Intersection of Real Estate and ETA
April 01, 2021
by a searcher from Dartmouth College in Park City, UT, USA
I recently partnered with Rabil Ventures, an operator-led investment holding company, to build a self-storage business / portfolio in the western U.S. We are on the hunt to acquire existing self-storage properties from small operators, unify them under a single brand, and modernize business operations / customer experience using best of breed software solutions.
Does anyone have experience working in this crossover between "traditional ETA" and real estate investing? As far as real estate goes, self-storage is the closest you can get to an operating business (and the only real estate you can acquire with SBA), but so far I've learned that the process / strategy to get deals done is quite different. Curious to hear any perspectives on this ETA / real estate crossover and advice for someone coming from the traditional ETA / M&A world. Thank you!
from California State University, Sacramento in Seattle, WA, USA
I highly suggest separating out the business acquisition asset analysis from the Real Estate asset acquisition. On asset-lite deals, having real estate included in the purchase does not necessarily make the deal better or more doable. With SBA deals you can extend the blended amortization when real estate is involved. You want to make sure that the extended term, which sounds great in theory, doesn't somehow mask an underlying business acquisition that doesn't pencil. Also, can the building handle your expansion plans, what's the repair and maintenance implications? I could keep going on. For asset-lite/CASHFLOW lenders, having collateral does not necessarily make the deal more interesting. Having said that, real estate surely can be an excellent idea and SBA has some great programs when smart real estate is involved. We see often where the searcher buys the business with a FROR and then when the transition is stabilized and the business can afford to take cash for the real estate acquisition, then real estate can be a terrific long term investment and a cost and tax savings over rent. MY MESSAGE is to not assume one way or the other and to do a full analysis of the benefits of buying the real estate at acquisition.
from University of North Texas in Dallas, TX, USA