Tom Dunkel is the Managing Director of Belrose Storage Group with a background in corporate finance and over 25 years of real estate and investment experience. He has specialized in discounted asset opportunities nationwide since 2006. As a dedicated mentor to investors and entrepreneurs, Tom has also taught classes on real estate and mortgage note investment at the CAMA Academy along with Belrose Asset Management co-founder Joe Downs.
In this episode, Tom talks about why you should be investing in self-storage real estate, what you need to know before investing and how you could make sure you are investing SAFEly.
[00:01] – [06:06] From Corporate America to Real Estate Investor
- A Financial Analyst who transitioned to real estate in 2006 and learned a lot of hard lessons that he’d use in his business today
- The secret to business success is finding the right team who has the same core value
[06:07] – [10:00] Self-storage Real Estate is A Good Investment
- Self-storage is getting a lot of attention lately because of its resiliency
- How to find opportunities in the space
- Running a self-storage facility is inexpensive with an operating expenses ratio of around 30% range
[10:01] – [19:43] Consider These Before Making Investment Decisions
- Here are things you need to consider when investing in a self-storage facility:
- Have a deep dive into the market such as diversification of employment
- Supply index
- Check data Google Analytics
- Using the triangulation method in research
- The common pitfalls in self-storage investing and how you could avoid them
- Tom compiled and wrote a free ebook S.A.F.E. (Sponsor, Asset, Financials, Exit) Investing
[19:44] – [21:35] Closing Segment
- Reach out to Tom!
- Links Below
- Final Words
Tweetable Quotes
“We find that the successes that we do have is largely because of the of the people that we surround ourselves with.” – Tom Dunkel
“Sponsor is a huge thing. What’s their track record? Where have they been? Where are they going?” – Tom Dunkel
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Looking to invest or sell your storage facility? Connect with Tom at http://www.belrosestoragegroup.com and download the S.A.F.E. Investing ebook for FREE here: https://belrosestoragegroup.com/for-investors
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Tom Dunkel: It’s a little bit of art, a little bit of science. But basically, we’re just wanting to see that the storage facilities in that market ideally for us, we want to see that the facilities are full. So we don’t stop just looking at the actual data, we actually get on the horn, get on the phone, and we call these facilities and we make sure that what we’re seeing in our databases and in the analysis is lining up.
[00:00:38] Sam Wilson: Tom Dunkel has been involved in corporate finance, mergers, and acquisitions until 2006. But since then, he’s been a full-time investor focused solely on self-storage. Tom, welcome to the show.
[00:00:50] Tom Dunkel: Hey, Sam, great to be here with you,
[00:00:52] Sam Wilson: Hey man, I appreciate you coming on. There are three questions. Tom, I ask every guest who comes on the show. In 90 seconds or less? Can you tell me where did you start? Where are you now? And how did you get there?
[00:01:01] Tom Dunkel: Sure. Well, I started out in corporate america, after getting my MBA in finance and accounting, I came out as, you know, Financial Analyst, Excel spreadsheet nerd. So I was able to kind of learn a lot from that I was with a couple of companies that were growing aggressively through acquisition in the aerospace industry and a couple of other industries, but always wanted to get into real estate. So I chose the worst time in history to get into real estate, which was 2006. I learned a lot of hard lessons as first few years, but I wouldn’t change it for the world. I’m super excited about where I am. I don’t feel like I’m working at all, and I just come to work excited. Just about every day. Not every day, that would be a stretch, but just about every day. So that’s where I am.
[00:01:50] Sam Wilson: Man, that’s really, really cool. 2006. Well, you didn’t know it in 2006, that it was going to be the worst time in history to get involved in real estate. What were some of the things that you took away from that period of time that maybe you’re using as a lesson in, in your business today?
[00:02:11] Tom Dunkel: Sure, yeah. Still, to this day, Sam. Can’t do it by yourself. You gotta have a solid team around you, coming out of corporate America, and I had a great career to that point, you know, great education worked with some phenomenal people and great training all that I thought I, you know, that having my own business was going to be a breeze. But I learned very difficult lessons. That was not easy. I needed to have the right people around me. And especially at that time in the real estate cycle, when the world was going crazy. And the bubble was bursting at all that I just I didn’t have the right people around me. And so I paid that price. So it’s definitely been a focus of mine. Ever since then.
[00:02:50] Sam Wilson: Did you lose your portfolio in 2008?
[00:02:55] Tom Dunkel: So I didn’t. So good news there, but I was just hanging on by a thread, I ended up having to just get rid of some properties at a loss. And thankfully, at that kind of, voluntarily, shall we say, you know, not that none of them were snagged away from me by the bank. So I was able to avoid that, which was great. But I just had a huge marketing budget. So I was, you know, just bleeding cash from my marketing budget. And I did have some people, and my, you know, my lease and you know, for my office space and all that stuff. So that was just the bleed that just really was painful over those next few years. Yeah, absolutely.
[00:03:38] Sam Wilson: And you said one of the things that you have changed since then, is the team around you? What does that mean?
[00:03:44] Tom Dunkel: Well, I guess it was my good fortune in 2009, met my now business partner, Joe downs, we’ve been business partners ever since then. And I think I didn’t realize that at the time. And this was just something that came out of a leadership exercise we did recently when we were going through our core values as a company. But I think Joe and I just connected on a values level. We’re both family men and had kids and we wanted to be part of our kids’ lives. We didn’t want our company to rule our lives. And so but we also had ambitions about you know, being the best we could be in our field and achieving goals for ourselves and our families. I think we just we initially just connected on that kind of level. Initially, our backgrounds were similar but different but you know, financial related, both real estate related, but we just kind of came at it from different angles, but ever since then, we’ve just been trying to find the right people. It doesn’t always work out right. As best as you might try. You’re going to run into partnerships or employees or whatever that don’t quite work out the way that you want. But like we find that the second success that we do have is largely because of the people that we surround ourselves with, and that’s why we’re really excited right about where we are in self-storage right now because we just haven’t we have just a great team around us.
[00:05:05] Sam Wilson: That is awesome. I love that because that’s a common question. You know, the common question in this kind of train of thought is like, how does someone go about if they are scaling their real estate portfolio? Because like you said, it’s a team sport. I love that you said at the beginning that having the right team, but how do you find the right people to work with? And I think you hit it on the head is maybe not necessarily starting with a lot of things we probably start with. But starting with a core value, like, are we aligned philosophically? And if we’re not, probably not going to work out.
[00:05:40] Tom Dunkel: Correct? Actually reminds me, Sam of a time back when I was getting out of business school, and I was interviewing on Wall Street with some companies up there. And I remember just meeting this one guy, and basically all he did was work. He pretty much blew off his family and his friends, and he just wanted to work and get that money and get that power, or whatever, you know, is light in his fire at the time. And I was like, man, this is not the environment I want to be.
[00:06:07] Sam Wilson: Right. Absolutely. Absolutely. Let’s talk a little bit about self-storage. I mean, this is an asset class that’s had, I don’t know which asset class hasn’t had a ton of attention. So I say it’s had a ton of attention as if others have been neglected, but I don’t think they have. But tell me about self-storage, why you guys are in self-storage and how you’re finding opportunity?
[00:06:30] Tom Dunkel: Yeah, sure. I think Sam, self-storage actually has been a little bit neglected over the years, because it’s, it’s been a little bit of a redheaded stepchild in commercial asset classes, you know, multifamily, you know, senior housing, student housing and those kinds of medical office, those kinds of asset classes have definitely been attracting a lot of attention. But I think, especially now that we’re on the tail end of the pandemic, I think, folks out there seeing how resilient self-storage is, and continues to be. And so it’s getting a lot of attention now from some big money, investors. And so we were just thankful to be in the place where we are. And I think the reason Sam is that, that self-storage is getting a lot of attention because it is resilient, we have a slide at our investor deck, that goes back to the 1980s. And it shows the United States economy, you know, jumping around like this, over that time period, you know, expansions, contractions, recessions, depressions and all that fun stuff. And on the top of that, we have a wine goes about like this very slow and steady, but it’s the occupancy level of self-storage facilities over that same time. And it just sort of gently floated between 80 and 90%, during that entire time period. And it’s, that’s, that’s a huge thing. It’s very resilient. In that regard. It’s very inexpensive to run a self-storage facility. So like our operating margins are generally in the 30-ish percent range or excuse me, our operating expense ratios in the 30% ish range, which means our net operating income is in the 70-ish percentage range. So lenders love it, because there’s plenty of cash flow there to cover the debt. And our investors love it, because there’s plenty of cash flow left over to pay a nice dividend to them along the way. So those are two big reasons. We love storage.
[00:08:26] Sam Wilson: Absolutely. stability of the product is huge. You know, like you said, over a 30-year, however many years you had their 30 or 40-year trend, it’s pretty, pretty consistent. And, you know, consistent is the name of the game. One of the I was in Asheville, North Carolina this last last weekend with some friends, we were over there, doing some mountain biking and as I drove through Asheville, we’re driving on this one road, I can’t remember the name of it, but I don’t know every I don’t know to call it every mile. There was a new self-storage facility, not a new one, but a self-storage facility. None of them particularly huge on particularly small, but I just kept driving and you know, some would have boat and RV storage. Some would be just regular storage, some of the climbing trolls some wouldn’t. And as not, as someone who is I’m a passive investor in self-storage opportunities and other syndicators like yourself, but I don’t actively go out and buy necessarily just straight self-storage. I just kept driving by all this stuff. I’m like, one, there seems to be a lot of it. In two, I go, how in the world? Do I, as an investor, look at all of these and say, Oh, I’ll buy that one, but not that one. Or that one is better than this. When I go all of this looks the same to me. I don’t see opportunity here. Tom, please tell me why I’m wrong and how someone maybe in a similar situation could make sense of what they’re looking at.
[00:09:51] Tom Dunkel: Sure. Well, first of all, I have to point out that we own a facility right outside of Asheville, so I have a baby it drove right by.
[00:09:57] Sam Wilson: It was 191 I think was the road it was on. So maybe that was it.
[00:10:01] Tom Dunkel: Yeah, we’re on. We’re on smokey Park highway out there. But, uh, anyway? No, it’s a great question. And it’s certainly one of the things we look at very very, very closely because I’d rather own a mediocre-looking facility and a great market than vice versa, right. So before we acquire a facility, we’re doing a deep dive on the market, we’re making sure it’s a diversified economy, that it’s not like a one factory kind of town, where if that factory goes out of business, the whole town goes out of business. So we’re looking for that nice diversification of the employment base, we’re looking for low unemployment and looking for growing jobs, growing population, all of these things that are that point to it being a healthy area, including income and, and those kinds of things. So as far as competition goes, he touched on that. There are a couple of different ways that we look at that Sam, one is from the supply side, right, so we calculate what we call a supply index. And that’s basically, we calculate the square footage per person in that in that particular one, three and five-mile ring around that facility. And the equilibrium is, varies from place to place. And it’s not super scientific, but it’s about seven feet, seven square feet per person. So if we do our analysis, and we see that it comes in at two feet per person, we’re finding that market is out of equilibrium and is under supplied, if it comes out at 15 feet per person, we’re going to have to take a close look at that, because that looks that’s suggesting, not determined but it’s suggesting that that market might be oversupplied. So we’re doing that analysis on the supply side, from the demand side, we actually look at Google Analytics. So we look at how many folks in that market are searching for self-storage on Google. And that gives us a little sense of what’s happening on the demand side of that equation, because it could very well be that there’s a 15 square foot per person market that still has a high demand, try to find that supply and demand curve. How how do you take that data from Google Analytics from Hey, who’s searching for this? How many searches in this one, three and five mile radius? And then connect that to and draw meaningful conclusion? Well, it’s,
[00:12:31] Tom Dunkel: It’s a little bit art, a little bit of science. But basically, we’re just wanting to see that the storage facilities in that market ideally, for us, we want to see that the facilities are full. So we don’t stop just looking at the actual data, we actually get on the horn, get on the phone, and we call these facilities and we make sure that what we’re seeing in our databases and in the analysis is lining up. So we’re calling those facilities seeing what are their what’s their occupancy, and what are their rate trends are the rate trends going up. That’s been the case the last couple of years, but sometimes rates do come down. So we want to see that as well. So it’s really I guess what I would say, Sam, is it’s kind of a triangulation process duo are kind of looking at the, the facility from multiple angles and just making our assessment to see, you know, if it’s an attractive opportunity, or not,
[00:13:29] Sam Wilson: How much time do you spend making that? triangulation? Like, is it okay, we think we have an opportunity? Or do you do all the triangulation work ahead of time and then find facilities inside of that area that you want to buy? Which way? Does that work?
[00:13:47] Tom Dunkel: Yeah, it’s, it’s a little bit of both ways. Because we do outreach, we have an internal process to generate our leads where we are reaching out directly to self-storage owners. And we find no big surprise, we find that that’s where the best opportunities are. Once we find a facility that then we kind of run it through our process, and to find out, you know, what are the supply and demand dynamics in that particular market? And once we acquire a facility, Sam, then we start looking at the facilities proactively around that area so that we can try to build a presence, because obviously, if we’re acquiring this one facility, and there’s another facility, you know, 510 15 miles away, pretty good chance that we’re going to like that market as well.
[00:14:34] Sam Wilson: Right, man, that’s great. That’s great. Thanks for taking, taking the time to break down. You know, how you guys are valuing an asset and how you say, Hey, this is a good buyer. This is not a good buy. That’s, that’s some tactical information there. So certainly appreciate that. So don’t worry about this. Let’s talk risks in self-storage right now. Do you see any risks or hidden risks for yourself? towards investor.
[00:15:01] Tom Dunkel: Sure, I mean, there’s always there always is a risk that a particular market like, you know, obviously we’re doing our analysis, as of today, we do have some visibility into the pipeline of new facilities coming online. And so we incorporate that into our analysis as well. So we’ll we’ll add in that square footage when we’re looking at the supply index, etc. But it’s, it’s, if a big, if a Big Read is coming in, like a public storage, extra space, cube smart, what have you, a lot of times, because they’re the 800-pound grill in the market, although more on that in a second, they what they’ll do is they’ll come in to a market and they’ll artificially push down their rates to attract customers to lease up their facility. So obviously, that has ripple effects through a market and that’s certainly a risk. That’s somewhat out of our control. If we don’t see that project, coming down the pipeline. Now, I did say 800-pound gorilla, and they certainly have massive resources, there’s big companies so that they can, they can absorb that kind of, you know, lower rates for a period of time. But I do want to point out to the folks out there that those big guys I just mentioned, they’re really only commanding and self-storage, about 25% of the market, give or take. So 75% of the market is either smaller regional players like ourselves or Moms and Pops. And so that’s another huge thing that we love about the self-storage industry right now, Sam is that a lot of the owners out there are moms and pops, they’re not running their storage facilities very well, which creates huge opportunities for companies like Dell or a storage group.
[00:16:48] Sam Wilson: Now that’s great. I absolutely love it. Let’s talk a little bit about some of the pitfalls, I guess, you see, in general, you know, there’s a lot of us, you know, we raise capital here at the Brecon Investment Group. I know you guys probably take outside capital as well. What would you say to a high net worth investor? You know, what are some risks you see on that front? Maybe? And how could a high net worth investor potentially avoid investing in or making a mistake? That could cost him a lot of money.
[00:17:19] Tom Dunkel: That’s a great question, Sam. And it’s something as a high net worth investor myself since 2006. I’ve been through a lot of different investments I’ve invested in multifamily deals, I even looked at a COVID-friendly convenience store. A drive-thru convenience store concept. So I’ve looked at a lot of different deals out there myself. But I think it comes down to a few things. And I don’t know if you asked that question on purpose. But we did. Over the years, all these lessons that I’ve learned these mistakes I’ve made, we actually compiled it down into an ebook. It’s available on our website we call S.A.F.E. Investing. So save is an acronym sa fe. S stands for sponsor, and Sam sponsor is huge, right? I mean, we have these nine-figure net worth, guys that we do business with. And they tell us flat out and say, Hey, we come to you guys, because we do business with you over the years. And we trust you we know, you know, even if a deal doesn’t go well, we at least know that you’re going to give it your all and make the best out of it that you can. So sponsor is a huge thing. You know, what’s their track record? Where have they been? Where are they going? You know, all those? Is it a team? Or is it just a guy with a gmail.com? Email address? A is for asset is what is the asset that you’re investing in? Do you really understand that? What’s the market? Is it in? What’s that business? Is it something you can explain to your kids, you know, that kind of thing? F is for Financials. So what are the financial projections? Are they reasonable? Has the sponsor delivered these kinds of financial results in the past? You know, those kinds of things? And then E is for exit. How do I get out of this thing? It’s not like you can go to schwab.com. If you’re in a Belrose, storage group, self-storage, syndication, and click, click, click and sell your position. Unfortunately, it doesn’t work that way. If you’re investing in one of our deals, you need to be comfortable having your money tied up in that deal for 234 years, depending on what the strategy is that we’re employing at that particular facility. So it’s a free ebook available on our website. You don’t have to give me your name, address, phone number, social security number, anything like that. It’s just there on the homepage as a little value add back to the investor community from us to you,
[00:19:43] Sam Wilson: Man, that’s great. I did not say you think I teed that up and that was a question and man you not only answered it, but you also got a free resource there as well. So that’s all good. All good timing. It’s funny how that worked out. Tom, thanks for taking the time to come on the show today, you’ve certainly given us a lot of things to think about as far as underwriting assets, and how to look at how to evaluate a marketplace. You know, next time when I drive through Asheville and I go, gosh, there are seven storage facilities in a three-mile stretch of highway on how to think about that a little bit differently. So certainly appreciate that. And then also, you know, of course, given us that free resource there on your website. I do. I do appreciate you coming on today and sharing with us if our listeners want to get in touch with you and learn more about you what is the best way to do that?
[00:20:31] Tom Dunkel: Sure, I would love for folks to reach out to us at Belrosestoragegroup.com You will have my contact information on there, as well as the opportunity to register in our investor portal. We’re super active in the self-storage space, and we are raising equity for our upcoming opportunities and band. They are really popping right now. We’re seeing some great deals out there. So we’d love for folks to reach out to us through their register on our portal, you’ll get notified of all of our upcoming investment opportunities.
[[00:21:05] Sam Wilson: Fantastic. Tom, thank you for your time today. I do appreciate it.