You’ve heard that there are two sides to every story and you can’t know the whole truth until you’ve heard both sides? The same rings true in our self-storage world. There are at least two sides to every deal. In this article, we’ll look at one very important side of your deal: equity.
When preparing to finance a new business, most of us think in terms of debt financing: the portion of capital we raise through pledged collateral or stock in our business. This is often where most of the capital for a self-storage transaction is raised. However, the more challenging piece of any deal may be the equity side, which, typically must be in place before a corresponding loan can be secured.
Equity can be attracted in various forms, including contributions from friends and family, private investors, tenancy in common “syndication,” and partnerships. As the owner, originator, and managing partner of a deal, your responsibility is broad. You must understand and predict the financial performance, define the appropriate deal structure, quantify returns, arrange debt financing, and acquire the appropriate level of understanding to present your deal to potential investors. Piecing together the equity in a deal can be tedious and rewarding at the same time.