Who is the Corporate Finance, M&A Exec turned Investor-Tom Dunkel! || Ginny Bolling

Hey, how's it sound to work less and make more? I am talking about money. And there are ways to do that through commercial real estate investing. And a lot of people don't know just how easy it is to do nowadays. So this channel pivot to Prosperity will show you how you can do that. It's brought to you by Pivotal Real Estate Investments, where we go find the deals and do the heavy lifting and then bring you the opportunities. So if you want to know when opportunities come available, you need to register at pivotalrealestateinvestments.com every Tuesday at 2 for about 22 minutes. We plan to bring you another video and so like, share. Subscribe. Thank you. Hey there. Jenny Bowling with Pivotal Real Estate Investments. And I am interviewing Tom Dunkle today. And Tom has a phenomenal past in financial analysis and mergers and acquisitions and self storage. And so, Tom, why don't you go ahead and tell us about the specifics you want everybody to know.

Sure, Jenny. Thanks. Yeah, touched on some of the highlights, but yeah, I was a corporate finance guy in the aerospace industry. Did some fun things and mergers and acquisitions and raised a bunch of capital. So that was a, it was a fun corporate life is great foundation really, to ultimately go out and establish my entrepreneurial career, which was challenging when I left the corporate Nest in 2006 and went into real estate. Of course, little did I know I was running right into the worst time in real estate, like, ever.

At least that I know the 1980s were pretty bad.

80S were pretty rough too, right? Very, very high interest rates back then. But, yeah, so I learned some hard lessons those first few years. But I was determined and I knew I wanted to be an entrepreneur. I wanted to be in real estate. But, you know, just through some, you know, reinventions and, you know, trying to stay agile and try this and try that and fail and succeed and fail. I ultimately found my way to Self storage. So we're having a great, great time with self storage. It's a great asset class. We really enjoy it and look forward to the growth prospects. There's some really good stuff going on in self storage I'm sure we can touch on later.

Yeah, we will, we will. Before self storage, what, what were you actually investing in? What asset class?

Sure, like, like a lot of folks out there. I started in residential. I was, I was doing wholesaling and fix and flips and had a rental portfolio and all those things that I'm, you know, just really be glad to be out of nowhere. But when the real estate market Crashed. I wanted to like I said, kind of reinvent and continue on. So I did substantially get out of the residential game and I started buying pools of distressed mortgages. So that is a business that continues on to this day. We've acquired over $800 million of distressed mortgage balances over the years and generated over 50 million in revenue in that business. So that, that business, the success there has allowed us to do some other things which is why we've found ourselves, ourselves now in storage after some fits and starts and some other areas. Like we had a hard money lending business for a while. We had a title company we did try to fix and flip some higher end homes, you know and you know, so we got rid of all that and now we're still, we're focused on, on storage. You know, I spend, geez probably 90, 95% of my time on storage. Our distressed debt business is kind of self running at this point which is great.

Yeah, maybe going up too here I suspect. So there's a lot of bridge loans out there that are probably going to be causing, causing an increase in your business, right?

Yeah, it definitely takes a little while for the distressed loans to make them selves that make their way to our company because they have to go you know, through the lenders and their whole process first. But yeah, so we're, we, we usually are the beneficiaries after maybe about 18 months to two years after you know, kind of a rough spot in the, in the mortgage market.

Were you involved in, in any way with the commercial mortgage backed securities rebundling and or re. Distributing whatever?

No, not, not really Ginny. That wasn't really the, the game we were playing. Although we have done some commercial, some distressed commercial loans. These are all, none of the, none of the loans that we buy either residential or commercial have been securitized. These are all what they call whole loans that are on the balance being held on the balance sheets of the banks. They're not packaged and sold out into the world.

I see, well that can be a whole different topic. And we're here to talk about real estate but so tell us about what you're doing currently with the storage. I've seen on your LinkedIn for instance it sounds like you'll do ground up and you'll do distressed and so please let us know what you and Bellrose, the name of your company is Bellrose Storage, right?

That's right. Yeah. So we're Bellrose Storage Group. I'm the chief investment officer and our, our investment thesis for self Storage Is we really like to acquire value, add existing facilities that are being poorly run and we turn those operations around, increase the net operating income. And as most folks know, in commercial real estate, it's income's the name of the game. And the more income you generate, the higher the value on the property. So we get in there and we turn around the facility in a short period of time, maybe a couple of years, and then we'll will, will either refinance it or sell it off and, and roll those gains into the, into the next deal. And what we like about self storage is it's a lot of things really. Of course, it's commercial real estate, so it's a secure place for investment dollars. It generates income and high cash flow. Our operating margins on our facilities are in the 70ish percent range. It only costs us, you know, about 30 cents on the dollar to, to run a facility. So it gives us a lot of cash flow to pay our debts and, and pay to our investors. And it's a growth market. So not too long ago, only about 9% of American households had a storage unit. But that number is now up over 10%. And I know it doesn't sound like a lot, but if you consider there's 120 million households in the country, you know, every 1% is 1.2 million new household customers for self storage. There's only 55,000 self storage facilities in the country now. That's more than, you know, McDonald's, Wendy's, Dunkin Donuts, Starbucks combined, Pizza Hut combined. But that's not enough to handle this surge in demand. So you mentioned ground up. We are doing some of that. We're looking at those more as expansion opportunities at existing facilities. But as we continue to grow and mature as a company, we're certainly looking at ground up, you know, from, from the dirt up, so.

Right, right. Yeah. Yeah. Well, expansion potentials. That's a great value add type thing for sure, but.

Sure is, yeah.

Are you getting into the RV storage and outdoor storage as well?

Yeah, that's a great question, Ginny. We acquired a facility earlier this year that had a boat and RV as well as self storage. It was kind of half and half and we're coming to really like that segment of the storage business because the operating expenses for those kinds of facilities are even lower because it's typically, you know, kind of open air, but there's so many things to do there. I know there's a group, a family company in, in our mastermind self storage group that's building like high end, you know, very fancy RV storage out in California. So there's just a lot of different ways to go about the business. But yeah, we're, we're generally big fans of the boat and rv, for sure.

Well, we were talking, you know, I was an appraiser in the 80s and we were looking at that kind of stuff. And I also had a company that did feasibility studies, and that topic exactly is. We were saying how good it is to have extra land to keep building, but it's such a demand, especially after Covid, for storing RVs and boats and the recreational vehicles everybody went and bought.

That's right. That's right. And I'm rusty. I know, I've heard some of the stats out there on the RV storage business, but I want to say that it's not uncommon for an RV storage customer to drive over an hour to get to their storage facility because there's just not enough of them around and a lot of them have waiting lists and those kinds of things. So we're certainly looking at that as a potential area of expansion for our company.

Yeah, that's, that's shocking. But it, yeah, I've heard the same, but. Well, good. Well, so, and then when you are looking at potential investments, properties to acquire, how do you look at the construction? What are you looking for? Basically? I guess not just construction in every way, but the, the construction type is a biggie for me.

Sure. There's lots of things we look at when we're considering acquiring or building a facility. So of course it starts with the market. Right. We, we would much rather be in a strong, growing market with maybe a mediocre facility than, you know, a great facility in a slow or dying market. Of course, nobody wants that. So we look, we do a, a study of the area. We want to see that there's population growth, job growth, infrastructure investments going in, including multifamily. Multifamily is a big driver for storage. And we just want to see that there's, there's some dollars being invested in those markets and that the, and that the economy is diversified. Right. We don't want it to be like a one factory town. The town, the factory goes away, the town goes away. So we're looking for multiple, multiple job drivers in that, in that economy. We also want to see, like, how many folks are renting versus owning in that market. You know, we like to see about, you know, 25, 30, 35% of the market being renters. We also like to see a decent amount of, of income per Capita. So we like to see that maybe 60, 70 or above. If it's too high, then that means there's probably going to be bigger houses in that market that have attics and basements and they can store their stuff at home. So we don't like to see it too, too high. But. So those are some of the key things we look at in a particular market.

Do you have a minimum population?

Yeah, you know, that's a good question. We have, we don't have any hard and fast rules there because we've been successful in some more rural markets. One, one thing I didn't touch on that's super important is, you know, what's the competition like in that market? So the, we have a facility on the panhandle in Florida where it's the only facility within about 10 miles, 8 to 10 miles, but it's not highly populated, but the facility's full and we've been able to successfully push up rents. Whereas there's other markets where it is more competitive. Like we've been in markets in North Carolina, in Georgia, where things are certainly competitive, but we look at the competitors very closely. So we're, we're calculating what we call supply index. We want to make sure that there's not too many square feet of self storage available per capita. So we do that math. And if there's more than 7 or 8ft per capita of self storage, we have to take a closer look at that because that market might be oversupplied. But on the flip side, if it's less than that, we, you know, we like to see like, you know, 2, 3, 4 square feet per person per capita. That makes us, that gives us a sense that perhaps that market is undersupplied.

Right, right. Interesting. As far as what, what do you have in your portfolio right now?

Sure. So we're in Maryland, Virginia, North Carolina, Georgia, Florida, and we're soon to be in upstate New York and Kentucky. So those are all existing facilities. About five of them right now have expansions going on, whether it's the form of new construction, expansion. Another way to expand in self storage are what we call prefabricated units. Some people call them portable units, but these are units that they just, they come in to the facility on a flatbed truck and you place them with a forklift and you're in business. There's not a lot of, you know, permitting and, you know, construction and groundwater, you know, containment stuff going on. And, you know, zoning is typically more favorable with those. But in every municipality is a Little bit different, but that's what our portfolio looks like right now. We are, we do have some feelers out, taking a look at some, some raw land to do some ground up construction. But that's, we're treading lightly there. We're going slowly there, so we make sure we don't make a mistake.

What would you do if you, if you had your choice though, would you be doing concrete or would you be doing the, the metal structures? Or what do you, what are you thinking with the experience you've had?

Yeah, so I tell you what we wouldn't be doing is wood. We had a facility in Maryland where we, the, all the partitions were made of wood and that just caused all kinds of problems. But we're, we're typically going with corrugated metal. Yeah, not, not too many. Yeah, we don't, we don't do as far as the, the structures in between. You know, for the actual units, those are typically metal with concrete floors. The walls, the exterior walls might be block, but they may also be metal.

Right, right. That's what we're seeing everywhere here in Florida. I'm in Orlando, so. Right, yeah. Well, so. And when you're putting a deal together and looking for investors, how do you structure your opportunities?

Sure. Yeah. So we're, we're actively out raising capital to match up with our growth goals in storage. And we typically are bringing in accredited investors and we do a preferred payment to those folks, which means they get a quarterly or a monthly cash flow payment from the operations of the facility. And then once we reach a, once we get to the end of our value add strategies, what we, what we don't like to do is hold on to a facility for too long. Because once we, once we implement our value add strategies, we create a lot of value in a pretty short period of time. Once we get past that threshold, you know, that return curve starts to kind of bend and flatten and plateau. And that's when we look to sell if the market conditions are favorable. But to date, we've had a lot of success with that strategy. We've been generating really nice returns for our investors. You know, we're typically targeting, you know, kind of mid to high teens for an overall return with the cash flow payments and kind of the 6 to 8% annualized range. But so far in knock on wood, we've been actually able to exceed those, those targets with our investors in the portfolio. So I'm glad to say we have a lot of investors who, once they start investing with us, they keep investing with Us multiple times over time.

Well, that's the great thing about this. And you're tracking syndications, right? Yes, syndications as opposed to joint ventures or something, so. Correct. And that's, you know, I, I've only joined this space in the last few years where I've truly been diving in and I'm finding that, you know, I've got lots of peers with decades of real estate that don't know about this either. So there's a learning curve and whatnot. But the hope, and my expectation is, is once people get a bite of the apple, they're going to want to stay. And so you want to find the people you like to do business with and chances are you'll kind of grow as, as a family, you know, and, and build wealth and rinse and repeat, so they, they say. So I, I truly can appreciate what you're saying and, and it sounds like you're doing great with the returns and all, so.

Thanks.

Do you have anything. Are you, well, are you doing 506B's or C's? Can you advertise your deals?

Yes, so, so we started out doing 506B, which I think is fairly normal for folks, you know, as you're, you know, starting to grow your business and you know, you go to your friends and family who you've known for some time, you have that pre existing relationship, they may or may not be accredited. So that's where we've been to date. Actually. The deal that we're closing this week is our first 506C offering. So we have been generally soliciting, we've been hitting the social media channels and the podcasts and the emails and those kinds of things, hitting the email lists. And so that's been going pretty well. But you touched on something a minute ago, Ginny, that I thought was really important, which is, you know, kind of growing together. And of course you can't see it, but over my camera here, I have my, up on my wall. I have our company purpose and our core values and our, and our flywheel. But the, the purpose of our company really is we were trying to really benefit all stakeholders who we come in contact with. So if it's investors or sellers or buyers or, you know, our, of course our employees and our internal team and our close external team and as, as we were talking before we got on the air here, and we use a lot of VAs, you know, we're, we're just trying to make everybody's lives better through real estate and you know, help our Investors create wealth passively in a secured way, you know, generating income, you know, building growth over time. So I thought, I just wanted to make sure I touched on that because I thought that was a really good point that you made.

Right, right. And there's a lot to be said for when you're trying to do that win win approach. You know, people, people like to do business with people they know like and trust. And when you treat people well, then it tends. What goes around, comes around. Is, is our philosophy as well.

Absolutely.

Two questions I want to go back to and then we're keeping the short, so we'll wrap it up. But one is you mentioned you resell, but do you sometimes just refi and hold your asset?

Yeah, so that's a good question, Jenny. You know, one of the attractive things about real estate, right. Is the tax advantages and the depreciation over time. So it's, it is something that I think we could do better as a company is, is, is capturing those benefits because we do generate really nice returns for our investors. But we certainly, I think, could do a better job on the tax side. So what we're doing there is we are looking for lenders because ultimately that's really who needs to buy into this strategy. Right. Because a lot of lenders, they don't want you to do a cash out refi and, you know, pay back your investors and kind of hold into the deal. You know, a lot of lenders, they don't like to see that, you know, that cash leaving the deal, they like to see it in there so that they're secure and safe. So we're in a process right now of looking for lenders that are okay with the cash out refi and then also just ways for us to maximize those tax advantages through cost segregation studies. Not to throw out a big term out there, everybody, but basically it's a way to accelerate the depreciation of the facility by looking at each individual piece of the facility. So the doors and the springs versus the roofs versus the walls versus, you know, the buildings, they all have different depreciation schedul schedules.

Exactly. Right, Right.

Yeah. So we're, we're going to be doing a better job of that going forward for sure.

Okay. Okay. And lastly, you said this one you have now is a 506C. Tell us about it.

Yeah. So we're, we're excited about this acquisition. We're acquiring Kent Self Storage up in Carmel, New York. It's about an hour north of Manhattan. And it's, it's a kind of little vacation ish community. There's a lot of lakes around there and a lot of outdoors kinds of, kinds of activities. But there's a couple of things we love about this deal. One is in this environment where we're in right now where we're starting to see term sheets from lenders on acquisitions where rates are seven, seven and a quarter, maybe even eight, eight and a quarter. We saw one recently, this facility we're acquiring at 5% fixed interest rate and it's interest only for five years. And the reason we, part of the reason we're able to get those terms was because it's seller financing. So the sellers own this facility for a long time. He, he has a lot of equity in it. We're buying it for 6 million. I think he only owes like 400,000 or something. But he doesn't want to take the tax hit. So to avoid taking the tax hit, he's on his side been able to structure this as more of an installment sale where he's. We're just going to be paying him interest. So as folks probably know out there, if, if it's just interest and you're not including any principal in your payment, of course the payment's going to be smaller, which means there's going to be more cash flow left for investors. So we love that. And in this environment, to have that kind of a rate and that kind of a term I think is really cool. And then secondly, we love this opportunity because it's his rates, his rental rates for his units are 34% below market. And this is this. I know a lot of people like raise an eyebrow like that about that, but you'd be surprised how many self storage operators are, you know, they're not really operating it like a business. It's a mom and pop operation. The last thing they want to do is have any kind of fancy website or marketing program or you know, anything that they need to do to keep the, the units full is what they're going to do. So what they do is they keep their rates artificially low and they just want them full so they don't have to deal with any of the turnover or any of that. So he knows that his rates are below market. I don't think he realizes how low they are. But he's, you know, in his, in his early 80s. He likes to play golf and so he's just, and he's comfortable with the amount of money that's coming in right now. So we're going to go in and we are going to push the rates. He does have a lot of extra parking so we're going to be pushing the boat and RV and, and car parking opportunity there as well that he's not really taking advantage of. And one of the buildings on the property is not really being used to its highest and best use. So we're going to be converting that space into storage as well. So there's a lot of ways we can, we can add value with this facility in a very short period of time.

And what is the minimum investment?

Minimum investment is 50,000.

Okay. And accredited investors?

Only accredited investors. Yep. That's a four year hold and we're targeting an 18% overall IRR. And because of the cash flow I was just mentioning, with the, with the terms on the debt, we're actually able to offer a 10% cumulative preferred return on that one.

That's great. That's really great. Yeah, it's a terrific asset class and so thank you for coming on and talking about it and why don't you tell people how to reach you.

Sure. Thank you, Jenny. That's been great. Thanks so much. Yeah. So I'm Tom Dunkle at Bellrose Storage Group. You can find us at Bellrose Storage group dot com. It's only one L B E L R O S E Storage group dot com and I invite folks to visit us there and join our investor portal. That way you'll be notified of our upcoming opportunities to invest. Then on the website too you can learn about our team and then we also post articles there just to try to add value to the world out there. You know, what we're seeing in terms of what's happening with the economy, what's happening with real estate, what's happening with self storage, what's happening with other asset classes that might impact storage. So we, we try to add value there however we can.

Right. And I'm going to go sign up right now.

Thank you. Sounds great.

Appreciate your time very much.

Thank you.

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