lot of the metrics as you had
highlighted that are are ones that we
look at when we're considering a
multi-family investment in the tourism
is the is tourism uh or one of these
like you know Lake towns does that have
you found that that has a a big effect
on the storage Market
it's certainly uh a more specialized
kind of Market
um and we do have a facility
um in coming Georgia which is near Lake
Lanier which is a resort kind of area so
um I guess that you know there are folks
there
um that are uh you know have vacation
homes or they have their their boats or
their Rave wave runners or what have you
and a lot of places a lot of
neighborhoods they don't want you to
keep that stuff on your property uh so
that's where storage comes into place
for for boats and RVs and trailers and
that kind of thing so it is a little
different kind of Market
um there are also we own a facility in
Lynchburg Virginia which is a college
town so we get tend to get some
seasonality there related to the college
kids moving in and out
um so it seems like every Market James
sort of has its own Dynamics a little
bit
um and some markets uh are heavily
contractor driven uh so they like to
have bigger units so we look we do look
at the customer base and so when we do
an expansion for example we say Hey you
know we need more 10 by 20s because
contractors like those bigger units
because they're storing their equipment
or you know their extra supplies or what
have you and they need that that space
so we're definitely looking at all those
things but one of the things I've I
absolutely need to touch on is when we
when we are look you know we talk about
the market uh when we look at a specific
facility and you know these Moms and
Pops are are a lot of times you know
unfortunately they're kind of a sleep at
the wheel right and so you talked about
inflation James so you know over the
past couple years rates on self storage
units have gone up substantially uh but
these Moms and Pops they're not really
paying that close attention they're a
little sleep at the wheel so the next
thing you know their rates are like 20
below Market 25 30 you know we've seen
rates 35 40 percent below market so if
all we do is go in and acquire that
facility and push up the rates uh to
Market over time and you know manage the
expenses I mean it's got to be a really
solid deal but that's something that we
run into more than you would expect
yeah well I'm not surprised because the
you know we touched on this in the
beginning Tom the these markets that
have resisted change and they've
resisted technology it's impossible to
stay on top of these metrics without
software and Tech and if if I had to
guess uh I suspect that you guys have
have built out some proprietary and some
standardized tools that you use to
determine where is market and what is
that you know uh upside that you can
capture simply by bringing the facility
into you know the modern era if you will
and and those are tools that the Mom and
Pops you know
oftentimes I've been guilty of this in
the past in my own business it's hard
when you're trying to keep the doors
open and you're you know you're faced
with the challenges that we're faced
with every day as a small business
um you know you're you get caught
working in the business instead of on
the business I see about how in the
background there that's right and uh you
know there's a lot of books that speak
to how to address those issues and it
does make all the difference in the
world if you're able to get out of the
weeds and sit at 10, 15, 20 000 feet
because you see you see the picture a
lot more clearly right and it it allows
you to capture that upside
um are are you guys uh finding that I'm
wondering if like customer experience so
let's assume that we had two facilities
in similar locations uh but one has uh
has used technology to handle their
logging in their logging out access to
the the facility and uh you know there's
automated responses and there's va's
returning calls and you're using all the
things that I'm sure that you've you've
Incorporated in one way or another and
then the mom and pop that is not so
focused on customer experience does that
matter in self-storage oh 100 James yeah
100 so I mean everybody these days and
it was uh even exaggerated even more so
uh during the coveted pandemic but you
know folks like to do business these
days on their on their smartphones right
so if if uh you know somebody's uh
needing storage you know they're gonna
they're gonna pick up their phone you
know they're gonna they're gonna ask
Siri or they're gonna hit their Google
button they're gonna say self storage
near me
and so whoever pops up in those first
few uh you know names on Google uh in
the search results you know they're very
very likely to get the business and if
you can
um have someone you know if you can have
the technology in place where you can
click through on your smartphone and uh
go ahead and rent your unit fill out
your uh your application and your
paperwork and sign it with your finger
and get your gate code you know texted
to you so you can go to the facility on
your at your leisure you know get in the
gate you go to your unit you roll up the
unit door and the uh your lock is right
there ready for you and it's all swept
out ready to go I mean that's the
convenience that we bring to the table
with the technology that we put in place
and a lot of Moms and Pops you know they
might be lucky to have a website
and they might be lucky to have a
management software system uh what so
that's just what we do that's just part
of what we do we we implement the
technology you know we do the search
engine optimization you know we're doing
all those cool marketing things and in
fact on the on the gate at our
facilities there's a sign on there with
a QR code on it so you can take your
smartphone you can take a picture of the
QR code and just right there while
they're standing at the gate they can
fill out their paperwork get their gate
code and they can enter the facility so
we have all of that in place which again
it's just that convenience factor right
because people these days they like
convenience they like that immediate
gratification you know that they're not
one they're not calling up and saying oh
you know can I get my storage unit you
know next Saturday you know they want it
right now and so there's bombs and Pops
you know they don't have the website you
know you're lucky if they answer the
phone
um because again they're not running it
really as a business
um as a quick story the the gentleman we
bought the facility from up in Carmel
New York
older gentleman ready to retire spend a
lot of time in Florida and
um
he had built the place he had his
daughter working there as a manager you
know overpaying her so their expenses
were too high
um and he knew he told us he's like well
yeah I know my rates are are pretty low
but he's like you know what I'm I'm
happy with the amount of money coming in
each month you know I know a bunch of
the customers I own a rock the boat I
don't want to piss him off and so he
just continues on and he wishes us
wishes us all the luck in the world
because he knows what we're going to be
doing with it but uh that was his
philosophy it was hey I'm happy with
what's coming in
uh customers are happy so I'm happy and
I get to go to Florida and hang out with
my young girlfriend and play some golf
so you know it you're touching on such
an important thing that that we don't
spend enough time on when sourcing these
deals uh and it's the sign of a good
sponsor folks if they understand that
price
more times than not is not the driving
factor in a seller making a decision
they wanted they want to feel like they
can take pride in what they've done they
want to know that this is going to live
on
um they want the deal to match the
lifestyle oftentimes we have found this
this almost exact Avatar of a seller
that you're describing
um they they typically hold notes
because they enjoy the revenue there's a
lot of opportunity there don't get hung
up uh and and now is the market
softening a little bit it's not as
relevant but we'll be back there again
folks when things are crazy and prices
are going nuts uh don't let your deal
makers drive you down a path of just
price uh you've got to connect with your
seller and find what's important to them
and tailor your deal as Tom is
describing to that lifestyle I love that
you knew that they want to be in Florida
playing golf with their girlfriend and
enjoying what they're doing they've got
connections in the local community right
you can structure a deal that is not
price sensitive which for us as the new
person coming in is Paramount right but
for them it's not and it's important we
don't put our thought on the deal and
how a metrics on to our sellers so uh
you know I love the approach
um and with that I want to transition
because a it's a simple acronym but I
love it can you can you speak a little
bit about safe and what that means for
you guys
sure James
um I'd love to go to that if I can just
touch quickly uh you mentioned uh seller
financing so I didn't mention before the
same gentleman up in Carmel New York he
he actually provided uh seller financing
on that facility interest only
uh for five years at five percent so I
mean right there it's that's a huge
value add for our investors right there
so we're we're cash flowing from day one
and you know we're rocking and rolling
there pretty good
uh but yes I've done this a few times
Tom
I love it that's right yeah that's a
beautiful thing yeah so safe uh James uh
came out of just my personal experience
as an investor I mean first and foremost
I mean yeah look we love self storage
we've got a great business going here
with storage I love to stress that and
other asset classes but at the end of
the day I'm an investor right I've been
a full-time investor since 2006.
and so along the ways I was looking at
different deals and different funds and
who to back and asset classes and this
and that
um you know I had a great background
right in corporate finance and running
models and financial stuff uh so I knew
a lot going in I didn't know certainly
didn't know everything and so along the
way I made a ton of mistakes right as I
was looking at different kinds of deals
and so I thought it'd be valuable to
provide a resource to investors that
were in my same shoes back then uh so
that they can it gives a it gives them a
due diligence framework right so they
can get started so that I'm thinking
about you know the busy professional out
there you know the you know the lawyer
the doctor the consultant or the sales
guy or you know whoever it is that's you
know they they've got some money coming
in they want to put some money to work
they're a little concerned about this
the stock market or or digital currency
you know whatever it is but they see
value in in all with alternative
Investments which don't get me even
started on how it got named alternative
Investments I mean what's more basic
than you know real estate and lending I
mean it goes back to Biblical times
anyway
don't want to get on my soapbox there
but um so we came up with this this
framework for busy professionals so they
could do their due diligence and they
could take that step out of the public
markets and into alternative Investments
because I realize it's a daunting step
right you're not really sure where to
start uh you see that there's value in
alternative investments in real estate
and getting with the right sponsors but
you're just not really sure how to do it
and so uh safe James is an acronym it's
it's a we turned it into an e-book
that's available on our website for free
and it's an acronym s-a-f-e and
certainly please don't anyone come to me
say oh you're saying investing is safe
no investing is not safe investing has a
lot of risks however if you use the safe
checklist it can help to eliminate some
of those risks so s is for sponsor A is
for asset F is for financials e is for
exit right so this the checklist gives
you lots of questions to ask right so s
for sponsor you know who's running the
deal what's their background are have
they been successful
um you know have they generate how long
have they been in this asset class have
they generated you know returns have
they had have they had a full cycle
right if they purchased a property done
what they said they were going to do and
then exited right so
um in fact
um James you might have run into this as
well but we have a investor we've worked
with for years I mean he's a nine figure
guy you know nine figure net worth guy
and so very very you know wealthy and he
said you know pretty much more than
anything else he's looking at the
sponsor more more than a lot of anything
else because that in his experience he's
found that that's where a lot of his
deals have gone wrong is he didn't have
the right sponsor so go through the
checklist
ask all the questions
and at the end of the day James the
question for the investor is can I sleep
well at night knowing this guy this
company has my hard-earned money right
and then you go to A A is for asset so
I'm surprised sometimes when I talk to
investors
uh and they don't they can't really tell
you what it is they're investing in so
the a section the a for asset right it's
what is it exactly that you're investing
in if you invest if you invest with
Belrose Storage Group or one of our self
storage deals you're buying membership
interests in an LLC that owns the
property so you're not buying directly
into property buying into an LLC uh I
would love for someone to tell me you
know who's investing in digital
currencies you know what is it that
you're investing in can you explain that
asset to your children
um so just you know series of questions
about that where is the asset what
Market is it in how how do you feel
about that market you know what is it a
growing Market is it a solid Market
those kinds of things
F is for financials right so financials
is you know what do the projections look
like are they believable has the sponsor
delivered on these kinds of projections
in the past
um and then also for you personally as
an investor you know how much of your
net worth or liquid resources is this
investment taking up and are you okay
with that
um and again the ques the ultimate
question with all these sections James
is can I sleep well at night you know
understanding the sponsor understanding
the asset understanding the financials
and ultimately the exit e is for exit
right so how do I get out of this thing
I can't go to schwab.com and click click
click you know sell my position in uh in
a Belrose Self Storage deal because uh
we're just not it's just not set up that
way so as an investor going in you need
to be comfortable understanding that
your capital is going to be tied up for
two three four five years depending on
the particular characteristics of that
of that deal and you need to know know
has the sponsor exited that way before
so if they're saying hey we're going to
sell the property you know what's that
look like who's going to buy it
when is that going to happen and and are
you sure we can sell at a at a price
that's going to be profitable and then
uh you know there's all cut all kinds of
other considerations with exit and I
would I would say that uh you know tax
implications what happens when you sell
and you get that money back is that
going to be taxed and how you know so
they're all those kinds of questions so
I think uh it's a checklist it's meant
to be a workbook that folks use and they
you know write on it and scribble down
and uh and I would say too like I I feel
like investors like they they meet
somebody like oh hey you know Tom's a
good guy I'll throw him 100 Grand or 200
Grand whatever and I appreciate that but
you know you should really take that
opportunity to ask me the hard questions
you know and get to know me and my in my
company and my team and the fact that
you're writing that check or you know
for that money I mean it gives you
the right to ask those questions and uh
you know really dig in and I and I
encourage people to do that I know
sometimes it can be a little
uncomfortable but I think that's why the
checklist helps is because if you're
just on this on the phone with the
sponsor you're just reading down your
checklist it makes it a lot easier to
ask those tough questions as opposed to
you know just coming up with it off the
top of your head but I encourage folks
to use that as a way to de-risk and take
that step into alternative Investments
because I think for me personally as an
investor full-time investor of the past
going on 17 years you know I I love
alternative Investments I think it's
it's the way to go I wish it was more uh
widely adopted by folks out there I
think there would be a lot more people
that were in a more financially secure
position if that were the case no doubt
about it so the the
ebook uh is available on the website
folks it's
BelroseStorageGroup.com check it out uh
you put your name in you put your email
in you get the ebook delivered by email
in five seconds it's a great read uh
it's a quick read especially if you're
um on the new side to investment so the
reason I want to spend time on this and
I loved it so much is
in real estate you hear location
location and
good real estate will allow you some
Grace on that execution but I have seen

inexperienced or bad sponsors Drive
Great real estate right into the ground
and I have seen great sponsors take
honestly crap real estate and turn it
into a wonderful performing asset and I
will take the sponsor over the asset
every single solitary time
and you start with sponsor you don't
start with the real estate
um and three of the four metrics
financials the execution of those
financials is predicated on the sponsor
the exit is predicated on the sponsor
it's very easy to buy into a deal and
say oh well we're going to exit in five
years and we're in five years we're
gonna get today's cap rate that's like a
massive massive red flag for me and any
idiot can assume things are going to be
static five years from now and they
never are I need the guy or the girl
that can tell me what a market
conditions going to be in five years
what do those cap rates look like what
are the what does liquidity look like
what does the debt market look like and
how are we going to be able to execute
in that world
there now you've got the right sponsor
so I love that you start with sponsor I
love that three of the four metrics tied
back to the sponsor and the location
location thing has its its place and its
time in real estate but but folks if you
don't have the right sponsor it it only
buys you so much grace uh you need to
have a sponsor that's experienced that's
been through the battles in my opinion
you need to have a sponsor that's
experienced and been through the battles
and understands how to operate under
pressure when things don't exactly play
out the way that we think that they will
because even the best most Savvy
investor uh in the world doesn't have a
crystal ball and it's how they operate
under pressure that really matters uh
Tom can we spend just a couple of
minutes before I let you go on the
investment itself what what what what
our targeted returns look like are these
blind pool Investments or are they on uh
is it prescribed what assets the LLC
owns at the time of event investment how
long of a tire period is it if you could
just hit two or three of those points
for us
sure James yeah um so we're a direct
investment shop uh so so investors that
are in our Deals they are investing in a
specific property that has a specific
strategy associated with it including
the timeline uh to exit so uh some of
our deals as a value-add you know we're
able to get in and turn them around
pretty quickly so that's usually going
to be around a two you know maybe two
and a half year deal uh other deals that
have some more moving parts
uh like the facility we're about to
acquire in Georgia you know there's an
expansion component there conversion uh
so that one we're giving ourselves a
four-year Runway uh four to five year uh
just because of the the conversion
construction lease up aspects to that
deal
uh but yeah our investors uh come in uh
and they uh they come in as Class A
investors uh minimums are fifty thousand
uh we have investors our average is
about
110 uh give or take and uh we have some
investors come in you know 250 000 Etc
but
um our investors are typically busy
professionals that uh that love what
we're doing but don't have the time or
the uh expertise or the inclination to
go do it themselves so we're happy to be
able to provide that service but our
investors uh receive a monthly
distribution once the property is up and
running and cash flowing uh they receive
a monthly distribution as a preferred
dividend which is cumulative so uh it's
meaning that if we if we don't so the
deal we have right now is in the eight
percent pref
uh if we don't hit the eight percent in
the first year which in this deal we
won't because we we do have that
conversion component uh we'll make up
for it uh later and our projections are
showing that we'll be able to do that uh
in year two and three we'll be able to
catch that up uh because once we get the
facility converted and up and running
and we're going to be you know cash
flowing really strong
um and then there's a profit split at
the end once the property is sold uh and
that and then that that prop profit
split Plus getting the capital back to
the investors you know we're targeting
James of the High Teens you know 17 18
19
uh overall uh annualized return to
investors
um
over you know like I said earlier like
maybe a two year time frame or up to a
four to five year time frame for a more
complicated project
wow is there any room in the the cap
stack for folks that have self-directed
IRAs
oh absolutely yeah yeah I've been a
self-directed IRA invested investor
since 2009 so I'm a big fan
of the self-directed IRAs and we we have
them in our deals uh I think pretty much
every time
so Tom uh what's the best way for folks
to to reach out if they're interested in
investing and they want to learn more
about the company where can we point
them to
uh yeah sure sure James uh this has been
great um Tom Dunkel I'm Chief
investment officer at Belrose Storage
Group you can find us at BelroseStorageGroup.com
where you can register
in our investment portal and our
investor portal is where all of our
deals are posted and our Communications
are made and uh it's a pretty slick back
end yeah that's where the tax documents
live and that's where the distributions
are made out of and so it's all very
streamlined which is great for us and
it's great for our investors as well
um but yeah we're we're excited to be on
a nice growth path here in a great asset
class and we are excited to have a great
team and we have lots of resources we
try to put a lot of value-add resources
out there James for potential investors
so we have a Facebook page
BelroseStorageGroup.com where you can see
some of my other podcast interviews
other articles and blogs that we write
up about you know what we're seeing in
Self Storage you know why we like Self
Storage you know little blurbs about the
team and all those kinds of things
well this was super informative uh folks
as always all the links will be below uh
Tom Dunkel really appreciate the time
best of luck moving forward
Thanks James best of luck to you as well
thank you as always everyone please stay
safe are you ready to bring your real
estate game to the next level my name is
James Prendamano I'm the CEO and founder
of pre-real and over the past 25 years
I've closed over a billion dollars in
transactional real estate each week I'm
meeting with outstanding investors High
performing individuals and Visionaries
operating in the real estate space these
are the people that are actually out
there in the real estate game right now
getting it done this podcast aims at
bringing anyone's game to the next level
this is the pre-real podcast