Reviving Retail: How to Turn Empty Retail Stores into Profitable Self-Storage

Aviva (00:18)
week's listener of the week is Link CRE. Link, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review, you might be next week's listener of the week. Week, week.

This week on Commercial Real Estate Secrets, we have Clint Harris. Clint is the GP at Nomad Capital and the host of the Truly Passive Income podcast. Clint, thank you for being on the show today.

Clint Harris (00:49)
Yeah, thank you for having me. Excited for us to chat.

Aviva (00:51)
Yeah, so Clint, let's dive into it. If you could tell the listeners who you are, what you do, and why we are here chatting today.

Clint Harris (01:01)
Yeah. So my name's Clint Harris, married, just turned 42. I've got two little boys, five and two. That's the most important thing. General partner with Nomad Capital. We're a self-storage syndication with a little bit of a twist. We buy old vacant big box retail buildings like Kmart's grocery stores, warehouses, textile mills, and we convert them into climate controlled self-storage facilities. That's what I do now. That is not my background. I had a 16 year career in cardiology, implanting pacemakers and defibrillators as a medical sales rep.

And then a few years of buying single family homes and doing it poorly. Then a few years of buying small multifamily properties at the beach and converting them to Airbnb's and doing pretty well at that. And then building a property management company, which I did really well at because I had partners that are smarter than I am. then made the jump into big box retail conversion projects. And that's, that's really what changed our life in a meaningful way. And I left medical sales in 2022.

Aviva (01:57)
wanna jump right into this conversion discussion. Tell me everything, give me a high level about your conversion process, how you got there and what it looks like today.

Clint Harris (02:10)
Sure. So it jumped off the page at me because previously I was buying small quadplexes with bad long-term tenants in place. I was moving the month-to-month tenants out, and I was converting them to Airbnbs. And when I changed the asset class, it changes the formula by which the asset is valued. And it was 3x 4x the gross potential rental income. And the value shot up, right? So the idea of if you change an asset class, you can change the formula by which the asset is valued. That is a lesson that I learned previously and jumped out at me. So then,

through that process of short-term rentals, got really burned out on tenants. And so I started making a move towards the most passive strategies that I could find. And self-storage is the one that kept coming up over and over. And I was like, wait a minute, you mean no kitchens, no bathrooms, and nobody living in the property as long as you're doing it right, right? And then I kind of applied what I'd already learned and what my partners were doing at the time is they had bought an old warehouse and converted it. And here's the high level.

If you and I go build a cell storage facility from the ground up right now, it's going to cost us $120 a square foot. It's going to require the purchase of the land and it's going to take us three plus years to go through the entitlement permitting engineering and everything else. I can buy like if I bought the first Kmart that we bought was 87,000 square feet. Big box retail space is virtually dead. It's been wiped out by Amazon and Walmart. We bought our first Kmart building for $1.5 million because nobody wants

90,000 square feet of big box retail. The replacement cost, if we had tried to build that shell was around 6.5 million. So we bought it for 1.5, we put 2.5 into it, we're into the project for four and then appraised for nine. So that was the light bulb moment for me. was like, this isn't, this really worked. It's not just on the back of a napkin. And the idea is across the last three and a half years, we bought two Kmarts.

three warehouses, two textile mills, a grocery store, an old soda bottling facility. Right now we have a boot factory and a carpet factory. One's closing this week, one's closing in about a month. Across that portfolio, on the day that we open up the doors as a climate controlled self storage facility for the purchase of the building, the land, and everything else, the construction on the day we open the doors, our average is just under $65 a square foot. it's, so it's about half the cost of construction.

Aviva (04:34)
Well.

Clint Harris (04:34)
And

it takes us an average of 12 months from the time we close on a property to open the door. So it's about a third of the time. And it's about half the cost of construction. So that's, that's the same thing of converting an Airbnb, you know, from the long-term to an Airbnb. And I think that's the real value that I would want your listeners to take in is anything in commercial real estate. If you can, we're all looking for heavy value add.

The heaviest value add that you're going to find is if you can change the asset class, which is going to change the format or the formula by which that asset is valued. It's not rocket science. I take a big box, I chop it up into six or 700 little boxes we've rented out and the value shoots up, right? We buy a building typically for two to three million. We put two to three million into it and as a stabilized self-storage facility, they typically appraise in the 13 to $17 million range.

Aviva (05:24)
I talk to a lot of people, all I do all day is talk to people about commercial real estate, be it on the podcast, in the trenches. I've never talked about conversion of big box retail to self storage and everything you're saying makes sense. It's like you said, it's not rocket science, it's profound. I'm really impressed. Let me ask you, with the deals you're doing right now,

What are their proximity to one another? Because I've heard a little bit about self storage getting overbuilt. I'm curious how you're handling and combating that.

Clint Harris (06:01)
Yeah.

Yeah, that's a it's a real loud talking point nationwide. And let's unpack that a little bit. Yeah, there's a lot of storage that's going out there. But most of the storage that's going out there is ground up development, right? So you got to find the five to seven acres, and then go through a couple years of the process. We our model is secondary and tertiary markets across the southeast. For instance, you're not really going to find me in a downtown Charlotte will look there.

Aviva (06:09)
Thanks.

Clint Harris (06:31)
But you will find me 15 miles away in Gastonia, which is having this massive population boom as people are getting pushed out of the more expensive urban areas. They're pushed into the suburban markets. A lot of them are renting because the younger generation can't buy right now. When they rent, they're renting a smaller space based upon the square footage. They're using climate controlled storage as an extension of the closet extension of the garage, right? They still have stuff, but it's like mountain bikes and snowboards and fishing rods and winter clothes. So they need to be able to get in.

Aviva (06:59)
Sure.

Clint Harris (07:01)
6 a.m. on a Saturday, QR code on the door, touchscreen, kiosk, get in, get out, run off to the mountains. They're in and out of the property four to six times a month. So the number one thing is understand the consumer, right? And then that's going to help us dictate the location. And in terms of feasibility of a location, we look at 50 to 70 properties a week to get down to maybe one to three a month that we're going to send a letter of intent on. Most big box retail buildings or warehouses will not work.

for logistical reasons or, you phase one study, phase two or whatever. But the big thing is we're looking at the residential density in a one, three, five and seven mile radius. want great visibility, great traffic count. We like the buildings that have been empty for eight to 10 to 12 years. I want the hole in the roof. I want the rats inside. I want the ugly ducklings, right? That we can turn into the golden goose, basically. So we do the construction in house and I think we should talk about some of the risks associated with this. But first I want to

Aviva (07:49)
Hahaha

Clint Harris (07:58)
fully answer your question is one of the great things about storage is that what really matters is about a seven mile radius. That's about as far as people want to drive. You're not going 15 miles to the other side of town to get a place that's 15 or 20 bucks less per month, right? It's all about proximity and access. So if you are doing storage these days, it needs to be several things. It needs to be safe, secure, well-lit.

Aviva (08:08)
Hmph.

Clint Harris (08:27)
easy access, centrally located, and it has to be climate controlled because of the way the consumer is using it as an extension of the closet. They'd rather rent a one bedroom condo for $1,300 a month instead of a two bedroom condo for $1,800 a month, and then get a storage unit for $150 and have that extra space for the extension of their lifestyle items. So the model for us is find that big box retail building, look at the residential density, look at the vehicle traffic count, the visibility.

Make sure there's an existing demand there that is underserved. We're going to jump into that market. We're going to slap down 80 or a hundred thousand square feet of climate controlled storage and have it open in 12 months for half the cost of construction of anybody else. It's hard for other competitors to jump into that marketplace. A lot of times we're very centrally located. Think about where Kmart was, right? It's the people of that community. It's usually high residential density. Those people used to drive there.

Aviva (09:25)
Yeah.

Clint Harris (09:27)
to buy their home goods, even though it doesn't make sense for them to do that anymore, because of Amazon and Walmart, it still makes sense for the same people to drive back to the same community, same building, and sometimes pay us to put the same stuff inside of. I've seen people walk in with old Kmart bags. It's hilarious. You're looking through the grates at the top and you can see Kmart produce, or bags in there. It's hilarious. But it's just an inverse flow of a micro economy. So what you're asking me about is I don't necessarily care

Aviva (09:52)
Yeah.

Clint Harris (09:57)
what's happening nationwide. I care what's happening in a seven mile radius. How much storage is there? What's the price per square foot? And am I going to be able to get in there, snatch up an old building, convert it for a fraction of the cost of anybody else? And let's take it one step further. Here's why. If I buy a building for one to two million, two to three million, put two to three million into it, and it's going to appraise for 15, I don't have to sell the asset for all the investors to get a payday. Our job

With our entire prop, you know, we, we find the buildings ourselves. We raise the capital. do the construction at cost plus 12 % and we do the property management at a combined 5%. We're not trying to get rich on any of that. We are trying to land with a stabilized project so that we're in the 35 to 40 % loan to value range. That means we can refi to fixed rate debt, never variable at around 60 % loan to value.

have enough money to pay out all of the investors and a few million left over for Nomad. All of that money is tax free because it's not a capital gain because we didn't sell anything. And then we keep the asset everybody stays in. If anybody's listened to Bigger Pockets or heard about the BRRRR strategy, it's the same thing. We're just doing it with old Kmarts and big box retail buildings.

Aviva (11:03)
Wow.

That is cool. I, like I said, as somebody who hears all the strategies all the time, this is unique and interesting. I also, resonates. Everybody can, I'm sure can relate to the Kmart on a major corner with unbelievable parking that we went to in the nineties that, like you said, sat vacant for five, eight, 10 years and somebody

Clint Harris (11:17)
Thank you.

Aviva (11:43)
could find that and add value to it and not only help yourself, but help your investors, help your community. It makes a lot of sense, but you brought up risk. I wanna talk about risk. I wanna talk about the first deal you did and how you were able, in terms of the conversions and how you were able to mitigate your risk and go through with it.

Clint Harris (12:12)
The the number. OK, let me take a step back here and it's funny we're having this conversation right now because there was 2000 K -marts in the country. We're having this conversation the third week of October 2024 and the last one closed this week. Ironically crazy. Yeah, there was. I didn't even know I thought there was three left a couple years ago and I thought they all went down. Apparently one was still open so it just closed this week. Ironically, so there's no lack of buildings. That's for sure. But in terms of the risk.

Aviva (12:25)
No way. Wow.

Clint Harris (12:39)
Some of the projects that we pick up, we pick up from other developers who have tried to pull this strategy off and failed. So even though the concept is very simple, we take a big box, we turn it up into a bunch of small boxes and we rent people boxes of air. That's it. There's nothing sexy about storage. What is sexy is when you can do it at such a low, low, low into value that you can recapitalize and everybody stays in. I think that's the unique part of it. But the risk is, you know, if you're paying retail costs for the building.

Aviva (12:46)
Hmm.

Clint Harris (13:08)
We're looking at 50 to 70 properties a week. A lot of them are off-market deals. That's to get down to one or two a month, maybe two or three a month that we're going to send a letter of intent on. So we're working hard. I've got a team of guys looking for properties. And then we have in-house construction with 30 years of commercial construction experience. My partners are a father and son team of Eric and Levi Hemingway who built their first self-storage in 06, their first conversion in 2016.

We didn't start syndication until 2021, but there's a lot of experience there. We build at cost plus 12%. Retail construction is going to be in the cost plus 25, maybe 30 % range. And then we do in-house property and asset management combined 5%, 3 % property management, 2 % asset management. We also raise the capital in-house from our private pool of investors. If you are trying to take on this strategy and you're going to pay retail costs for the building,

Aviva (13:54)
Hmph.

Clint Harris (14:04)
You're going to pay retail costs for the construction and you're going to pay retail costs for the property management and potentially for the hard money that you need during the build out period. Plus the interest reserves period of the two to three years it takes to fill it up. It will eat you alive. And frankly, the juice is not worth the squeeze. One of the big things is speed. Our construction team just works on our deals. Our director of construction and our project and site supervisors are also investors in our deal.

Aviva (14:24)
Yeah.

Clint Harris (14:32)
So I love watching them get excited when they find a box of screws for $5 less per box or something like that, right? They're, they're hooping and hollering because they're in on it, right? And we're looking at everything. Like when we had a supply chain issue a couple of weeks ago with the port shutting down, they're on the phone immediately calling our suppliers. Do we have everything for the next jobs to get our door roll up doors and things like that? Then they're calling the suppliers of the people with the roles of metal that supply that person.

Aviva (14:43)
Wow.

Clint Harris (15:00)
to see how much do they have, then they're calling backup suppliers that might use the Westport because only the East coast and the Gulf are closed down, right? You have to have this attention to detail to make sure that you're going to hit the timeline. In traditional commercial construction, the change orders are what slow you down. One change order can throw off your subs by two or three months. And that will kill you in deals like this because the interest reserves are so high when you're dealing with millions of dollars that

Aviva (15:12)
Yeah.

Clint Harris (15:28)
That's the key. So controlling the risk, the reason it works for us, we're not paying retail costs for the building, the construction, the property management. So having that top to bottom vertical integration is really important.

Aviva (15:42)
And it sounds like everybody's skin is in the game and it shows.

Clint Harris (15:44)
Yeah,

I love that.

Aviva (15:47)
So we're seeing in the news Walgreens, CVS are meeting the same fate as Kmart's. Are those properties you're pursuing or those smaller than what you generally look for?

Clint Harris (16:01)
Usually they're smaller. If there is height of say, usually around 20, sometimes 22 feet, we can put in a mezzanine and we can add a second floor. We've done that on a property in the past and we've got it planned for one that we're under contract with right now. So we'll actually build a mezzanine, put in a second floor and put in a freight elevator. Obviously then you have to factor in construction time.

and link cost of the elevator and things like that. And the other thing is like the feasibility study, whatever the size of this building is, if you're effectively doubling the net rentable square feet, can the market handle that? So there's a lot of science that goes into it. The other thing is if those buildings are freshly empty, a lot of those people are still holding out hope that they're going to be able to get a buyer. So a lot of times we'll let those marinate for six or eight years, right? There's plenty of inventory out there for us.

The longer the building's been on the market, a couple of things happen. The cheaper we can get it, price per square foot. And usually the more motivated the town is for someone to just come in and do something with the old, whatever it was and beautify the area. Right. And then we'll see funny swings. Like there's a grocery store we're looking at very closely that went out of business. was a Lowe's Foods, which is a higher end grocery store. Went out of business recently and

They put a price tag. I was like, man, this is a great location. It's near a lot of our investor base. How cool would this be? Price tag was 7 million. No way. It's out of the ballpark. That's not what we go for. Well, then the broker calls in. It's like, you know what? The grandchildren inherited this property. They just realized if a Lowe's Foods can't make it there, there's probably not many other grocery stores that are going to come in there. They also are getting a $50,000 tax bill at the end of the year. So right now we have a 50

you know, 50 % tax or price cut right now. And if you have interest on it, you know, feel free to submit any offer. We're willing to listen to anything. So you get individual family situations like that where they're ready to unload it, but the deal flow is not a problem. Right now we're in an election year. You can put your money in a savings account and make four, four and a half percent for all operators. Typically capital is the constraint, but the good news is for us like

Aviva (18:00)
Sure.

Clint Harris (18:14)
We only need to raise a couple million bucks per building. we're rolling. We've been doing syndication since 2021. We're at $150 million in assets under management right now. Plan is to get to 300 million over the next two years, 500 million in five years and a billion in 10.

Aviva (18:32)
Which leads to my next question. How are you raising $100 million? For a listener who wants to syndicate, what are your secrets to raising $100 million?

Clint Harris (18:45)
Sadly, there's really no secret. I had a 16 year career in medical sales. on the first few, like the first Kmart that we did, I put money in, my partners put money in, and then we raised, you know, about three quarters of a million dollars from physicians that I worked with for years that were friends of mine, right? Doctors all have money, they all have time. Without time, you can't get experience. And those are the three things you have to have success in real estate. So from there, it was just a handful of, you know, eight or 10 of us did a project together and then another one and then another one and another one and

Aviva (18:59)
Hmm.

Clint Harris (19:14)
Eventually you kind of burn through that local ecosystem that you have, which, which, you know, eight to $10 million. So from there, we've, I'm wrapping up a $10 million fund right now, which is for five different properties, two of which are closed and under construction. One just open. got another one closing this week, another one closing in a month or so, and then one more to go. So that we're about eight and a half million in on a $10 million fund. A lot of that has been organically from people that have seen our projects. A lot of it has been from.

Things like this networking on different podcasts and just blasting it out there into the stratosphere, hoping someone is listening more to your podcast than they are to mine. Cause I'm not going to raise $10 million through my own podcast. Right. But if I use that as a, as a way to network, my podcast is for me to learn and ask questions. When I get a chance to network with other people, it's for me to try to educate, not just about syndication, but about storage and not sell what we're doing, but let people know.

Aviva (19:58)
Yeah?

Clint Harris (20:11)
If you are looking to be a passive investor, these are some of the options that are out there. So it's a lot of that. These days you're seeing operators do things called like fund of funds where they're bringing other. Koji Pete general partners in and like offering pieces of the equity to different people to raise capital. That's not something that we've done. Our model is different than what most people want. Most people want a three to five year deal and sell it. That that's not our model. We've never sold anything that we've syndicated.

Aviva (20:29)
Hmph.

Clint Harris (20:41)
The reason we're called Nomad Capital is because a Nomad goes where they want, when they want, and does what they want. Our entire purpose is to break the cycle of trading time for money, Independence of purpose. We all think we want financial independence, but that's pretty shallow in the grand scheme of things. What we really want is time, financial, and location independence because those three things together create an independence of purpose where you go where you want, do what you want with your life. You choose what's important to you.

Aviva (20:41)
Hmm.

Yeah.

Clint Harris (21:09)
My job is to die with a stack of pictures of things I did with the people that I love in beautiful places, right? And to do that, I have to get that independence of purpose. So those are the like-minded investors we look for.

Aviva (21:14)
Hahaha

I like that. I'm going to take that put it in my back pocket. What type of returns do you see on average on your deals?

Clint Harris (21:24)
Feel free. There you go. Thanks.

Yeah, in the current fund, it's a 19 to 22 % IRR. It's a 10 year period, but we're very clear. It's a return of capital at or before five years. We have a large event that happens there to refinance. We have another large event that happens at the 10 year mark and we have cashflow in between, but we're very clear about that does not mean that at the end of that 10 years, we're selling everything or pushing investors out. As long as we hold properties, all the investors stay in and beyond that, it turns into an infinite return.

Aviva (21:35)
Okay.

Clint Harris (21:58)
For that 10-year fund, it's a 19 to 22 % IRR, 3.2 to 3.6 X equity multiplier. It comes out to around a 21 to 24 % annualized rate of return.

Aviva (22:08)
What's your minimum buy-in? Okay, you got me to put my LP hat on. It's working.

Clint Harris (22:09)
$50,000 minimum.

Hmm, is it working? Why?

Listen, the biggest thing is like we're potentially talking about being in business together for a very long time. So we are looking for investors that know, like and trust us. We also want to make sure that we take the time and ask the questions so that we know, like and trust you and understand what your goals are. Because the reality is if you're three years into this and you get disgruntled or that doesn't fit with your goals for your family, I'm the one that's got to take the phone call anyway.

Aviva (22:28)
Yeah.

Clint Harris (22:41)
Right, so let's talk about it up front and see if it's a fit.

Aviva (22:41)
Yeah.

Yeah, really, really impressive. yeah, I'm just amped because I think we're bringing a lot of value to the listeners on this one. One more question on the self storage front. you so you kind of made a comment? Is this all automated or is there a presence, a property manager on site for your self storage facilities?

Clint Harris (22:49)
Thank you.

Yeah, great question. we've done automated. In fact, we still have one automated facility right now. We have two facilities here in Wilmington that are very close together. So one manager can manage both of those. And anytime anybody calls one of our facilities, the phone rings at all of them and shows where they're calling from. So if the person on location is in the back helping someone, someone's going to answer the phone right away. But the reality is what we've seen, the lease up is faster on the manned properties. I think that a more sophisticated market

Aviva (23:40)
Hmm.

Clint Harris (23:42)
is probably using the web base, using the QR codes on the door, using the touchscreen kiosk, and they're probably fine. But our job as responsible GPs with a responsibility to our investors is we want to catch everybody coming in the door early on. So sometimes we'll have someone in house. Then we have one more property that will be automated, but we're having someone on site for likely the first six months or so. And then they're going to transition to the

Aviva (23:55)
Sure.

Clint Harris (24:08)
It's not a hub and spoke model because they're just going to be at one facility and kind of splitting time and managing both of those. We have tried centrally located and remotely manage multiple properties, but we don't like that. And frankly, we're facing some headwinds in storage right now because the housing market is frozen because of the interest rates. We're still doing well, but it's not as good as the last 10 years of unbelievable gangbusters growth that we've seen. It's flattened a little bit. So we want to do our SEO optimization and like

Aviva (24:26)
Yeah.

Clint Harris (24:37)
do all the things, right, and be on site, knowing that as soon as the interest rates come down a couple more times, which we know is gonna happen, that we'll be right back off to the races again. So we're prepping for what we know is gonna come.

Aviva (24:50)
amazing. Clint, what makes you happy with what you do day to day in commercial real estate?

Clint Harris (24:56)
This is a great question. know, keep in mind that for a living, I used to implant pacemakers and defibrillators and it was people that were trying to die on the table and unfortunately sometimes did. And this is people that were like, time is of the essence and it was very actionable. So I got a lot of joy out of what I did because I could see the tangible results, not just for that person, but for their family. And it was very rewarding for me. One of the things that I was scared of is when I got away from that.

that I would lose that. And I think that was selfish and naive. And what I've learned is that you can get that reward out of whatever you're doing. If you're doing it the right way with the right ethics and transparency. So the happiness for me is that a lot of, a lot of the people that I used to work with are now invested with our deals and they used to have the golden handcuffs. And it was hard for them to see a way that they could ever exit that because there wasn't another job that they could do that where they can make as much as they're doing now.

So that's fun to see. also like to see younger people. know, alternative investments were never really available to the common man until the jobs act of around 2012. So it's still fairly young. I get joy out of educating and making people realize, see this 10 or 15 years earlier than they would have. Like the average LP investor is in their mid fifties. If you can realize this 20 years earlier, you're buying yourself so much more runway. And I think time is the most important thing.

And that's why, like I have a five-year-old son. He and I keep bees together. We have some beehives and he has a honey business. We also live at the beach. So he has a sea salt business. We sell it at the little market in town. that's the instilling the idea that you don't have to trade your money, trade your time to someone else and pay for their days off that you can take control of your future. it's, it's reflected in those different investor groups that I just use with the youngest being my son.

Aviva (26:31)
cute.

Clint Harris (26:51)
That's the fulfillment that I get now that I used to get from a career in the

Aviva (26:55)
Wow. Clint, this has been great. Really, really cool what you're doing. like I said, I think we brought a ton of value today. Where can the listeners find you, follow you, learn more about you, nomad, cetera.

Clint Harris (27:12)
You should know by now that I talk too much. that hasn't scared you off yet, you can find me as a co-host of the Truly Passive Income podcast. hit 75 episodes over there. Besides that, you can go to our website. It's nomadcapital.us or reach out to me directly. Clint, you can book a call through the website or clint at nomadcapital.us. I'm happy to share and talk about anything. I have 14 Airbnbs. We built a property management company that manages another 75.

Failed and learned a lot from a single family portfolio and now finally had success in a very meaningful way with self storage conversions. If there's any of that that I can help anybody with, I'm happy to network and communicate.

Aviva (27:51)
Head on over to the truly passive income podcast. Clint, thank you for being on the show today and for everybody listening, we'll see you next week.