Many people bemoan having to "work for a living" and simply dread waking to the alarm at 6:30 a.m. on Monday morning. It is rare to encounter a person who exudes so much passion and excitement about his work it is contagious. But Mike Parham, founder and president of Noah's G.P. Inc., is one such person. His is a communicable enthusiasm for self-storage development and investment opportunities.
Noah's G.P. is the culmination of Parham's vision for providing a comprehensive self-storage investment vehicle to interested and qualified investors. It is a full-service self- storage development company that provides unique investment and joint-venture opportunities--primarily in the south central and southeastern United States--via its Noah's Ark Self Storage chain. The company currently has five Noah's Ark facilities in operation, with seven more in various stages of development.
"Although my involvement in the self-storage industry dates back to 1980, the first stage of my three-part strategy for a comprehensive investment vehicle really began with the founding of National Development Services [NDS] in 1987," says Parham. Since its inception, NDS has been involved in the design/build aspect of nearly 200 self- storage projects, including projects for institutional developers such as Shurgard, Public Storage, Storage USA, Storage Trust and Sovran.
NDS received the Facility of the Year award from the Self Storage Association and MiniCo Inc. in 1989, 1990, 1991, 1994 and 1996, as well as the Design Excellence award from the Mini-Storage Institute in 1995. NDS President Victor Lopez says, "In the early years of NDS, we spent about 50 percent of our time redesigning every project we received from outside engineers and architects who had never worked on a self-storage project before. Their designs were simply too costly and didn't incorporate all of the features necessary to be cost-effective and user-friendly."
The second phase of Parham's strategy required the formation of Joshua Management Corp., a self-storage property-management company that supervises the Noah's Ark chain as well as other facilities owned by outside clients. "The role of Joshua Management is to completely analyze and understand the operations of every self-storage property in its care, with a view toward minimizing operating costs and maximizing lease-up rates, customer closing rates, overall occupancy rates and, ultimately, the bottom-line cash flow," says Parham.
Commenting on the company's first year of operation, President Donna May says, "Joshua Management reduced its portfolio's operating cost by more than 10 percent, which increased its fair market value and cash flow by the same amount. Properties in the leasing phase have had a net occupancy increase of 8.4 percent per month and a customer closing rate of more than 72 percent--both well above industry standards."
Building on the design/build experience of NDS and the property-management expertise of Joshua Management, the third and unifying phase of Parham's self-storage investment strategy is the implementation of the development role of Noah's G.P. This includes site selection, facilitation of zoning and entitlements, demand analysis, development budgeting, financial forecasting, and the preparation of bank and investor packages.
"Simply stated, the role of Noah's G.P. is to develop the Noah's Ark Self Storage chain," says Parham. "Each Noah's Ark facility is a separate limited partnership, which is typically 50 percent to 60 percent owned by Noah's G.P. and its partners/employees and 40 percent to 50 percent by other investors. These others are interested in the potential returns available in a self-storage project; however, they may lack either the experience or desire to deal with all of the development, design and management intricacies essential to success in this industry. By partnering with Noah's G.P., they can experience the excitement and potential of self-storage without the headaches and risks of starting from scratch and reinventing the wheel."
In a typical Noah's Ark project, investors contribute 20 percent to 25 percent of the cost in exchange for 40 percent to 50 percent of the limited partnership. Noah's G.P. handles all development issues, including financing and providing the personal guarantee to the lender for the construction loan. NDS designs and builds the project for a fee of 7 percent of the construction cost, and Joshua Management runs the property for a 5 percent management fee.
The typical project will involve six months of construction and 18 months of lease-up to 90 percent occupancy. After three to six months of stabilized occupancy, the project is typically refinanced at 70 percent to 75 percent of fair market value, which usually returns 70 percent to 100 percent of the investors' original contributions. Otherwise, the project is sold to an institutional buyer. Cash flows and proceeds from the sale of the project are split in accordance with relative ownership interests.
When asked about the exit strategy for his self-storage investments, Parham draws an analogy to the hotel/motel industry. "Years ago, the vast majority of motels were individually owned," Parham says. "Over the years, we have seen massive consolidation--the top 20 hotel/motel operators probably own more than 90 percent of such properties. The same thing is happening in the self-storage industry. We are definitely seeing growing consolidation, which provides a tremendous opportunity for the savvy private developer that can select the type of location and build the type of properties institutions will purchase."
Parham notes that as a pilot program, NDS developed facilities with a variety of investors between 1994 and 1998, most of whom were its own clients. "All of these facilities were sold in 1998 to two institutional buyers. The sales cap average was 10.2 percent, even with several of the properties having less than a six-month history of stabilized occupancy. The overall return on investment averaged at 36 percent annualized," says Parham.
"The success of this portfolio led to the launching of Noah's G.P. and the Noah's Ark Self Storage chain in late 1998. Our new focus on multiple locations within particular markets as well as our previous experience cause us to have tremendous expectations for both."
For more information about Noah's G.P. and Noah's Ark Self Storage, contact Mike Parham at 800. 847.4992; visit www.noahsgp.com.