JF3290: Tom Dunkel - Turning Corporate Curveballs into Self-Storage Triumphs

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Show.Com going to the Mastermind groups and going to the Investor meetup groups. I know a lot of those are out at night and everyone's tired after a long day of work, but I think that pays huge dividends to just make sure you're building out your network because you never know that next person you meet might be a business partner for life or might set you in a direction that really helps you build out your career.

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Hello Best Ever Listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I'm Ash Patel and I'm with today's guest Tom Dunkle. Tom is joining us from Wayne, Pennsylvania. He is the Chief Investment Officer for Bellrose Storage Group. They put high net worth passive investors into storage facilities that they turn around in two to three years. Tom's portfolio consists of 11 self storage facilities across seven states. Tom, thank you for joining us and.

How are you today Ash I'm doing great pal. It's great to be with you and all the listeners. Thank you so much for having me.

Today, it's our pleasure. Tom, before we get started, can you give the best ever listeners a little bit more about your background and what you're focused on now?

Sure. Just give you the short and sweet version because I've been at it for a while, but I was in corporate America after business school doing mergers and acquisitions, corporate finance work in the aerospace industry and IT services and technology and software areas, which back then was super sexy. But then that went through a whole crash, so learned some lessons there and then continued on and ended up getting fired from my corporate job in 2006, which launched me into my entrepreneurial career, setting out to build my real estate empire. 2006, of course, wasn't the best time to. To get started with that, so learned a lot of hard lessons over those next several years. But after been battling out there now for over 17 years, different asset classes, now we've settled into the self storage space and we're super excited about it, Ash. We've got a great team, it's an incredible market, and we're really looking forward to the future here.

Tom, you don't sugarcoat anything. You could have said, I was let go, I left corporate America. But you said you got fired. I got to ask you, why'd you get fired?

I did. Well, it's a funny story, Ash. When I took the job with the company, I was telling the CFO who was interviewing me I was, I really don't think I'm the right person for this position. But for whatever reason, he was really wanting me in that seat. So he kept offering more money. This was a public company, so kept offering me more stock options. So eventually I had to say yes. So I battled through the best I could that first year, but in the end, I was right. That was not a good fit for the position. It's funny, Ash, when these kinds of things happen to you in your life, it's really what ends up setting your direction. So I'd been wanting to do something on my own, but getting fired and then having to sink or swim really put me in a position where I had to just get after it. And so I was excited to be able to do that. It wasn't the way I was expecting to start my entrepreneurial career, but it's funny how the universe works sometimes.

You've heard of the Peter Principle, right?

Yes.

Yeah. Good example of that. Okay, so why real estate in 2006? It was hot, right? Real estate was on fire.

Real estate was hot for sure, but I guess it skips a generation or Two, my parents weren't really into real estate, but my grandparents were. My great grandparents were. They were in the building. And in fact, I have no data to support what I'm about to say, but I believe my great grandfather was one of the very first people in the country to offer seller financing to people. When he would build and then sell a house to a young couple, he would do seller financing. So like I said, those are just family stories. But anyway, I thought it was a great way to build my own business, build my own legacy, and create that financial freedom that everyone's out there looking for.

What did you do first? Educate yourself or buy a property?

That's a great question. I actually did a lot of education. First I was going to the conferences, going to the local meetup groups, interacting with sharp people. And then I actually was a homevestors franchisee. I don't know if anyone out there who knows the we buy ugly houses folks, but I figured with my business school degree, my background in finance, if I could just get a good system, then I could go and launch and be on my way. Of course, I learned even the best systems that didn't really survive very well in that downturn, but that's how I got started.

So you bought ugly houses? Yes. Did you get caught in 2008?

Yes, absolutely. And it wasn't bad enough that the market was tanking while I was trying to wholesale and fix and flip properties in the homevestors model. It's very marketing driven. So we were buying billboards, we were buying radio ads, we were buying print and all this stuff. So my marketing budget every month ranged between 10, 15, $20,000 per month. So it doesn't take too many months of that to start burning through a lot of cash.

And at what point did you realize you've got to pivot, this isn't working?

The point where my bank account hit about zero.

Okay, so that's got to be disheartening. You got fired two years later, the market's collapsing. Yeah, man, I feel bad for you. What do you do now exactly?

So I had young kids at home back in 2006. My kids were 4 and 2. And thankfully my wife had a decent job, so she was able to keep bringing in that W2 income and provided health benefits and stuff. But it was a tough time, so I just had to keep at it and keep reinventing. So what I ended up doing, ash, was I found out about distressed mortgages. So the few bucks that I had left over, I started buying distressed mortgages. Actually they were reperforming second mortgages is what I started buying. And then fast forward to today. In addition to storage, we're also still in the distressed mortgage debt business. And my partner Joe and I, that business has now done over $53 million in revenue over that time period. And we became one of the largest acquirers of distressed second mortgages in the country. So we're super excited we were able to pivot into that. So the success of that business has allowed us to do other things like hard money lending, which we used to do and we don't do anymore, but now we're really focused on self storage.

What was the ramp up timing from when you started investing in distressed mortgages to when you realized it's working? I'm onto something.

Yeah, that's a great question. It's one of those industries where when it's great, it's super great and when it's bad, it's super bad because the product can dry up very quickly. And even to this day, Ash, we're still very much at the whim of the banks that are wanting to sell off their distressed paper. So it made it really hard to build business model and have KPIs and build a team and all those things. So that's one of the things we really love about storage is we were able to do those things and we were able to put the team together intentionally. We're able to track our KPIs, our key performance indicators at our, at our facilities. So it's very, very different kind of business. But the distressed debt business was very lumpy up until it's still lumpy to this day. But it wasn't until probably 2014, 15, 16 that it really started to get some momentum for us. So it was not an overnight success by any stretch of the imagination.

So you had a good six to eight years of just grinding and not making a ton of money.

That's right.

You didn't quit, you stayed after it.

That's right.

And then when did you find self storage and why?

Great question. So the distressed debt business, we had a really big year in 2018, 2019. So we did some big trades, generated a lot of income for us. So that gave us the ability to now go out and look at doing some other things that hopefully we're going to be more steady. So that was one of the things we were really interested in, was finding an asset class that was steady, where we could build a team, we could be intentional about attacking that opportunity. So we started hearing about self storage. About 2017, 2018, we started going to the conferences. 2019 we joined the Mastermind Group, which is a nationwide group of self storage owner operators. So it was during that process that my partner Joe and I realized we've got some holes in our skill sets here. Joe and I are good at finance and projections and I'm like the spreadsheet nerd guy and we can raise the capital and that sort of thing, but we weren't good at generating those off market leads, which is where the best deals are. So through our Mastermind group we're able to find Tim Cain. So now he's a partner of ours and he's our expert at finding the off market deals. So we built a whole team to go and find those. And then of course once you find them and you buy them, now you got to run them. So we had to figure out how to get our operations team together. So again, through that Mastermind Group and that networking opportunity, we're able to find Kathryn east, who is a nationally known self storage operations consultant, expert transition specialist, et cetera. So we were able to get her on the team. And then once we had that all together, then we bought our first facility, Ash, In August of 2020, three years ago this month.

Why didn't you just look for a self storage facility close to home to get your feet wet? Instead you did all the education, you put together a massive team and then you went out to find deals again.

We wanted to be very intentional about what we were doing and we certainly did look around our home area for deals. What's funny, Ash, is when you're fumbling through and getting started, what everybody does. I think certainly what we did was we make these low ball offers for properties because we don't really know what we're doing and we figure, well, we're going to be super conservative with our offer. So in the event we do get it, we've got a lot of cushion to make mistakes. So it wasn't until we had the full team together that we could go out and make what we felt were credible offers. So it was at that point that opened up the floodgates and now we've acquired 14 facilities over the past three years.

How do you convince people to be on your team when you've never done a storage deal?

I think it comes down to our core values. We're definitely a values driven organization. We're all about helping each other out and championing each other and working in a principle fashion and being flexible and being positive and those good Things. And of course our company purpose we laid out, which is we're really in this business to help out investors who are looking for that financial freedom, build their wealth, create that generational wealth. So Self Storage at the end of the day is just a vehicle. It's really that purpose that I think attracted people to Bellrose. Plus we make it kind of a fun place to work. And I think Joe and I have a lot of war stories to tell that can intrigue people. So we've been able to build a nice team with those few tools in our toolkit.

And I'm still curious. So the team that you built, were they as intentional as you were or were they on board when you find a deal?

When we were first starting out, Joe and I had our toes in some other businesses and Tim had some hand and a couple other things. Kathryn has been in storage the longest out of any of us. She's been in over 15 years. So it wasn't until we started getting a little bit of traction, Ash, that we say, you know what, this is the direction we want to go in as a team. So let's make that intentional decision to cast off these other businesses and just move forward, full steam ahead with this one. And in that process, Ash, we actually ended up losing a partner because he wasn't able to do that. He was too involved in some other things and he had to stay with those. So he peeled off, no hard feelings kind of thing.

Alright, so you have this team put together, you've got your mission. How do you find your first deal?

We ended up networking our way to our first deal. Our partner, Tim Cain, he was out at the Self Storage Association Executive Retreat ski event out in Park City maybe. Anyway, so he's out there just socializing, meeting up with some of these people. Turns out one of them is a broker. He has this deal in Waldorf, Maryland, which is near where Tim grew up. And one thing led to another. We were able to acquire that facility and turn it around and make a nice return for our investors in about a year and a half time period. So turned out to be a great deal, great starter deal.

The secret's out about self storage now, right? Everybody is pivoting into self storage, into car washes, into laundromats and mobile home parks. But storage is certainly hot because there's a perceived ease of management. Passive, easy to manage, no on site staff, all that good stuff, which we know isn't completely true. But what are you seeing now in terms of competition? The number of people chasing the available deals that are out there, cap rates being driven really low. How do you find deals?

It's certainly competitive and I think this pause that we're in right now where interest rates have run up, cap rates, they were really low about a year ago. Now they're starting to come back up and certainly not in lockstep with the interest rates, but they're starting to move somewhat in the same direction. And I think it's helping to weed out some of the operators, some of the buyers that maybe they weren't as intentional as putting their team together as we were, and maybe they weren't as intentional about core values and their purpose and just having that good foundation. Maybe they saw self storage as a shiny object. We're in it for the long haul and we have some exciting niches that we're exploiting. Within the self storage niche specifically, we're looking at contractor storage. This is an area where there's just tons of opportunity and it's extremely fragmented. And then also boat and RV storage is another area that is extremely in demand. And again, there's just not a dominant player in that industry. So there's niches within the niche where we're starting to pivot and find those better deals that are penciling out. And I just heard right before we got on today, Ash from my acquisitions manager, that a deal we had looked at about three years ago has now made its way back around to us. So that kind of thing is starting to happen too, where these inexperienced folks who are newer to storage, they can't get the financing, they don't have the track record, they don't have the backing to get the financing, so they're just not able to compete.

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A minimum deal size that you look for?

Yes, we are looking for facilities that are at least 25,000 square feet and then up to maybe 60 or 70,000 square feet. We start getting above that, we start running into more institutional style money. That's much lower cost of capital and they can be much more aggressive on their offers. We are typically working with individual investors, high net worth investors, who are looking to add to their portfolio the capital preservation income and growth that self storage provides. So because of that, we're having to have our deals pencil out to that mid teens rate of return to keep our investors interested in working with us.

What are typical returns to your investors?

So our investors are looking at high teens kind of returns for our self storage syndications and that comes in the form of monthly cash flow payments and then profit split at the end when we dispose of the facility.

Tom, you mentioned contractor storage or flex space. I'm a huge fan of that. And the price per square foot that you can charge for that is higher than self storage. Do you agree with.

I do agree, yes.

So anybody building self storage should really consider building just a little bit higher, a little bit bigger and charging a lot more money.

Couldn't agree with you more, Ash. We're excited about that niche. We love the fact that these are businesses basically being run out of these self storage units because that makes that customer very sticky. So if they're building their business, they're parking their trucks there, they're storing their materials, they have their expensive equipment there. That's a pretty good bet that that customer is going to be paying on time and they're going to be around for a while.

Yeah, it's kind of like the equivalent of if my wife told me to empty out our garage, I don't know how long it would take me. But imagine an out of sight, out of mind garage that you're actually making money off of. Try to empty that out. You're not. I mean you're keeping that perpetually.

That's right.

You're moving somewhere. Is there an ideal size for contractor storage or flex space?

Yes. Just so we're clear, Flex space, in my mind anyway. The way I would think of it, Ash, is that bigger industrial kind of space that might be 20,000 square feet or maybe it's 15,000. But the units that we have are typically 14 or 15ft wide, maybe 40ft deep. The good thing is they have about 20, 24 foot ceilings. So that way someone can park their truck in there, their equipment. So we love that size because it's very manageable for the single electrician, single plumber guy, maybe he's got a small team. So that's what we really like about that Particular size unit and how many.

Square feet is that unit?

That's going to be about a thousand twelve hundred. Not even.

Why do you go 20 or 24ft high?

So that they can fit a larger piece of equipment in there. A larger truck maybe it's a bucket style truck. It gives them that clearance that they need.

Is your bay door typically 14ft or is it larger?

It's going to be taller.

Oh, it is.

Okay.

Interesting. Do you do any pass throughs where they could drive in one way, drive out the other?

That's an interesting idea. We haven't done that yet, but it has crossed our minds.

Yeah, those are great. Because you don't want to back out a giant truck, especially with low visibility. So ones that could pull through. Or if you have a truck and a trailer, you can pull through, drop your trailer, take your truck home, pick it up in the morning.

That's right.

Demand for these types of spaces, what.

Are you seeing for that while demand is outpacing supply? Like I was saying, it's a niche within the self storage niche. And a lot of these contractors, I don't know if you've tried to get an electrician or a plumber out to your house recently, but they are very much in demand. So you have these contractors that are probably outgrowing their garage that they have at home, but they're having a tough time finding a place. So we see the demand really outstripping the supply to the point where this is definitely a strategic direction that Bellrose Storage Group is heading in. We just got under contract this week a facility up in Minnesota where it's just strictly outdoor contractor storage and there's not a whole heck of a lot to do there other than implement our value add strategies, implement our technologies and just run it better, run it like a business. But we're finding that those contractors that are storing there are coming from many, many miles away. The typical self storage market for just what I would call retail self storage is typically 3 miles, maybe 5 if it's a little more tertiary, maybe 1 if it's a little more of a more densely populated area. But these contractors are coming from further away because this type of product is not available to them.

What amenities do you have to have for these?

Great question. In contrast to the retail self storage, where we don't want them to have electricity or anything like that, because what happens then is folks end up trying to live in their units, which is a big problem. But no, at the contractor storage we're offering electricity and in some cases Plumbing. But one of the big things, Ash, is security. So we go over the top with security cameras, security lighting, and we really kind of overdo it there because obviously they're storing some high value equipment and trucks and materials in their units. We want them to make sure that they feel comfortable leaving their business in a box there.

And bathrooms are typically centrally located, right?

That's right. There's not going to be a bathroom in each unit. It'll be centrally located.

Yeah. And the benefit of that is you don't have to run plumbing to every building. And if you have land to expand, just put up a metal building, put the floor in and run electric. You don't have to run water and sewer.

You got it.

Have you considered putting office in any of these locations?

Another great question we actually have, and that was an idea my partner Joe ran across. One of the first properties we looked at was set up that way where there was office in the front and then the storage was in the back. So these were small businesses. Maybe they were running Amazon Products or something. Or they were pharmaceutical reps where they needed an office, but they needed some storage space for their pharmaceuticals. We haven't acquired a facility that's like that yet. But we see that model out there and we're definitely intrigued by it as being a more commercially viable strategy. Just similar to the contractor storage.

Yeah. And it's amazing what you can charge for those offices because you can more often find metal garages, contractor space. But finding a facility where you have an office available to your office manager or the owner of the company who can keep an eye on the crew in the morning as they're loading up or have somebody answering calls is amazing. Right. Because those spaces are very few and far between. And it's truly amazing what you can charge for those. Do you put any H vac inside the units?

Yes, we do. So the facilities are requiring. They are what we call climate control or temperature controlled units. Again, that's just to make sure that the equipment is being handled properly and taken care of properly.

Yeah. And that's a huge added bonus because in the middle of summer, if somebody can close their bay door, their man door, and they can work in a comfortable environment, that's more conducive to them being productive. And then same thing with heat, if you have chemicals or whatever that can't freeze.

That's right.

It's a huge benefit. Well, awesome. Tom, thank you for sharing all of that with us.

Sure.

I got to ask you, what is your best real estate investing advice ever?

Well, Ash, I've touched on it several times so far in our talk today, but I think you got to surround yourself with. With the best people and doing that intentionally by going to the mastermind groups and going to the investor meetup groups. I know a lot of those are out at night and everyone's tired after a long day of work, but I think that pays huge dividends to just make sure you're building out your network because you never know that next person you meet might be a business partner for life or might set you in a direction that really helps you build out your career.

Tom, are you ready for the best ever lightning round?

Bring it on, Ash.

All right, what's the best ever book you recently read?

I'm a big fan of The Dan Sullivan, Dr. Ben Hardy book, who not how, gap in the game, all that. I would encourage folks out there to get out of your business book rut, please. And here's a great way to do it. Read the Last Place on Earth. It's a story about the race to discover the South Pole, and it happened at the beginning of the 1900s. And. And it is a fascinating book. You've got the British Navy, who are arrogant, well funded and trained, so they think that they can get there first. And then you've got this Norwegian hippie guy who goes and lives with the Eskimos and sleeps out in the cold and all that, and he can barely scrape enough money together to get his expedition off. But it's a great story. And the cool thing too is there's a lot of great leadership lessons in there, which of course you can apply in your business.

The last place on Earth.

Was that based on a true story?

It is a true story. Yep.

All right, Tom, what's the best every way you like to give back?

As I mentioned, I've been around for a while now. Been doing the entrepreneurial thing for 17 years. Certainly had a decent career before that as well. So at this point, I'm all about mentoring, sharing, abundance, mindset. In fact, right before we got on today, I was texting with someone. They were asking me some questions about raising capital. They have a deal they're working on. We scheduled a time so I can just let them know my thoughts on how they should go about it. I get a lot of satisfaction out of that, a lot of fulfillment. So that's what I'm looking to do in terms of giving back.

And Tom, how can the best ever listeners reach out to you?

Sure, you can Google me. Tom Dunkle, chief investment officer at Bellrose Storage Group, done a bunch of podcasts and written some articles and all that kind of thing. So if you look for Tom Dunkel or Bellrose Storage Group, you can find us on Facebook, LinkedIn, Inside Self Storage, all kinds of places. It wouldn't be hard to find me. And of course if you want to give me a call, you can reach me at 610-761-8940.

Tom, I gotta thank you for your time today. It was great hearing your story from being in the corporate world getting not laid off but getting fired, pivoting into real estate and grand grinding it because the market was against you at that time. So I'm so happy for your success and thank you for sharing your whole story with us today.

Thank you Ash. It's been a great pleasure. Thank you so much.

Best Ever Listeners thank you for joining us. If you enjoyed this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also follow, subscribe and have a Best Ever Day.

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