Since launching our self-storage fund, we’ve built a track record of closing self-storage deals, and often get phone calls about off-market deals from brokers who trust us. How did we go from zero self-storage to $80 million in acquisitions in 10 months? Here are the five keys that help us win deals…
This is going to sound harsh, but I’m making a point. When I started in commercial real estate, I was taught to not respect brokers because they only cared about depositing that commission check. Let me be clear: that mentality is the wrong approach.
As an acquisition professional, I spend a lot of time reviewing deals, running due diligence, and closing deals. It’s a lot of work that leaves little time to source new deals directly from owners, which I’ve done before. Based on my experience, it takes about two hours to make 20 calls to owners. That includes the conversation with the owner, updating notes, and oftentimes, making multiple calls to multiple phone numbers to reach the right person.
Sourcing deals from owners is a painful process full of rejection, yet that is what a broker does every day! They make hundreds of calls and take multiple meetings every week hoping to get a listing. I could never do their job better than them, and I don’t want to! I want to spend my time reviewing and closing deals. Besides, most owners of the properties we are targeting aren’t going to sell to us off-market. They want to get the best price possible, and that can only be done by going to market.
I have tremendous respect for the brokerage community. They work hard and face rejection every day. I approach my interactions with brokers with those thoughts in mind.
A seller is concerned with two things: price and certainty of closing. If a buyer doesn’t have a track record of closing
deals, it can be difficult for them to win deals.
When I started sourcing self-storage deals for our fund, we didn’t have a self-storage track record, but we had experience closing multifamily deals.
So, I developed an introduction that went something like, “Hi Bill Broker, I’m a partner at PassiveInvesting.com. We own about $400 million in multifamily, and we are starting to acquire self-storage.”
This approach accomplished a few things for us. First, it showed we have the capital to close on commercial real estate. Second, it showed we know how to close commercial real estate. Many issues can come up to derail a deal. Having a track record of closing multifamily shows we can handle those issues, and we know what to do after going under contract. Third, by saying I’m a partner, the broker knows they are talking to a primary decision-maker. If the broker shows me a deal, they have the confidence that they are talking to the right person.
I make it a point to share our criteria with every broker I talk to, and I send a follow-up email that includes a PDF of our criteria. It shows we have done our homework, and we won’t waste their time looking at deals that don’t make sense for us.
Sometimes, I’ll talk to an excited broker
presenting a deal that’s outside our criteria. I politely decline and point back to our criteria. I could be rude and say, “As I JUST mentioned, we have to stick to certain markets…” It’s never a good idea to make the other party feel dumb, especially when you want to do business with them! All of us need a little reminder sometimes—how many times have you forgotten someone’s name after shaking hands with them? It’s okay if they can’t remember everything I just said, as long as they remember we are pleasant to talk to and do business with. That’s our goal.
Typically, if we are bidding on a deal we really like, we will make it a priority to tour the deal prior to making our offer. Brokers appreciate this because we are creating activity around the property. Sellers like this because it looks like the broker is doing their job.
Brokers have told us their seller feels confident with our offer because we saw the property. In the seller’s mind, we’ve reduced the chance we will renegotiate if we find something we don’t like after going under contract.
Traveling to deals can be a pain. The time, cost, and risk of not knowing if it will help to win the deal is just part of the game. We’ve visited numerous deals that we ended up not winning. But over 75% of the deals that we have won, we toured ahead of making our offer.
For every deal that’s awarded to a buyer, there are buyers who lost out on the deal. The broker must call those buyers to let them know the bad news, and those calls are never pleasant. If a losing buyer gets upset with the broker, that broker will remember that interaction. After enough unpleasant interactions, the broker is unlikely to want to do business with that buyer or send them off-market deals. Remember, everyone likes to do business with people they like. Why make that phone call more unpleasant than it already is?
If we lose a deal, we always ask for feedback. How far off were we? How were our due diligence and closing timeline? Should we have come up on our earnest money or hard money deposits? We won’t always get straight answers due to confidentiality for the winning buyer and seller, but oftentimes we get enough information to adjust for the next deal. We also get insight into what other buyers are doing and where the market is going.
We always end the call on a friendly note by saying something like, “Thank you for your feedback. We’ll make some adjustments to get the next deal done!” It sets a positive tone for future business. The next time they think about us, they will remember it was great to talk to us on the phone, even when sharing bad news.
We’ve covered five ways we win more business from brokers. Just like they’ve done for me, I’m certain these tips can improve your business and personal relationships. Stay tuned for my next article on self-storage management.