In the last 12 months, the Fed raised rates a total of 9 times, bringing the Fed Funds Rate to a range of 4.75% - 5.00%. As we mentioned last month, commercial real estate transaction volume has cratered. Gone are the days of acquiring assets, raising rents x% and the refinancing at a higher valuation. When the macroeconomic road is rocky, you need to create real value which takes more time/energy.

There are only two ways to increase revenues: 1) sell more products or 2) increase product price. A perfect storm of beating top line revenues is when you can first sell more products and then increase price as demand increases. Here is an example of how we did this at one of our properties.

Phase 1: Parking

In Aug 2021, we purchased a ~200 unit CC storage facility with the following characteristics:

• High physical Occupancy ("Occ")
• No parking being offered
• Huge TVA easement running through a majority of the property

In Dec 2022 that same facility did $5,240 in parking revenue.

Biggest issue was the transmissions system right of way easement (TVA Easement) because it puts severe restrictions on expanding the facilities current physical supply. A TVA Easement essentially means no physical, permanent structure can be added within the easement but "moveable" structures are allowed (ie, parking & portable units).

We decided on parking for 2 reasons: 1) limited supply for large parking spaces (≥30') and 2) local ordinances (neighborhoods, etc) had restrictions on parking (ex. parking a boat in a driveway is a violation). We underwrote the following:

• # of spaces: 64
• Sizes: 30’ (20) & 40’ (44)
• Pricing: $65 (30’) & $70 (40’)
• Gross potential rent: $4,280/mo (@ 100% Occ)

Goal was to reach stabilization of 85% by the end of Sept 2022 (7 months), which would produce $3,638/mo or $43,656/yr

Projected cost = $69,000

Projected returns:

• Gross stabilized Revenue (yr): $43,656
• Net profit (30% expense ratio): $30,559
• Value created (@ 8% cap rate): $381,990
• ROIC (ROIC = annual net profit stabilized / total cost): 44.3%

It was a no brainer and we decided to move forward in January 2022. The work was completed in late February 2022 and ran slightly over budget with our all in cost coming in just under $75,000 but opened to tenants on March 1, 2022.

Actual performance & returns (as of Dec 2022):

• Occ: 92%
• Revenue: $5,240/mo
• Unit Pricing: 30’ = $75/mo & 40’ = $95/mo
• Annualized: $62,880/yr
• Net profit (30% expense ratio): $44,016
• Value created (@ 8% cap rate): $550,200
• ROIC: 58.7%

Occupancy Stats, Phase 1 Lease-up & Performance (as of Mar 2023): *Below images are links for a close-up view*

As mentioned above, revenue generation is driven by 1) more sales (of products, etc) or 2) raising the price. Fortunately, we were able to accomplish both.

This week we started on Phase 2 of the Parking Expansion. Phase 2 will add at least another twenty five (25) 40' parking stalls with Gross Potential Revenues ~$2,625 in monthly revenue.