Self Storage Investing,Private Equity Strategy, & Finding Alpha in Commercial Real Estate

Marc Kuhn (00:00)
I always tell real estates my bars of gold, my storages. I love the boringness of storage ⁓ and integrating. I don’t invest in gold, I invest in storage and that is my gold. That’s way I feel.

Scott Bursey (01:45)
I’m your host Scott Bursey. And today we’re absolutely fired up. We have a powerhouse in the world of Capital and real estate investment joining us. Marc Kuhn of MAK Capital. Marc is here to talk about strategic investing, managing institutional money and how to find true alpha in a volatile market. You know what that means. Marc is bringing the financial fuel our listeners need to scale their empires.

Let’s jump straight into the wisdom. Marc, welcome to the show.

Marc Kuhn (02:16)
Hey, appreciate it, Scott. Awesome. Happy to be on here.

Scott Bursey (02:19)
It

is just excellent having you here. Thank you for joining us today. And for our listeners who may not be familiar with your journey Marc How’d your career begin and what is your main focus now?

Marc Kuhn (02:31)
Yeah, yeah. I just as we were talking before, ⁓ I started out in the concrete biz. My parents were actually divorced. So I worked next to dad since I was six. I spent the summer with dads and winter going to school with mom and I helped my dad all the way, you know, till till college. So I ⁓ and he kept telling me to go to college, go to college. And so I did. I did. I think I’m still 12 credits short today. But ⁓

And then I was, kind of wanted something bigger. was like, I was hoping that he was breeding me to be the business takeover for him. That ended up not being because he, you know, ⁓ he thought I was going to wreck it and grow it. And, you know, we were going to have to have some capex expenses that to grow a business. So anyway, I we ended up splitting apart. went to a W2 job for a year, ⁓ met my wife, bought a house, all the things. ⁓

kind of finished up school and then we basically my dad and I got fired from that W2 job because they kept sending me out west. It was an oil boom. I’m a North Dakota guy. it was an oil boom in 2009, 2010. So I decided I went and installed a fart fans for someone one day and and did a little concrete job on the side. I’m like, geez, I can make about the same money if I can string together enough jobs. Finally, I ended up

My wife’s dad owned a small business, had an employee that I used his tools to get his whole house remodeled and kind of got me off the ground. So I’m grateful for that opportunity and just kind of kept stringing things together. I didn’t know if it was forever. I just knew construction and kind of grew. now today, you know, that was that was 2010.

So as today I learned the concrete business really well and we do that still today. I also have a general contracting division that we do today all within Marc construction and then our development arm and investment arm is MAK Capital where you know we vertically integrate. We’ll do the concrete, we’ll build it, we’ll you know and raise the money and build the project and manage them. And so you know now today we’re doing

you know, I think we’re doing 30 30 ish million in the in the concrete or the construction company. And then in the Capital company, we got another about 30 million of development, we got about almost 100 million on the books for this year. So a big growth year for for MAK Capital and, you know, couldn’t be more excited, definitely different challenges. And I tell everyone I’m a simple concrete guy. And you got to explain everything at a pretty

sixth grade level. So I always tell my AI to speak at that. So then I understand it. And then I can tell my people that but I have a lot of fun also scaling like blue collar businesses, the concrete business, I have a drilling company that drills for soil and geotechnical. ⁓ And so I’ve had fun growing business now that I understand it a lot better. But real estate and investing, I love businesses, but I also love the the

I always tell real estates my bars of gold, my storages. I love the boringness of storage ⁓ and integrating. I don’t invest in gold, I invest in storage and that is my gold. That’s way I feel.

Scott Bursey (06:39)
What a wonderful 16 year journey. Marc, that is sensational and congratulations on what you have built. Let’s dive right in. What’s MAK Capital’s biggest edge in sourcing private deals right now as you view it, Marc?

Marc Kuhn (06:46)
Yeah. Yeah.

Yeah, I think I think why I have a little better edge and why I’m continuing to build when when really people haven’t in the last few years. I mean, we’re in the COVID hangover hangover area. ⁓ We’ve really value engineered our projects within our construction team and and been able to raise Capital for the storage project. So we’ve been able to, you know, I think we’re starting our fifth one this month. And that’s just in the last ⁓

few years, you know, so we’re, we’re continuing building these large, you know, institutional grade storage facilities. And we’d like to do that at a pace two to three, you know, per year. ⁓ But I just think the vertical integration, we’re able to keep that yield and cost at a point where we’re not negatively leveraged, meaning, ⁓ you know, we’re borrowing money that’s cheaper than the yield on cost to build it. ⁓ And, and I think that really helps us in our investors, trust us.

⁓ Storage is a recession resistant type product type. Even though you know, yeah, there’s vacancy issues, there’s all these different things going on margin crunch, right? I feel that in every all the businesses all the people I talked to. So get your operations cleaned up, get it thinned down and get it improved. And ⁓ I just I just think I just think our vertical integration and I really are obsessed with operations as give us a little bit of a

in the edge compared to why other people aren’t doing it.

Scott Bursey (08:25)
hit it right on the head that proactive approach to deal flow is absolutely critical Marc especially when institutional money is chasing the same assets.

Marc Kuhn (08:31)
Yeah.

Yeah, yeah, they’re well, you know, their challenge is trying to deploy 300 million or something like that. See, we’re at this point right now. You know, we’re we’re we’re almost too big to be raising money just at, you know, a 50 or $100,000 level on these facilities to keep scaling. We’re like right in the middle, like all these facilities are I don’t know, 10 to 15 million ish dollars. And yeah, you can Capital raise but it sometimes gets clunky wars.

economic times, what’s the newscast today, Like, stock market’s up, it’s down, you know, and that affects people who are gonna passively invest in deals. And I understand that. ⁓ But the institutions, know, we’re trying, we’re probably got to get up more to their level. we, you know, our plan is to roll up our portfolio one day and, you know, really keep this simple. We will really want to be in the business of manufacturing storage sites, roll these up to PE firms that’ll pay

way more money than you and I can afford to hang on to them and our investors and they’ll make money because of it. So ⁓ real simple plan for us, ⁓ but I feel like we’re getting good at it.

Scott Bursey (09:47)
Simple but comprehensive by the same token. And Marc, what specific market condition are you watching right now? Most closely.

Marc Kuhn (09:49)
Yeah.

You know, I think everyone you could probably I think you I always watch the housing market a little bit. Are things moving or trading? I really think and it’s all really I mean, interest rates are the big thing, right? Like, what are they going to do? Who’s got the crystal ball? ⁓ You know, this war with Iran, I think is held up some of those dreams to say, let’s lower rates. And, you know, now we got inflationary things that it’s like, you might not be able to lower the interest rate.

But I really watched the housing market. think for the housing market to really start moving again, I think you’re going to have to see a four somewhere on the interest rate, like for someone to leave their two, three percents, ⁓ which also affects us. And I think if people start moving around again, storage facilities, multifamily, I think that’ll all excel and just investments overall. I mean, obviously we’re underwriting, we’re seeing interest rates at a six, six and a quarter.

and commercial products. ⁓ And, you know, obviously, if you can drop 1 % even by the you know, in the next year, you know, it does help these facilities and all, all commercial real estate, it’s just they got an incredible challenge ahead of them. How do you keep costs low and make things more affordable, but yet

don’t lower the value. I don’t feel like there’s a real estate crash. It’s maybe in a hangover a little bit right now, but it’s not in a crash. And so I just really pay attention to that, that housing market ⁓ and the two in tenure. I really watch those as far as like my calculations and kind of what I see coming.

Scott Bursey (12:13)
Absolutely, not to mention that the interest rate volatility can drastically change underwriting models as well ⁓ What geographical markets are you tackling?

Marc Kuhn (12:23)
Yeah, again, up in North Dakota’s hometown. That’s where I’m sitting today. hometown, should say. Well, state but 800,000 in the state. So it’s not very big. anyway, you’re here, come visit me. And we basically go to the Midwest. So we’ve kind of just found the interstates. We’ve headed south, you know, Fargo, Sioux Falls, Omaha is on our destination.

you know, and then kind of Rapid City. So basically just growing from North Dakota and kind of stretching out. ⁓ And that seems to be a good play for us. ⁓ We also, you know, build some gas stations for one of our really good customers and he kind of follows suit to what we’re doing. So, ⁓ and ⁓ you know, we’re growing together. So it’s kind of fun that way.

Scott Bursey (13:13)
Speaking of that market, where do you see the next major wave of real estate investment growth taking shape in your neck of the woods?

Marc Kuhn (13:20)
Yeah, where is it going to grow? ⁓ You know what, so ⁓ I see North Dakota has a good edge. We have a state bank up here. So I can’t I mean, the state the state will always thrive because of that. I mean, it makes a lot of money. You know, we’re in the kind of the same shoes of reducing property taxes for your primary, you know, I think you hear Florida right now. ⁓ Doing the same and the you know, those red states people end up flocking to and

There’s a lot of good programs to provide housing. I don’t know, I think for us up here in the Midwest, you can find a little more margin cash flow. I think if you’re building in Texas, we tried to do a deal down there. And you know, it’s so tight, it’s got to be so cash heavy in order to make that work. And you still don’t know if it’s going to cash flow if you borrow, you know, 50 % leverage on it. So

You know, it’s a different challenge when you’re going to those very growing markets. Of course, you’re hoping for appreciation, but that’s where also people get in the most trouble. ⁓ And yes, they will appreciate at some point. ⁓ you know, we’re seeing things trade at five and a half, six caps, even in the Midwest where I’m at. ⁓ You know, and I think in Scottsdale, seen, you know, stuff can trade at four and a half to five and a half. And it’s like, it’s not that much, you know, that is a big spread. But

It’s not as different as it used to be. People like the margin of the Midwest.

Scott Bursey (15:31)
That is an excellent breakdown of your market. Just an excellent breakdown. Thank you for that. And what kind of strategy are you employing over the next, let’s say 12 to 18 months to capitalize on everything that your vision has to offer right now?

Marc Kuhn (15:47)
Yeah, you know, we’ve we’ve leaned into acquisitions haven’t had as much success there. There’s still this gap between what it’s worth and what it’s really worth ⁓ based on the revenue it’s producing. ⁓ So you’re finding those spreads and the interest rates aren’t coming down fast enough to justify getting into a stress deal already. ⁓ We’ve continued to build at ⁓ our yield on cost has been much better.

⁓ and getting creative with the finance side. think banks are a little more willing to lend. ⁓ you know, I, so I think we’re just, we’re still having more success building and we want to really try to print, try to do one per quarter of these storage facilities. We’re doing some low income housing tax credit projects now. ⁓ And we really want to try to implement one of those. Usually it’s about one of those per year. And that’s a

That’s like learning Spanish if you are French, if you never even I was like, it’s an incompletely different asset type. It’s multifamily, but it’s a good revenue producer as a developer like myself. And it’s definitely hard to get into. You have to be very sharp to get into that, but can be very lucrative if you do it right. And

So yeah, low income housing, tax credit projects and storage is my game right now.

Scott Bursey (17:13)
I gotta ask you what is the most underappreciated risk facing commercial real estate investors today?

Marc Kuhn (17:20)
underappreciated risk. ⁓ You know, I think anytime you talk about risk, it’s pretty much everything we do every day. ⁓ you know, I do think as developers,

Scott Bursey (17:36)
Right, right.

Marc Kuhn (17:44)
You see people holding on with a thread, lot of syndicators, you know, trying to make ends meet. ⁓ They’re going to be stressed and it’s going to be stressed over the next year, probably. And it could be longer. But, you know, I think about Austin and some deals there. ⁓ You know, I just talk to different guys and sometimes I think our situation is tight and then I view their situation. I’m like, whoa, you know, they’re burning cash.

⁓ faster, you you’re not hitting the business plan like you thought when you drew the Performa up in 22 and took a 4 % interest rate. You’d kind of kept things going 3 % up every year 3 % expenses. Well, got insurance tax it, you know, everything exploded, right? And now these deals are, they’re just barely bridging water, they’re losing their equity. So, you know, I think that’s where cash flow is important. I think in the Midwest, we’ve been able to bridge that gap. That’s why a lot of eyes have came up here as well.

⁓ So I don’t know, I think you you can, you don’t have any cash flow or you’re not able to even break even. ⁓ It gets really hard sitting on deals. So that’s

Scott Bursey (18:53)
It does.

And macro economic trends like inflation or labor costs can quietly erode returns if you aren’t hedged properly or positioned for long-term holds power as well. So excellent breakdown on that. And we’ve got to, we got to know our listeners must know this. How do you maintain crucial investor confidence during a prolonged market downturn?

Marc Kuhn (19:02)
Bye bye.

Right.

Yeah, I always tell everyone this it’s the more transparent I was just listening to another podcast about a guy rolling up companies and he their first fund last money he gained the trust of his investors though enough to go do it again. Well, what you know, guess they bet on him again and he was transparent about the whole time. Here’s our challenges and I think anytime you’re if you’re just I always like doing like videos with my my investors and

trying to be very transparent about where we’re at and what are we doing? What how are we trying to tackle it? How? I don’t ever want them wondering what I’m doing. I really want them to know, you know, I’m the head to chop, but I’m, I’m going to speak truthfully and as transparently again, concrete guy, I have transparency built into me, I have to be very, I used to have to be very transparent on the job site when and guys wouldn’t listen or show up. So I mean, I have no problem doing that.

Good news or bad news. I’m not going to shed light on only the good news because things are hard the last couple of years. They’ve been. You’ve got to keep the trust of the investors. you lose them, we’re all accountable to somebody. I always tell everyone that, even myself. Even if I’m sitting at the top of these companies, I have investors, have banks, have people that

are my biggest partners and I need to keep transparency as high as possible. So I’ll tell anyone that, that’s always my answer for that one.

Scott Bursey (20:50)
Well, you hit it right on the head. Transparency and perhaps over communication are paramount. Couldn’t agree with you anymore. When the market gets shaky, investors need calm, clear leadership, not silence, Marc.

Marc Kuhn (21:03)
Right? Yeah. And even in our businesses, we I usually tell all my guys, it’s like the lack this problem only happened because you lack communication and preparation. You really did. And and and because you lacked preparation, then you lack communication. And and and if you’re going to keep doing that, it’s just a downward spiral ⁓ or you can flip the script. You can get prepared and communicate. And if you keep doing that, you won’t really be in any issues. ⁓

not saying you’re going to avoid all issues, just saying it usually limits a lot of the issue. So it’s a good one.

Scott Bursey (21:39)
Absolutely.

And right here is the million dollar money question that our listeners have tuned in to get the answer from you today, Marc. When evaluating a new asset class or market, what single piece of data do you look at before committing any serious Capital?

Marc Kuhn (21:57)
Yeah, ⁓ man, any single one. I was gonna say we look at so many KPIs and metrics, ⁓ you know, ⁓ square foot per capita is a big one in storage. ⁓ So we want to know we do some climate controlled storage. That’s what we term our luxury storage product. ⁓ And a lot of places don’t have that you could call it flex warehouse space, you could call it a poor man’s contractor shop, I don’t care what you call it.

⁓ It’s something like that. But usually we’ll look at the square feet per capita. ⁓ You know, and then it’s just, man, our jobs going there are, ⁓ you know, our what’s the growth look like? Do they have any positivity? It’s it’s around, you know, I’ll give you an easy one like Rapid City, South Dakota, where we have an our newest project going there. Super excited about it. Probably our best market will ever enter. ⁓ But I mean, they have an airbase that’s going to double in size, you know, they got all these new

be 21 raters going there and ⁓ then all the square foot per capita is real tight. And we learned that’s actually hard to build there. Usually these blue, it’s not a blue state, but I mean, it’s a blue area or something, because they add a lot of red tape to it. So it’s harder to get things done out there. So we like that. It’s been a couple of years process to actually get this project fruition, but it’s…

I think those are a couple metrics. mean, if you don’t have that and growth in the area, it’s always tough.

Scott Bursey (23:25)
Well, perfectly broken down, thank you for that. And Marc, this conversation has been pure gold. Before we wrap up, I wanna make sure our pros know how to connect with you. If our listeners wanna follow your journey or collaborate with you, what’s the best way for them to reach out?

Marc Kuhn (23:43)
Yeah, you know what you can follow my podcast, my YouTube channel. You can also find me on LinkedIn. Usually if you search Marc Kuhn in Google, it’s a lot of these will pop up for you you can follow me along. I’m on Instagram, I post my personal stories. If you want to get to know me on a personal level and and but yeah, everything business I always post on LinkedIn every day. I’m on there I’m active. So if you want to reach out or want to connect

⁓ Get a hold of me there. Leave me a DM and we’ll get in touch

Scott Bursey (24:15)
Marc, this has been sensational. Thank you for joining us today.

Marc Kuhn (24:20)
Yeah, appreciate it, Scott. Thank you.

Scott Bursey (24:21)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests, just like Marc, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.