While self-storage assets have gained popularity in the past several years, some property owners are exploring more niche segments of the storage sector. Recently, The Registry had the chance to speak with Chris Koenig, who has for years been expanding his presence in the world of RV/boat storage. During the conversation, Koenig shared more about his experience with his involvement in the storage space as well as his unique use of solar at these properties.
Can you tell me more about your organization and your experience in the storage space?
I started a California Property Tax Appeal business in 2008 that lowered commercial property owners’ property taxes during the 2008-2012 real estate crash. I got to see the P&Ls for all types of properties from warehouses to wineries, assisted living facilities and self-storage.
Hands down, the self-storage facilities were performing the best during this time with five to 10 percent rent reduction versus 25 to 100 percent for other asset classes. I’d always been interested in self-storage, but this sealed the deal for me. I drafted up a business plan to develop self-storage, found the vacant four-acre property in Brentwood, Calif., entitled it and then hired one of my property tax clients to build a facility for me.
Going down this entitlement process in Brentwood and looking into putting solar on the storage roofs, in 2018 I was referred to a Solar-canopy RV/Boat storage facility in Oakley, Calif. After touring the Oakley Executive RV & Boat Storage facility, and learning about the solar and that solar plus RV storage business model, I was hooked and wanted to do more of the solar RV/Boat storage facilities.
What does your current portfolio look like? Are there any specific projects that you would like to highlight?
Since learning about the Class-A, solar RV Boat storage (that’s a mouthful!) and self-storage world, with different partnerships as the managing member, I’ve been able to buy land and entitle just under 1.5 million square feet of solar-canopy RV & Boat storage across four Bay Area projects; 300,000 square feet is under construction; 300,000 square feet is built now and leasing up; with 800,000 square feet entitled and getting financing to be built this year. I’m also co-GP on several projects in Florida, Tennessee, Texas and Arizona. I also own roughly 200,000 square feet of self-storage with a small, approved self-storage in Downtown Danville that will start construction this year as well. This represents about $100 million in development projects with, I hope, valuations around $180 million. Being 39 years old with this pipeline, I am very lucky and blessed to have fallen into this niche real estate asset class that no one else is dabbling in, yet.
I would highlight my solar-RV Boat Storage project in Rio Vista since this is my first Solar RV project that’s taken over three years to entitle, finance and build. I managed all aspects of this project which I am very proud of but hope to delegate more in the future. Rio Vista RV Boat has a three megawatt solar-canopy that has a Power Purchase Agreement with PG&E to buy the power from me for $330,000 per year for 20 years. This is phenomenal, passive income for me and my partners. In addition, we rent the covered RV & Boat storage for a premium since it’s covered by the solar panels. This feels like I am double dipping since I have two sources of revenue per square foot (one – solar money, two- covered parking). I don’t know any other real estate asset class that can do this. In addition, with the solar financing options available (ie. Tax Credits, Grants, Accelerated Depreciation, etc.) we are able to finance the solar canopies in a way that our debt service is 50 to 60 percent less than conventional financing.
Are there any plans for future projects that you would like to highlight?
I am developing a large, 700-unit Solar RV & Boat project in Discovery Bay, Calif. which I am very excited about. The Project is currently under 30-day CEQA review at the State Clearinghouse and should get scheduled for County approval in one to two months. The Delta/Discovery Bay has a tremendous demand for RV & Boat storage and there are no Class-A/covered projects in the area. Once built and leased up, I estimate this project to be valued at $46 million on a six percent cap.
I’m excited for this project as well because I plan to sell the solar under California’s new Community Solar program; which (1) provides greater revenue to me for the solar energy vs. selling the power to PG&E; and (2) 51 percent of the customers/buyers of my solar energy have to be low-moderate income residents in our community. Community Solar was just implemented in PG&E territory which allows a solar producer to sell its power to any customers within the PG&E service area. For example, an Amazon Warehouse in Tracy could buy some of my solar power, someone that’s renting an apartment in Richmond could buy my power, a winery in Napa could buy some power etc. This is a very exciting program and will boost solar development in California! Those in the industry are saying it will be the next gold rush and I wholeheartedly believe this will be the case in the next six to nine months.
Why boat and RV storage as opposed to other types of storage properties?
I fell in love with self-storage at first. I loved the business model of hundreds of small tenants paying $200 to $300 per month with low OpEx. Then I fell deeper in love with the Solar RV/Boat storage due to the lack of Supply for Class-A RV Boat Storage facilities across the country, but specifically in the Bay Area. What really sold me is how to structure the financing of these projects with essentially two loans: (1) a conventional real estate loan to fund the non-solar costs (ie land, grading, paving, leasing office); and (2) a solar loan that funds all the A&E, permits/fees, P&OH, solar carports, etc.
The solar loan, in rough numbers for a typical project is $10 million with a 10-year term payment of $300,000 (three percent of the borrowed money) and a buy-out at year 10 of $2.5 million. Over 10 years, I borrow $10 million but only pay back $5.5 million ($3 million in payments plus $2.5 million in buy-out at the end). I can’t think of another real estate investment/development that has this type of financing available, together with an asset class that I really like and know there’s a demand for – the Class-A covered RV Storage.
In general, my projects require $2 to $3 million in capital, $6 to 8 million in first deed of trust construction loan and $10 to $11 million solar loan. The model is working where the revenue from selling the power services 110 percent of the solar loan payment, and then I only owe $6 to 9 million on the real estate (covered RV Boat storage business) which is worth $17 to $25 million with a ~40 percent LTV. The more I can max out my solar loan, the better the cash flow since the debt on the solar side is far less expensive.
When choosing a location for a new site, what are some of the key things you look for?
This is really the unknown since Class-A Covered RV Storage is a newer asset class. I am president of the board for a group called Toy Storage Nation, which is promoting this asset class across the country and this is the question everyone asks. In a nutshell the ideal location is near the customer’s house or near where they recreate. For example, there is an enclosed/covered RV and Boat storage on Lake Berryessa (Napa/Solano) that’s full with a wait-list and only a handful of homes in a five-mile radius. That’s where people recreate. Driving 10 minutes to the facility to grab my boat or RV and then heading out of town is the other convenient location.
Ideally, easy access off a major highway but in today’s tech world, people find you if you have this Class-A facility. On the Solar side, proximity to PG&E substation is ideal but not critical as it could reduce the development and system upgrade costs to get your electrons from the site to ‘the grid’. My typical project size is 8 to 12 acres which makes Bay Area in-fill projects cost prohibitive but this can be developed on sites that otherwise could not be developed (i.e. contaminated or deed-restricted property). Love’s Truck Stops is rolling out covered RV & Boat Storage on their new developments across the country as well since those sites are right off main freeways and there’s synergy with the RV/Boat storage business and the truck stop/gas/convenience store.
You’ve previously mentioned that you are a big proponent of using solar panels in your projects. Can you talk more about this and what the benefits are?
I believe solar makes sense for 99 percent of all new commercial development, at a minimum to offset the site’s common area power demand. PG&E rates can be over $0.40/kWh and the cost of solar can be $0.06 to $0.10/kWh. Unfortunately, in my experience, commercial solar companies can misrepresent or misinform commercial property owners about the various financing options for solar and talk about “x” years of pay back. In reality, you can 100 percent finance a solar project and your payback can be, literally, month one! Your PG&E bill could go from $10,000 to $8,000 in a matter of months and you’d be free from PG&E’s 12 percent annual rate increases (max allowed by the CPUC and they max it out every year).
Many friends that own commercial property say ‘I have so much depreciation from my real estate, my CPA says I can’t use the tax credits so solar doesn’t make sense’. While likely true, there’s ways to pass these credits off to a finance company that can monetize them and in turn, you get a much lower payment on the solar debt. This is how I’m financing $100 million in projects right now. It’s not rocket science but you need accurate information. I am happy to share my solar knowledge with anyone that’s interested if it helps their development/project.
Looking ahead, what predictions do you have for the storage industry over the next several quarters? The next several years?
I think there will be a flux of people entering the “buy existing” market in the next one to two years for the RV/Boat Storage business (Class-A and B/C). That’s an easy play to get into the business since you don’t have to deal with governmental red tape to get approvals, secure construction financing, etc. Financing for existing sites is simpler and proving the concept to investors can be achieved much quicker–because we all want instant satisfaction and development takes many years to prove out.
The problem I see with this is a supply and demand issue since RV and boat storage facilities rarely go for sale unless there’s a death, divorce or dispute between partners. If there’s 100 cash buyers on the sidelines for five to 10 sites across the country, pricing will be out of control. As an owner, this is good news but it could hurt the market with groups overpaying and unrealistic rent growth underwriting.
I know there is and will continue to be demand for this Class-A covered RV and boat storage product. One of the compelling reasons I think fewer of this product will be built when compared to self-storage is that most groups wanting to develop RV and boat storage are coming from the self-storage world. A simple, back of the napkin proforma easily shows that when comparing covered RV and boat storage with conventional self-storage, you can get approximately two times the rent but only have to spend 20 to 30 percent more (since you already paid for the land, grading, paving, fees, etc.).
That’s a no-brainer but there are other factors such as market demand, absorption and way-of-life. Self-storage has more turnover and is management-intensive compared to the Class-A RV and boat market. To each his own, right? I will never tough commercial, retail centers again with a 10-foot pole, and I am glad I cut my teeth on that segment of the market in my early days, 15 years ago.
I think three to five years from now, assuming interest rates don’t go to 12 percent (which is possible), I think there will be steady growth and development of new Class-A RV and boat storage sites. One of the limiting factors for this industry is availability of large parcels at reasonable prices that can be developed for this use; a lot of stars have to align and then you have to have a jurisdiction that will allow the use. Furthermore, dealing with PG&E to get an Interconnection Agreement (to connect to the grid) is going to set you back 18 to 24 months – period. If you’ve developed any real estate in Northern California, you know PG&E does not move fast.
Sadly, on more than 10 acres of industrial land, it’s not a great look to only create one to two jobs and no sales tax. I also think in three to five years there will be the Public Storage and “big boys” buying up existing Class-A covered storage facility portfolios to enter markets with large amounts of cash, and developers could capitalize on this with years of hard work to entitle, build and lease up facilities. This takes capital, partners, financing and an “all-in” mentality, but it could pay off big.
I am not super confident in the self-storage market right now, unless it’s a unique opportunity such as my Downtown Danville project. That will be a once in a lifetime opportunity. With high construction costs, high interest rates and in most markets an oversupply of self-storage; it doesn’t excite me as much as the Solar RV Boat Storage model. Also, the solar incentives could go away so to me it makes more sense to make hay while the sun shines.
