Welcome to our new homepage! Welcome to our new homepage! Get the scoop and your normal news on our blog 🎉
Story originally posted by Sparefoot.com
Pinnacle Storage Properties LLC recently hired Bill Lierman as its first-ever construction project manager. Lierman won’t concentrate solely on ground-up development of self-storage facilities, though. Rather, Lierman will focus primarily on upgrading and expanding facilities — a key to the self-storage owner and operator’s growth strategy.
For example, Lierman will oversee the addition of about 35,000 rentable square feet at a facility that Pinnacle recently purchased in Pine Bluff, AR. The existing facility contains about 31,300 rentable square feet. The expansion tentatively is set to start six to eight months after Pinnacle spruces up and leases up the existing space.
With the recent acquisition of one self-storage facility in Mineral Wells, TX, and another in Stephenville, TX, Pinnacle now owns and operates 19 facilities.
Improve and expand
Erik Osterhus, chief development officer at Katy, TX-based Pinnacle, said Lierman will work on improving newly acquired facilities or fixing up facilities that already were in the portfolio, as well as adding space at existing facilities or taking advantage of value-add opportunities. Those opportunities include installing portable storage buildings or converting non-climate-controlled space to climate-controlled space (which commands higher rents). Lierman also will help manage ground-up development, such as the facility that Pinnacle is building in Round Rock, TX.
“We’re opportunistic in every sense of the word,” Osterhus said. “Above all, we must be nimble and be able to make real-time adjustments.”
He said the demands of ground-up and expansion projects are similar, such as obtaining construction loans and securing local planning-and-zoning approvals.
“All of the things that are required for ground-up projects are also required for big expansion projects where you’re adding significant chunks of square footage,” he said.
Bootstrapped storage strategy
Founded in 2016, Pinnacle is attracted to expansion versus ground-up development because expansions are less speculative, Osterhus said. Banks view expansion as less risky, he said, so it’s easier to nail down financing for enlargement of a facility with documented cash flow. Moreover, a construction loan on an expansion often features more favorable terms, including lower interest rates and lower down payments (perhaps 25% or 30% compared with 35% or 40% for a ground-up development).
“For guys like us who bootstrapped our way to where we are,” Osterhus said of himself and his business partners, “we’re not independently wealthy guys. That means that we’ve got to go to the bank and get a loan.”
Furthermore, Osterhus said, an expansion project requires less upfront cash than a ground-up project does, meaning there’s more money available to execute other deals.
Another advantage to Pinnacle’s strategy: Outside investors are more likely to chip in money on an expansion than on a ground-up development, in part because an expansion involves a property with existing cash flow that can generate attractive returns in what might be a shorter time period, according to Osterhus.
“We’re only as good as our last deal,” he said. “We must generate value with every project, and we must execute each one flawlessly.”