March 1, 2024
We find value in hearing the stories of storage owners that have “been there and done that” and believe those aspiring to begin their investment journey in storage might appreciate hearing them as well.
We took the opportunity to reach out to Andrew Pena, owner of the Montgomery Self Storage branded properties located in Montgomery County (North Houston, TX). Andrew was willing and able to answer the questions thoroughly and honestly.
We hope you enjoy the information he shared as much as we did.
How many properties do you own? 7
How many square feet? 362,651 (With Another 250K in various phases of development and design)
How many units? 2,086
How did you get into Storage? Kind of fell backwards into the industry. One of my previous partners knew someone who invested in the industry and was looking to sell one of their properties. When we ran the numbers, it looked like we were purchasing it already cash flowing so we said, “why not”. Bought it, rehabbed it for about 300K, and 18 months later, much more educated about the industry, we refinanced it at a value 2MM more than we purchased it. Pulled all the equity out plus another $500K. To this day it is a great “C” class self-storage property. From that point forward, I loved the asset class and learned everything I could from start to finish. I left my old partners to venture out on my own. I worked my investments from every standpoint (property manager, owner, contractor, sub-contractor, etc…). Whatever needed to be done, at the beginning, I was the one who got it done until the portfolio size was large enough to support help.
Are you invested in any other real estate asset types such as single family, retail etc.? Not anymore. I was in light industrial parks and small apartment complexes. Eventually got out of every class except for self-storage.
Do you self-manage or use a third party? Why? I do self-manage. As the managing member it’s probably more of a type “A” personality and sense of control. Once my properties got large enough and I had established a great team, the thought of a third party to manage was disruptive, in my opinion.
What are the biggest challenges you are encountering now in storage? Inflationary pressures from exponential increases in insurance, property taxes, and in some ways, payroll. These three areas make it challenging to remain nimble as competitors discount their street rates to increase occupancy. As for expanding, construction costs are still pretty high and lending rates are prohibitive. I believe we will see some relief in the coming 18 months.
What are the biggest challenges you encountered in the past and how did you get past them? Lending during the financial meltdown in 2008. Almost lost a property because the seller financing was running out and they did not want to extend anymore. Luckily through my network of entrepreneurs I reached out to someone and asked what to do. They looked at the deal and provided personal lending to bridge the time it would take to recover in the financial markets. If not for that type of networking, my foray into the self-storage industry may have been over almost as quickly as it started.
Buying Mom and Pop Operations – Data is one of the most important pieces to being successful in self-storage. However, when buying mom and pop facilities, which is what I was doing, it required a big capital outlay to get and maintain a good management system. The returns are tough to justify while I was growing the portfolio but, in time, it paid real dividends. I have been able to achieve consistent quality returns on my investments, which in turn, provides me a larger pool of lenders and partners who want to invest.
Due Diligence (Brokers vs My Reality) – I cannot count how many offer memorandum I have reviewed in the hopes of making an offer on a deal. I can’t count how many offers I have made which either did not get a response or I ended up 3rd or 2nd on a list of potential buyers. At the end of the day, and this is VERY hard to remember all the time but, it’s not the deals I don’t get that hurt me and my partners. It’s my job to pencil the deal, not the broker’s job to make the numbers work for me. And, while brokers are a great tool and reservoir of information, their metrics may not match my groups metrics. Investing is a discipline and I must do all my homework and let the numbers and my opinion of value dictate which direction I should go. That’s a lot easier to do today than it was at the beginning when I wanted a deal so bad.
Are you looking to expand right now through acquisitions and/or development? Why? Yes, but I am primarily focused on one county in Texas. I am always looking for opportunities to grow my portfolio either through acquisition of existing, or expanding my current inventory.
What is one piece of advice you would have like to have known before you got started in storage? Don’t swing for the fences. A 15% cash on cash return on money is the same for a 4 million dollar deal as it is for a 400K one. A mistake on a 400K deal will not hurt as much as a 4MM one. Opportunities will materialize in time with a consistent record.
What is your opinion, if any, of remote facility management? I get the attraction to it. I have several unmanned facilities but it only works because I have several properties that are physically managed around it. Unmanned in rural areas seem a bit like a setup for more costly issues such as break ins. But, at the end of the day, some companies have shown a real ability to be successful using this type of management style. It’s just not for me and my setup.
If you could change one thing about the storage industry, what would that be? It’s really more an issue with where I am doing business…we need some restrictions. I understand the industry will provide these answers through over saturation which will result in new limits to construction but the volatility doesn’t help the industry or us as investors.
Any question you have for other owners? What are you doing to mitigate the high and unpredictable cost of insuring the asset class? It’s been quite the challenge the past two years.
Visit Montgomery Self Storage at: https://montgomeryss.com/
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