Real Deal #40
New Podcast:
Quote I love: “What is retirement"?” Retirement is when you stop sacrificing today for an imaginary tomorrow. When today is complete in and of itself, you are retired. - Navel Ravikant
I am trying something new. For those who don’t want to read the newsletter, you now have the option to listen to it. What do you think? Do you think like this feature?
I am in the planning stages of expanding a store and adding a new 20,000 SF climate controlled building. I have gone through this process one time before and due to poor soil conditions and poor drainage I was forced to pull the plug. The problem was I already paid $17,000 of non refundable money to the metal building supplier and I spent another $5,000 on drawings and soil condition reports. Poof…. $23,000 up in smoke. I learned a few lessons, but the first one is to be patient. Get your ducks in a row and move slowly.
Here is the list of due diligence items to working through:
Are we in a flood zone?
Are there any wetlands?
What is the soil type and condition? Will more soil need to be added to the site?
Confirm the zoning.
What does the local permitting process look like? Timeline?
Confirm there are no new storage projects currently planned for expansion or development.
What does the updated building package cost for 20,000 sq. ft.?
Run a supply and demand analysis on the market. Is there need for more product? If so, what unit types are in highest demand? ie. 10x20 climate
What is the anticipated leased up time? What is the average lease up time nationally?
Can we find local or regional contractors that are trustworthy to perform the work?
Complete a building budget….do the numbers and potential return justify the risk and effort?
As you quickly see there is a lot of work to complete here and the data only gives you a fuzzy picture as to if the project will be successful. The simple fact is you will never fully know final costs or market demand until after the project is complete. This is why developers quickly opt to build large projects, the work is still the same, but the profit is much bigger. (and so it the risk)
My working investment thesis is that many older storage owners simply don’t want to invest more capital in smaller markets, and the real dollar amount is too small to attract sophisticated developers. That may leave a sweet spot for small guys like me to come in and build or retro fit storage facilities that meet the update needs of the market- namely climate controlled units.
Mental Model: The Map is not the territory
The best maps do not accurately reflect the terrain because it they did they would be the same size as the terrain thus making the map unusable. Think about going hiking and trying to fold a map 1 mile by 1 mile to put in your pocket. Then unfolding it figure out where you are. This sounds ridiculous right? So often we think the map is a 100% reflection of reality, when it is only a reflection of key markers on the path.
That does not make maps useless in fact they can be very helpful. A map can you show pitfalls (cliffs) and show a trail that has been traveled by others. Two very handy features. Sometimes a heavy snowfall the year prior changes the trail. Sometimes previous hikers get lost and make their own trail. This is where a map is handy. The hiker can take into account real time data and past data (the map) to make the best decisions moving forward.
It was short and sweet today. If you enjoyed this today, please forward it to another curious friend. I love your replies to The Real Deal. I read every single one, and I try to respond as often as I can.
www.pearsonpartnerspe.com