Oct 31, 2022
Erik Hemingway, the co-founder of Nomad Capital, is passionate about helping people achieve freedom, wealth, and a ‘nomadic’ lifestyle through investing in commercial real estate. He used income from personal commercial investments to take his family on a 5 year, living abroad adventure. He brings a creative approach to seeing the value add opportunities others missed, and is not afraid to roll up his sleeves to see projects to successful completion. He has been married for 31 years and has 6 children and 3 grandchildren.
[00:00 - 06:56] Storage Rates Soar Nationwide in 2021
- Erik Hemingway got into real estate and has
been opportunistic in his own right,
buying unique hotel properties, short-term rentals, and heavier lift projects - He's currently looking for an opportunity in the self-storage market.
[06:57 - 14:02] Storage company finds success in converting undervalued buildings
- It's under the radar and then all of a sudden there's a building in the middle of town that becomes the storage and commercial space.
- The company, Storage Concepts, doesn't have to compete with other developers for this asset and can bring its heavy value to add as general contractors.
- Storage Concepts has been successful in converting buildings in Arizona 16 years ago and now has experience with storage projects.
[14:02 - 21:15] Cash Flow Investors Find Opportunities in Storage
- Erik’s experience in the storage industry and how they are using a new approach to get into the market, focusing on cash flow-producing assets.
- Erik talks about their experience with hotels and how they are using a boutique style to shift to more of an Airbnb model.
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Tweetable Quotes:
“If you're going to develop a site somewhere, You do a feasibility study. And what we like about the conversions is they're typically on Locations.” - Erik Hemingway
Connect with Erik
Hemingway by visiting
their website at https://www.nomadcapital.us/
Or personally reach out to him via Email: erik@nomadcapital.us
Resource
Mentioned:
Traction: Get a Grip on Your Business
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Want to read the full show notes of the episode? Check it out below:
[00:00:39] Sam Wilson: Eric Hemingway is a great friend of mine based in Wilmington, North Carolina. This will be a little bit different show today. I think it's gonna be a lot of fun because I've known Eric, gosh, what, five going on six years at this point, Eric? Yes, sir. And I, I got to hear your story when you guys, and we probably won't get into that too much today, but your story of how you'd used real.
To then fund your guys' kind of family experience as you guys traveled the world. It was a very an absolutely compelling story that you told I when I met you in 2017. And since then, you guys have come back here to the states. You've been kicking butt, taking names in all sorts of different real estate asset classes, and have just certainly enjoyed our friendship.
And then just watching you guys grow. Here in the real estate world. So it's an absolute pleasure to have you on. For our guests that don't know you or haven't met you before, Eric, there's three questions I ask every guest who comes on the show. In 90 seconds or less, can you tell me where did you start?
Where are you now, and
how
[00:01:35] Erik Hemingway: did you get there? Okay, perfect. Yeah, great to see you, Sam, and thanks for having me on. Yeah, so got into real estate way back when, I guess 25 years ago, 26 years, something like that. Young, my wife and I got married young. We had two young kids, and real estate was, I've pushed a broom, Doug ditches, all that worked my way up.
I've been on my own since 2001, so 21 years or so. General contractors spec homes. Got into commercial real estate in 2005. Built my first self storage in Arizona. So that's where we were. Where I am is my son and I started a company called Nomad Capital, where we are syndicating self storage projects specifically big box conversions.
We like conversions. You know, big box stores, grocery stores abandoned buildings, and there's plenty of those in the southeast. Started in Arizona, but we wound up in Wilmington, North Carolina, as you said. And where we're going is just having a ball. It's a new chapter but still ties into the real estate and we're really excited to see where it's going.
So we've got some lofty goals, but we're building the team and ready to tackle it.
[00:02:38] Sam Wilson: A and you, and you've left some of the asset classes. I think one of the things that I've always admired about you is that yes, you have had a focus on storage, but yet you've also been opportunistic in its own right.
Like, I've watched you buy some unique hotel properties, some short term rental stuff, some heavier lift projects like that, that somehow you just saw the. In those,
[00:03:01] Erik Hemingway: Can you talk about those for me? Yeah. Yes, for sure. Absolutely. So that's, that's what I love, you know, I mean, that's my favorite part of this business is kind of seeing the diamond in the rough and kinda, you know, kinda look past what other people pass on.
And to me, I, you know, as soon as I walk on a property, it just seems to pop. Like renovated or converted or whatever. And really love that aspect of it. As far as the asset classes, you know, my son and I joke probably every week about, it's like we just do the next thing, you know, and this opens a door to the next thing and that opens the door to the next thing.
So we just feel like you know, the you mo movie Yes Man. Where you just kind of say yes and let's see where it goes. And you know, obviously There's some missteps, but I think just plowing forward is the way to go. So, we've just been super blessed to find some great opportunities and continue to find them.
And so there you go.
[00:03:51] Sam Wilson: What are you doing right now to find opportunity? I know you talked a little bit about the self storage doing, doing kind of abandoned building, if you will.
[00:04:01] Erik Hemingway: Conversion mm-hmm. .
[00:04:02] Sam Wilson: Yeah. what sparked the idea, and then how did you know you were onto. .
[00:04:06] Erik Hemingway: So our first one back in Wilmington was my wife and I were having a beer at a brewery and there was a my son and I had been doing renovations here when we, when we got from our boat adventure, which we can talk about later or whatever.
But relocated to Wilmington and my son and I were doing renovations in old Gross. Rotted houses, and just killing ourselves. And we thought, you know, by now the, the storage in Arizona was kicking off some great cash flow and we thought, let's get back into storage. So my wife and I had a brewery having a beer sitting outside at the picnic tables and there's a building across the street.
Used to be a printing company and it's all brick, no windows. It's got a loading dock and I'm like, That would be perfect for storage. We had just talked about getting into storage and I called the broker the next day and the building had been for sale for, or been empty for eight years, for sale for four years.
Nobody wanted it and when I, we first met the broker, he showed up with two estimates. To demolish the building. He's like, I know you're gonna wanna tear it down. Here's two proposals, you know, 120 grand, 90 grand to demolish this thing. And, and my broker. This was the selling broker. My broker and I looked at each other like, We're not telling 'em about anything like this is perfect.
So that was our first foray into conversion because we just bought it for way below replacement and gutted it, repainted the interior, put storage in there, and we were off to the races. So they haven't all been conversions, but that's certainly a niche that we, we really like. And I'd say that makes up probably 80% of the projects we're we're looking at right now.
[00:05:35] Sam Wilson: How do you underwrite or how do you even project like, Hey, we're going to look at this vacant. Abandoned building. Nobody has wanted for the last four years, but we're gonna turn it into storage and it's
gonna
[00:05:45] Erik Hemingway: pencil. So it's pretty much the same as you would evaluate, you know, conventional ground up storage you know, if you're gonna develop a site somewhere, right?
You, you did a feasibility study done. And what we like about the conversions is they're typically on. Locations. I mean like at Kmart they were put there for a reason. Right? Great, great visibility, great traffic counts. So a lot of that stuff is already, checks the boxes and then we just start doing our due diligence.
We've got an underwriter on our team, he's fantastic. Graduated from U N C W. Shout out to Drake Masa. But he, he does, you know, spreadsheets and he dives in and gets forensic with what's the rents we can charge, How long is it gonna take to lease up? You know, we're on Radius Plus and Yardi, Matrix and CoStar seeing what storage is around as the market, undersupplied, oversupplied, you know, just typical kind of underwriting stuff.
And if it starts checking all those boxes, then we're, we're excited to go. As you know, the past couple years in self storage has. Just on fire. And every email I get from brokers is call for offers. Call for offers. And you know, there's 20 bids and it's over asking and all this stuff. And what we like about the conversions, it's pretty stealthy.
It's kind of under the radar. And then all of a sudden there's a building in the middle of town that all of a sudden becomes storage and. There you go. So we didn't have to, we didn't have to get in the dog fight with everybody else. And we also get to bring the heavy value add aspect as we are general contractors.
Commercial unlimited license. So it's in our wheelhouse to do the build out. We're not relying on a, a gc and we know all the issues with supply chain and inflation and blah, blah, blah. I mean, we're feeling all those pains, but certainly would've been a lot worse had we had to hire that. Oh, for sure.
That's, that's kind of our secret sauce is, is we can spot 'em you know, we can underwrite 'em, and then we have the GC part to, to build them.
[00:07:36] Sam Wilson: Right. No, that's a, that's a, that's a, that's an awesome combination there. What, what is the typical from buy to break, even occupancy? Like what that timeline
[00:07:49] Erik Hemingway: do you look at across?
Yeah, absolutely. Yeah. So we look, you know, this year has been frustrating cuz projects have taken longer than we projected which is frustrating for us and. So we're, we're, now, we're underwriting basically when we close on the property, figure renting units 10 to 12 months from that day. And then depending on the market lease up, and we're probably covering the nut about 12 to 18 months after that.
Mm-hmm. . So, so from closing on the deal to, to, in the black, let's call it 30 months. 30
[00:08:19] Sam Wilson: months. How does a lender look at that? Or do you guys private finance this? Do you finance it yourself? What's, what's that look
[00:08:26] Erik Hemingway: like on these deals? Yeah, we're going through local banks. We've got relationships with local banks credit unions, that kind of thing.
And yeah, we're, we're financing 75 to 80% of the loan to cost. Because they know, you know, typically all of our appraisals have shown. In some cases we're buying the building under appraised value, so we're already walking in the door with a little bit of equity. As soon as we get the build out done, which is on us to do there's a big jump in equity.
And then of course, as you lease up and stabilize it, That's the biggest. So you kind get a little piece of equity along the way. And so banks like it and that we've got a track record now, so it helped having built storage in Arizona 16 years ago and, and now it's, you know, we've got a several conversions under our belt that we can say, Look, we're, we're doing it and we've done it, and here's where we.
[00:09:16] Sam Wilson: Did it take did it take a lot of lender shopping in order to find one that understood what it was you were trying to do?
[00:09:23] Erik Hemingway: No, I mean, there's, there's certainly lenders out there that like storage and we just basically show them our underwriting feasibility study, show them that we've done our homework and we're the group to, to be able to do it.
And, I mean, L different lenders have buckets, right? That they get full and hey, we're really putting a pause on develop storage development right now. If you wanna buy an existing facility, we'll be happy to talk, but, Right. We've got too many ground up projects going, so we're probably gonna cool off on that.
And so we'll just pop over to another lender and say, Hey, what's your appetite for, for storage development? And so I. I hear stories of guys, you know, calling 15, 20, 20 lenders that we've had nothing, nothing like that. Of course, there's brokers in this space and that's, we've used those guys in a couple cases and they can help weed out, excuse me, some of the, you know, wasted time.
They already know some of the players in, in the southeast that are. That are hungry for storage and get it and and mean it's, the asset classes come a long ways in, in 15, 20 years. Right. I mean, lenders didn't wanna touch it 20 years ago cause it was just weird and looked like, you know, temporary buildings, Why, why are we loaning on this?
And now it's you know, they. So it's, it's survived two recessions and we'll see if it survives this one. Right, right,
[00:10:42] Sam Wilson: right. Absolutely. When it come, I know, I know. Getting out of the dog fight with everybody else, for everybody, you know, fighting over the same asset. You guys have found your own unique way to get in.
What do you estimate your cost? I'm gonna use the word savings, or maybe the, the price difference between what if you went out and bought something on market versus what you guys can convert a building
[00:11:05] Erik Hemingway: and then put in storage for, It's, it's a little tough. I, I, I see what you're asking there. It's a little tough to nail it down just because different markets are you know, there's storage that is typically sold for a hundred, $110 a square foot.
Rentable space is typically how they price it. There's stuff that's sold for a hundred. You know, dollars a square foot, depending on if you're downtown Charlotte or Raleigh or Atlanta or what have you. So, typically our projects we're buying the building under $20 a square foot, which. You can't even replace for that.
Right? So we're into that and then our conversion is crept up to close to 40. So we're about all in for about 60, $65 a square foot, including soft costs. So we figure we're still at 60%, 50% loan to value.
[00:11:51] Sam Wilson: Wow. That's
[00:11:52] Erik Hemingway: awesome. Yeah. That's awesome. It's, it's strong.
[00:11:55] Sam Wilson: What, So one of the things that we talk about a lot on this show is, and it goes, it's right in the name of it, which is scalability.
The ability to go and, and wash, rinse, repeat. Is that possible in your model or is it, you know, Hey, we're gonna buy the building across the street from the brewery, and oh, by the way, there's a Kmart and then building X. It seems like each of those would be its own unique project and not necessarily have repeatable.
Steps in it, or am I missing
[00:12:22] Erik Hemingway: something? No, it, it's surprising. You know, it's sec storage is pretty unsexy and pretty, you know, non-glamorous. There's not a lot of moving parts to it, right? So when we find these Kmarts we just underwrite that we're gonna have to replace the roof. We're gonna get the whole building, we're gonna paint it inside and out, replace all the H V A C, all l e d lighting, and then you put in storage units.
So, Eight 10 subs tops. Right, right. Subcontractors and so there is some metrics we can use there. You know, some of the dials turn a little bit depending on what, what we find, but it's surprising how much the projects are similar. It's like, well, we already know what's go, what it's gonna take to do this.
We already know what's gonna cost to do this. Let's plug it in and we underwrite Drake underwrites very conservatively. Let's say we think it's gonna lease up in 18 months, let's say 23 months. We think it's gonna cost x to, to build this out. Let's give ourselves a contingency of 20% or 15% or whatever, just because we don't wanna, we never want to do a capital call with investors.
We never wanna get behind the eight balls, so we always write very conservatively. And if it pencils. Then it's a go. So
[00:13:33] Sam Wilson: what's it been like finding subs that understand, hey, we're building storage inside an existing building. I mean, that's a little bit different.
[00:13:42] Erik Hemingway: Different. It is. Yeah. I mean, we're still using Janus.
They're the biggest in the world for, for storage. They do a lot of conversions. They've done our last three conversions and they're a great contractor, Great source. We are using a project manager that's kind of tackling three different projects for us right now, and he's kind of bouncing around between him.
He's been in the business a long time from North Carolina. He's got a great pile of resources of subs that he's worked with in the past. Commercial guys electricians, H V A C guys and, and what have you. So
Did that answer the question?
[00:14:12] Sam Wilson: It did, it did. Yeah. Just, I mean, when you get in and it's like, Okay, well we now we're gonna have to figure out a way to put storage units inside of a k. How does this work? I mean, you guys reworking entrances, are you reworking, you know, front? Are you,
[00:14:24] Erik Hemingway: I mean, what you call it in some cases? Yeah, one, one, Kmart.
We're doing, we're doing a drive through concept where there's a high speed roll up door on the front and back. People can actually drive through the building. Park inside, unload their stuff. And the next one we're doing, we're not doing that, but you know, the first step is the architect. And we've got a great architect, not in house, but that we worked with, and he's, he used to work for Janus, so he's very familiar with the storage industry.
Been in it for. A long time and he can really maximize the square footage. I mean, we use a rule of thumb, so if you've got a 50,000 square foot building, you can figure about 75% of that is gonna be your net rentable by the time you take out hallways and entrances and what have you, Office what, whatever.
[00:15:09] Sam Wilson: Right. And, and do you, can you go, I guess on a, on a Kmart, the ceilings aren't tall enough, there's no multi-level storage
[00:15:17] Erik Hemingway: or is. No, not typically. I mean, I guess if you tore the, the, the T grid ceiling, the acoustic ceiling out, you probably could. But these, these buildings are already so big. I mean, one of them's 87,001 is 102,000 square feet, so to, to bring in, you know, basically with your 75%, you're talking about 150,000 square foot of storage.
It's a lot, right? So that's more than the market can handle. So we're content with just going with the footprint that's there, right? We're gonna get 75,000 square feet in here, give or take. And then here's what we're expecting to get for rental rates. Again, it's another dial we can turn. We, we look at a competitors, what are they getting for a 10 by 10?
A 10 by 20. And then we go below that. We're like, let's not assume we can get that, that, although that is the market rate let's go below that just to be safe. Maybe things turn, whatever. And then that's one more. Kind of buffer there, that that helps The project only helps the project and investors.
Right?
[00:16:17] Sam Wilson: Well, for sure. If you're, I mean, again, if you're, if you're buying, renovating and filling at 60% of what everybody, of the cost of everyone else, you're, you're able to do that and then probably
[00:16:29] Erik Hemingway: split your returns. Yeah, exactly.
[00:16:31] Sam Wilson: Yeah. That's fantastic. I, I love the, the kind of, I mean, it's definitely a nuanced approach, but it's, it's just a brand new way of thinking about.
How to get into the storage game. Cause I mean, that's something, right now there's, I'm part of a part of a deal that has a project here in Tennessee and just watching, I mean, we bought this, what, a year, a year ago, and we're getting an extra $2 million more for the project than what we paid for it. I mean, Wow.
Not a whole lot in, in you know, rebranding or renovating the property or, I mean, it's. As just storage is on
[00:17:08] Erik Hemingway: fire. Yeah. Is this a storage property?
[00:17:11] Sam Wilson: Yeah, it's a storage property. Yeah. It's great. Great. And I'm involved only really as, as a, as a passive investor on it, but it's just crazy to watch. That go down.
It's like, this is nuts. So you fear I know. Yeah. I, I don't, I don't know how they're making it work is really the conclusion, . It's like, I don't know who's buying this or how they're making this work, but I'm happy. But my goodness, this is crazy.
[00:17:34] Erik Hemingway: So, yes, that, that, yeah. It is crazy. Well, I think, you know, the, the kind of stuff that springboard.
Those crazy evaluations was 2021 was just an a crazy year for storage. I think rental rates went up nationwide. 24 to 26%. Yep. In one year, which is obviously not sustainable. And could correct and all of that. But I mean, even if you just follow inflation at 8%, that's still a really healthy rate climb every year.
And if you're, and if institutional buyers are buying it and they're borrowing it 2% or less. Huh. They're just happy with the spread. Correct. So they can pay whatever, whatever they need to pay, cuz they're just, they're just excited about the spread they're gonna make. Exactly.
[00:18:16] Sam Wilson: Yeah. And that's, that's the, the wild times that we're living in.
And I think, you know, right now being a cash flow investor, which it sounds like that's what you're doing, is building just a portfolio of cash producing
[00:18:28] Erik Hemingway: assets. Mm. Yep.
[00:18:30] Sam Wilson: That's the goal. Talk to me about your hotels. I know, Okay. I'd love to hear kind of your thought process behind that. How you guys are locating what you're doing with them.
The
[00:18:39] Erik Hemingway: business plan as a whole. Yeah. Yeah. So it's, it's very boutique style properties. I've been in the Airbnb world for probably seven or eight years as a host, and you. Thousand plus guests over a couple different properties We had in, in Wilmington here and had an opportunity to buy a five room boutique motel on the beach in c beach ca North Carolina.
And we renovated it. We were able to convert it to nine rooms and just opened it not quite even two years ago. Actually made a connection to Best Ever. And David Acosta is my partner. You, I'm sure you know David, but he and I partnered on the next one. And these are all, all of our properties are on one island in just outside of Wilmington Keary Beach and Carolina Beach.
And. So we bought a next, the other one, then another one, and just kind of rolling it into the next one. And I think we're up to 85, 90 doors now across the four properties three of which are on the beach, like on the sand. And then one is kind of in downtown Carolina Beach that. That we just did a pretty major overhaul on when we bought it.
It was pretty run down and we just kind of went through and freshened everything up and so yeah, we're excited to see that we've got an asset manager on the island and. He's in charge of kind of monitoring the property managers, but we really wanted to try to try to shift to more of the Airbnb model cuz I saw how that worked and how people like that.
And so what we did on all the properties is convert 'em all to keyless locks and keypads are the software we're using as cloud beds. It's fantastic. It integrates with other software that can push code. To to the guest. So they get a code to access the room at check in, and then the code stops working when they need to check out.
So, so it's kind of a hybrid of the Airbnb and the hotel. We don't have a front desk that we're obligated to staff. Seven days a week, you know, 12 hours a day, people don't lose keys cuz they've got the code in their phone and you know, they come and go and, and it's been working great. So we're still, obviously that's not my background, so we're still trying to iron out the processes all around that and maintenance and, you know, laundry and all those kinds of things.
Housekeeping, we've got some great staff. So we're, we're just kind of seeing. Arm of the, of the business goes. We're just kind of taking a pause right now with interest rates and we feel like we got some, some great properties in while it, while it was good, and we'll see how these, we want to get this really fine tuned before we try to scale it.
[00:21:08] Sam Wilson: Yeah. And again, this is, this is one of the reasons I love chatting with you. Like before we, but we won't get it fine tuned before we scale it. And you're at 85 or 90 doors on this already, Eric, so
[00:21:18] Erik Hemingway: I. I think, but that might be it. I don't know. We, we might have a, a circle up and say, You know what, we're, we're happy with these.
Let's just, let's just go back to storage .
[00:21:26] Sam Wilson: Yeah. And that's, that's the that's the fun part about this business is just all of the opportunity. And, and you answer yes. Kind of my question and I think I, or a question I would've had for you, which is how do you. How are you scaling all these different asset classes?
And it, it comes down to people
[00:21:42] Erik Hemingway: is what it sounds like. People. Yes. We're in the process of, we bought a building in downtown Wilmington that we're renovating right now for our office. We were in a very small office right now and everybody's kind of on top of each other, so we're hopefully getting to there in the next six weeks or so.
And and then we have some more folks that we are bringing on board once we get in there. And yeah, just trying to get people a huge thing for us was the book Traction. Gina Wickman, Levi and I read that after Best ever last year, I think, or a year ago, right when we started Nomad Capital. It's just over a year old and just going through that book, It's the Bible right now, Paige, you know, if he says have a meeting on Tuesday, we're having meetings on Tuesday.
If he says they last 90 minutes, we're doing it for 90. You know, we're basically just going play by play with that book. And that's been huge. We'll say. That has definitely streamlined a lot of stuff for us. So, huge shout out to him. And I know Brandon Turner's a big fan of the book and, and everybody I know that, that reads it is like, this is, it's a real tools to.
Into your business so that you're working on your business and less into it. And we're trying to get to the point where you know, in a, in a, in a world we see someday, like Levi and I come to the Tuesday meeting, we can sit there for an hour and a half, two hours and have a really good pulse on. What's the biggest problems we're facing?
Where are we at? What's our lease up? Where's our cash flow? Where's our, our payables? You know, and we've, we're implementing the scorecards he talks about, and it's been it's been fantastic. So highly recommend that.
[00:23:12] Sam Wilson: Man. That's awesome. Eric. I love what you guys are doing. I, I've always appreciated you're kind of, left or right, a center approach,
[00:23:20] Erik Hemingway: to finding that's ex That's exactly right.
It's swerving. We're swerving around the line. ,
[00:23:26] Sam Wilson: you're, you're
[00:23:26] Erik Hemingway: swerving approach. It's left and right. Yeah, no, we, we, we often joke that we're building the plane while we're flying and it, and some days it does feel like that, but we really feel like. This is the tip of the iceberg. You know, we feel like there's a lot of runway for what we're doing and just excited to build out the team to help us do that.
And our guys are, you know, guys and gals are super excited about what we're doing and we're trying to really create a fun culture and. People seem to love it. This new office will have golf simulator, cator, you know, that kind of stuff. So we're definitely gonna be yeah, enjoying it, enjoying the ride as we go.
So. Well, yeah, we're excited.
[00:24:05] Sam Wilson: That's awesome, man. Certainly certainly appreciate you taking the time to come on the show today. Absolutely. Tell us. How you're finding opportunity and value and, and just, yeah, it's been, it's been tons of fun, obviously, the last five to six years getting to know you and then watching, watching you guys grow.
If our listeners want to get in touch with you or learn more about you, what is
[00:24:24] Erik Hemingway: the best way to do that? Yes. Perfect. So a website is nomad capital.us. And you can see stuff there. You can make an investor portal, you can see what projects we have coming up what we've done, portfolio, all that good stuff.
You wanna reach out to me personally Erik, e r i k@nomadcapital.us is email and cell phone. You want that or? Yeah, sure. Nine ten four three one three eight five five. Happy to chat about storage conversions. Life boutique motels or anything else? I don't know. I don't know about ,
[00:24:57] Sam Wilson: politics, religion,
[00:24:59] Erik Hemingway: anything else?
Yeah, sure. Weather. Let's hear it all. .
[00:25:02] Sam Wilson: Yeah. Eric, thank you again. Certainly appreciate
your
[00:25:05] Erik Hemingway: time today. Absolutely. Thanks Sam.