The owners of Storage Express, which operates 93 self-storage facilities in five states, were recognized in a dedication ceremony on Jan. 15 when the University of Indianapolis (UIndy) renamed a building in their honor. The Schwitzer Student Center Atrium will now be known as Shreve Atrium in honor of husband-and-wife team Jefferson and Mary Shreve, who made a significant financial donation to the school. The space was chosen because it reflects the couple’s interest in the community, according to the source.  

“I am so thankful and grateful to have our name associated with this campus and with this space, which is particularly meaningful to us, because this space is that connecting point not just for the student and faculty life, but for the community that reaches its fingers through the south side,” said Jefferson Shreve, who was born in South Indianapolis and served on the city council. He got involved with the college because he liked UIndy President Robert Manuel’s vision, and viewed the school as an important south-side institution, according to Christopher Molloy, vice president for university advancement.

“He started to support the university in smaller ways,” said Molloy, adding that he and Manuel came to know Shreve when he visited the campus. Shreve later decided he wanted to do more. Although the exact number wasn’t disclosed, his contribution falls into the “naming gift category,” for donations between $100,000 and $5,000,000. The money will support the Professional Edge Center, which helps students prepare for graduate school or the workforce, Molloy said.

“[The naming] is a wonderful opportunity to be able to connect to the Shreves as they think about their philanthropy, engaging the community, and facilitating the conversation as the University Heights neighborhood develops,” Manuel said.

Founded in 1992, Storage Express operates self-storage in Illinois, Indiana, Kentucky, Ohio and Tennessee. It has offices in Bloomington, Indianapolis and Jeffersonville, Ind.

Source:

Reflector, Shreves Honored for Donation to Professional Edge Center

 

Andover Properties LLC, which operates the Storage King USA self-storage brand, has acquired Old Lucerne Park Storage in Winter Haven, Fla. It’s the company’s third location in the city, according to a press release.

The property at 4620 Old Lucerne Park Road contains climate-controlled and drive-up units, flex space for businesses, and a cell tower. It also provides truck rentals, and sells moving and packing supplies.

“We like the income diversity this property offers. Plus, we managed to acquire this asset at a very attractive basis,” said Michael Wachsman, director of acquisitions for Andover. “This is the classic value-added play we look for. There is a lot of value that can be generated from providing Old Lucerne with high-quality, full-time institutional management; a dynamic website; better Internet presence; and pricing reflecting market conditions, as well as the economies generated by owning two other assets in the area.”

In January, Andover purchased AAA Storage Hwy 27 & Postal Center in Minneola, Fla. The property comprises 75,000 square feet of storage space in more than 600 units. Andover plans to modernize the facility by rehabilitating the older structures and adding security and lighting.

Founded in 2003 and based in New York City, Andover owns and operates 29 self-storage facilities in nine states, totaling nearly 2 million rentable square feet of storage space in 16,100 units. The firm focuses on the acquisition, development and management of industrial, retail and self-storage facilities, primarily in the North and Southeast.

 

One of the appeals of investing in self-storage is the ability to enter the industry with a relatively small buy-in. If you can save enough toward your equity contribution and qualify for Small Business Administration financing or a mortgage approved by a lender active in the business, you can take down a deal. Once you own your first property, you’re in!

However, as you continue to scale and grow your portfolio, you may deplete your capital options. Unless your operation produces consistent cash flow to replenish the equity you’re using to fund investment opportunities, you’ll quickly run through your own dry powder. This lack of capital can bring your growth to a screeching halt.

Successful portfolio expansion requires a fundamental understanding of how to navigate the capital markets. Knowing when and how to access various sources of growth capital can mean the difference between success and stagnation. Accordingly, it’s incumbent upon you to bolster your capital-raising IQ.

Investors of all profiles apply two primary criteria when evaluating whether to invest in a self-storage deal. The first is whether the investment will deliver the returns they seek; the second is tied to the level of governance they have over the deal.

Other People’s Money

When you begin raising third-party capital to grow your storage portfolio, you’ll naturally approach your network of friends and family. These individuals know you and your track record. They’re generally less stringent on the specifics of the investment opportunity and will more broadly consider it based on your involvement. The more familiar these prospective investors are with your success, the higher the likelihood they’ll entrust you with their money.

If you have your sights set on raising this type of equity, it’s important to continually cultivate you network. This includes staying in front of past investment partners and finding ways to make inroads with other likeminded individuals who are receptive to attractive opportunities.

These investors consider two primary measures of return:

• Return of investment: When will they get their initial investment back?
• Return on investment: How much will they make above the initial investment?

The first measure addresses the investor’s risk, while the second is focused squarely on the reward for that risk. Naturally, you’ll want to define a reasonable split for yourself in light of having sourced the deal and, ideally, delivered on the business plan. Individual investors will generally look to you to present that structure, considering it against the two return measures.

The structure is typically a single-tier waterfall in which, after a certain return is achieved—return of investment, plus some percentage above—you receive a specific percent of the profit. Further, your investors will look to you to present the governance structure, leaving much of the decision-making to you. They’ll take a more passive role in day-to-day operation while staying more involved deal-making decisions.

Getting Institutionalized

Institutional investors, such as private-equity groups, insurance companies and investment managers, have shown a strong and growing interest in the self-storage sector during the last several years. This is reflected in the billions of dollars they’ve invested to acquire and develop properties via joint ventures with existing storage operators and developers.

Some institutions have dedicated funds and mandates with specifically defined investment parameters for self-storage, including total deal size, minimum investment size, target markets, hold periods and return minimums. These specifics make it easy for you to know if a project fits within their programs.

These investors also apply two primary measures of return for investments:

• Internal rate of return: Annualized return over the life of the deal
• Equity multiple: Return of their initial investment, plus a return above that investment

The driver for their measures is the same as yours. Institutions are managing money on behalf of others and must deliver returns to their investors so they can take their profit split. Those returns are measured the same way.

Unlike individuals, these investors generally dictate the structure of how the profits will be split. The structure is typically a multi-tier waterfall in which certain tiers of return are achieved. As you clear these tiers, you’ll begin to receive a larger percentage of the remaining profit.

Since institutions are managing capital for their own investor base, they generally require a governance structure that affords them a high level of control when it comes to decision-making. They’ll want a say in when to sell or refinance. Some even require the right to be involved in the day-to-day decisions, such as changing rates, management processes, staffing, management software, etc.

Evolution to Investment Management

When you begin building a self-storage business, part of the initial success comes from being your own boss. As you invite new investors to participate in your platform, you must consider those stakeholders and even provide a level of participation in decision-making. However, every business that experiences exponential growth does so because it has the capital available from external investors. When this occurs, the owner/operator becomes a fiduciary, serving his investors and shareholders regardless of the specific governance involved in that stewardship.

While you may initially identify yourself as a self-storage owner/operator, you need to think about your platform as an investment-management business. To be successful at accessing the necessary investment capital for growth, you need to get acquainted with investor profiles and risk-reward parameters and adjust accordingly.

David Blatt is CEO of CapStack Partners, an investment bank and adviser specializing in real estate. He leads all principal-investing and capital-raising efforts for the firm, and has negotiated and structured countless transactions since 2001. A motivational speaker, he’s also host of “Make the Deal: Real Estate Investing with David Blatt,” a YouTube-based information series. For more information, visit www.capstackpartners.com. 

One of the appeals of investing in self-storage is the ability to enter the industry with a relatively small buy-in. If you can save enough toward your equity contribution and qualify for Small Business Administration financing or a mortgage approved by a lender active in the business, you can take down a deal. Once you own your first property, you’re in!

However, as you continue to scale and grow your portfolio, you may deplete your capital options. Unless your operation produces consistent cash flow to replenish the equity you’re using to fund investment opportunities, you’ll quickly run through your own dry powder. This lack of capital can bring your growth to a screeching halt.

Successful portfolio expansion requires a fundamental understanding of how to navigate the capital markets. Knowing when and how to access various sources of growth capital can mean the difference between success and stagnation. Accordingly, it’s incumbent upon you to bolster your capital-raising IQ.

Investors of all profiles apply two primary criteria when evaluating whether to invest in a self-storage deal. The first is whether the investment will deliver the returns they seek; the second is tied to the level of governance they have over the deal.

Other People’s Money

When you begin raising third-party capital to grow your storage portfolio, you’ll naturally approach your network of friends and family. These individuals know you and your track record. They’re generally less stringent on the specifics of the investment opportunity and will more broadly consider it based on your involvement. The more familiar these prospective investors are with your success, the higher the likelihood they’ll entrust you with their money.

If you have your sights set on raising this type of equity, it’s important to continually cultivate you network. This includes staying in front of past investment partners and finding ways to make inroads with other likeminded individuals who are receptive to attractive opportunities.

These investors consider two primary measures of return:

• Return of investment: When will they get their initial investment back?
• Return on investment: How much will they make above the initial investment?

The first measure addresses the investor’s risk, while the second is focused squarely on the reward for that risk. Naturally, you’ll want to define a reasonable split for yourself in light of having sourced the deal and, ideally, delivered on the business plan. Individual investors will generally look to you to present that structure, considering it against the two return measures.

The structure is typically a single-tier waterfall in which, after a certain return is achieved—return of investment, plus some percentage above—you receive a specific percent of the profit. Further, your investors will look to you to present the governance structure, leaving much of the decision-making to you. They’ll take a more passive role in day-to-day operation while staying more involved deal-making decisions.

Getting Institutionalized

Institutional investors, such as private-equity groups, insurance companies and investment managers, have shown a strong and growing interest in the self-storage sector during the last several years. This is reflected in the billions of dollars they’ve invested to acquire and develop properties via joint ventures with existing storage operators and developers.

Some institutions have dedicated funds and mandates with specifically defined investment parameters for self-storage, including total deal size, minimum investment size, target markets, hold periods and return minimums. These specifics make it easy for you to know if a project fits within their programs.

These investors also apply two primary measures of return for investments:

• Internal rate of return: Annualized return over the life of the deal
• Equity multiple: Return of their initial investment, plus a return above that investment

The driver for their measures is the same as yours. Institutions are managing money on behalf of others and must deliver returns to their investors so they can take their profit split. Those returns are measured the same way.

Unlike individuals, these investors generally dictate the structure of how the profits will be split. The structure is typically a multi-tier waterfall in which certain tiers of return are achieved. As you clear these tiers, you’ll begin to receive a larger percentage of the remaining profit.

Since institutions are managing capital for their own investor base, they generally require a governance structure that affords them a high level of control when it comes to decision-making. They’ll want a say in when to sell or refinance. Some even require the right to be involved in the day-to-day decisions, such as changing rates, management processes, staffing, management software, etc.

Evolution to Investment Management

When you begin building a self-storage business, part of the initial success comes from being your own boss. As you invite new investors to participate in your platform, you must consider those stakeholders and even provide a level of participation in decision-making. However, every business that experiences exponential growth does so because it has the capital available from external investors. When this occurs, the owner/operator becomes a fiduciary, serving his investors and shareholders regardless of the specific governance involved in that stewardship.

While you may initially identify yourself as a self-storage owner/operator, you need to think about your platform as an investment-management business. To be successful at accessing the necessary investment capital for growth, you need to get acquainted with investor profiles and risk-reward parameters and adjust accordingly.

David Blatt is CEO of CapStack Partners, an investment bank and adviser specializing in real estate. He leads all principal-investing and capital-raising efforts for the firm, and has negotiated and structured countless transactions since 2001. A motivational speaker, he’s also host of “Make the Deal: Real Estate Investing with David Blatt,” a YouTube-based information series. For more information, visit www.capstackpartners.com. 

Last spring, we wrote an article that focused on self-storage development in Canada. The emphasis was on risk-adjusted returns and how developers appear to be building to unlevered returns as low as 6 percent. Some developments we’re seeing may produce cash-on-cash returns as low as 8 percent. These numbers are concerning. More troubling is our examples were based on conservative assumptions, without considering possible changes in the market.

Since that article was written, the market has evolved. The Bank of Canada moved interest rates by 25 basis points. The consensus is rate increases will continue and likely move again by the end of 2018. These movements will impact more than development loans, and the self-storage industry should be paying attention, as construction loans are usually variable-rate.

Moving Markets

We’ve been reading “Am I Being Too Subtle: Straight Talk From a Business Rebel” by real estate tycoon Sam Zell. One chapter revisits an article the author published in 1988. “From Cassandra with Love” laid out Zell’s predictions for the future of real estate in the United States, and the impact the lending and investment communities would experience as a result of changing tax legislation, inflation, leverage and oversupply.

Fast forward almost 30 years and reading this article seems like nothing more than a doom’s day scenario. But if you’ve read it, some things should resonate. Are we destined for a correction? Is this shift in interest rates the beginning of something bigger? We all know values can’t go up forever.

We understand times are different. We simply want to create food for thought. We also want to preface this cautionary tale by saying the self-storage industry in Canada is healthy—very healthy. Facilities are experiencing good rates and growth as well as high occupancy. There’s still an immense amount of opportunity in major markets such as Toronto and Vancouver, and strong operators will continue to outperform in their areas.

We’re seeing successful acquisitions, development and conversions throughout the country as well as an influx of groups looking to self-storage as an investment opportunity. We’re also seeing that capital is cheap and easy to access. But there’s a flip side to every coin, which is people seem to be overpaying for assets. They’re putting themselves in a highly levered position and buying on future opportunity. Some seem to be dismissing any risks they’re creating for themselves in a moving interest-rate environment.

An Example

There seems to be a lot of things happening in the storage industry right now that just don’t make sense. People are taking on a lot of risk. Let’s look at a plausible example.

An asset is purchased for $20 million, but the market value is $18 million. The buyer gets financing at 65 percent, so a $13 million loan on the purchase and $7 million of equity goes into the deal. It seems safe, but what if he doesn’t achieve budget and the asset ends up being worth only $18 million? What if the market makes a correction and capitalization (cap) rates move a quarter point? Now the asset is worth $17.5 million.

When the interest rates move, there’s a compounding effect. All of a sudden, the owner has gone from 65 percent to 75 percent loan-to-value. At that leverage ratio, it’s no longer considered conventional. This is when lenders become more cautious around the value of assets and the banks start to back off. At some point, the owner will require backend, more expensive money.

Let’s say the experts are correct and rates move another 25 basis points over the next 12 to 18 months. In this scenario, moving interest rates should be a major concern. The rate doesn’t move by 50 basis points but rather 200 basis points because of what happens to their leverage in that transaction. The cost of debt may go from 4 percent to 6 percent. Now the owner has an asset that’s only worth $17.5 million. Let’s do the math. At a 6 percent cap, if there’s amortizing debt on the $13 million loan, the owner is underwater from a cash-flow perspective. Even though he put up $7 million in cash, there’s a big problem.

This is what we’re seeing in the market, and this is where we caution you. We’re seeing people overpay and use too much leverage based on future value. Simply put, when adjustments take place in the market, people end up in a different pricing bracket on their debt. It doesn’t matter what your assets are worth because every single month that you hold them, your equity takes a hit and your balance sheet looks less attractive.

The Cause

Why are people willing to pay too much? Is it because the market is overheated and they’re worried they’re going to miss out? It seems they’re of the mindset that things will keep going up in value forever, but they can’t. If interest rates move 50 basis points, cap rates can easily move 25 to 50 basis points, as they have in the U.S.

One thing we know for sure is when you get swings in cap rates, banks become much more conservative. They’ll move to an ultra-conservative position quickly, and that will change the lending value of your asset. When the value of leverage changes, people often end up in a position where they’re over-levered from a bank’s perspective. When this happens, lenders look for an equity injection.

This can have a serious impact when loans come due. When people do high-risk or high-debt deals, they want interest-only debt. For the riskier transactions, it could be a good time to be thinking hard about amortizing. If things go sour, the debt you have is going to be difficult to finance in a changing environment later.

It’s a catch-22, though: The riskier the deal, the less likely you are to have cash flow to pay down your debt. This isn’t to say that highly levered deals can’t be done; there are times when higher leverage makes sense. If you can buy a property for $17 million and the asset is worth $20 million, do it. Make your assessments on the in-place value. Buying a neighboring facility or constructing an expansion on an existing asset comes with a level of comfort and security. Any deal in which you can cut costs is a deal worth doing. It’s highly likely you’ll be able to create value.

The Cost of Capital

So, what happens to the debt side of things if our environment changes? What kind of implications will there be on some of the riskier acquisitions and developments we’re seeing today?

Let’s reflect. The cost of debt in the 2008 financial crisis was historically low. This helped people fake their way through things and pay off loans, even if they were underwater, because there was enough cash flow to support it. If an asset was producing a 4 percent return and debt only cost 3 percent, you could still pay down your debt, so the banks would never have to realize on that. If interest rates were to increase from 3 percent to 5 percent and you don’t have the cash flow to support your debt, you’re in trouble.

Back in the 80s, people didn’t have the cash flow to support their debt, which resulted in bankruptcies and foreclosures. You needed someone who was willing to write big checks to buy you out. That put a lot of pressure on cap rates to move in favor of buyers.

Over time, the market will change. We’ll see some level of correction, and the bulk of that will come from a change in the cost of capital. The more levered you are, the more impact that will have on you. Those who are less credit-worthy and have less cash flow are going to be the ones who are hurt the most.

People need to be more cautious because we’re seeing some questionable decisions being made in the market. Make sure you have the appropriate balance sheets. Have the cash flow in place to protect you in the long run. Leverage can change, interest rates can change, cash flow can change. All of this will have a bearing on you, the true value of your asset and buyer equity. When evaluating your risk, remember that cash flow is always valuable. In the worst possible environment, the ability to go in and service debt is huge. If the cost to service debt is to change, you should consider your alternatives.

Michael Foy is the president and Jaimie Walker oversees the business development for venture-capital firm Storage Capital and Foy & Co., a brokerage firm specializing in the acquisition and disposition of self-storage operations in Canada. For more information, call 647.922.5133; e-mail [email protected]; visit www.foyco.ca.

Inside Self-Storage (ISS) has released a new gallery to assist facility owners through their development process. “Critical Components to Self-Storage Feasibility” offers guidance on evaluating potential land parcels and storage projects before committing to an investment. It addresses important decision-making factors, such as the site and surrounding area, upfront costs, potential competition and long-term expenses.

Content for the resource was provided by Bob Copper, owner of Self Storage 101, a consulting firm specializing in self-storage. With decades of experience, Copper has worked with hundreds of owners and managers to provide due-diligence services, operational audits and training. He’ll be a featured speaker at the upcoming Inside Self-Storage World Expo, April 3-6, at the Paris Hotel & Resort in Las Vegas. He’ll participate in an education seminar titled “Landmine-Aversion Therapy: How to Avoid Detonating Your Self-Storage Dream” on April 4 and present the Owner/Operator Executive Workshop on April 6.

The new gallery is available for viewing and free download from the ISS Resource Center, which can be found on the website’s main menu.

For more than 27 years, ISS has provided informational resources for the self-storage industry. Its educational offerings include ISS magazine, the annual ISS World Expo, an extensive website, the ISS Store, and Self-Storage Talk, the industry’s largest online community.

Business partners Richard Hynd and Lorne Richman opened a new self-storage facility in November in The Dalles, Ore. Oregon Trail Mini Storage at 105 Webber St. contains 194 units in eight sizes. The property offers 24-hour access and sells moving and packing supplies. Security measures include controlled entry, perimeter fencing and video cameras. Customers also have access to online billpay and reservations, according to the source.

The project was launched after Hynd had trouble finding a storage unit to rent in the area two years ago. After some research, the partners found a 1.5-acre property that would be a “really good location” for self-storage development, Hynd said.

Construction took about 14 months, with the units assembled by Bulldog Welding & Specialties LLC. The basalt-rock lot, which was previously owned by The Dalles Elks Lodge, had to be leveled, but there were no wetlands issues. An old wagon belonging to Richman serves as the landscaping centerpiece in front of the office.

Since opening, the facility has reached 25 percent capacity, and Hynd expects to see an upsurge in the spring. “We’re getting two or three [calls] a day, recently,” he said. “Since this is the first one of these I’ve ever done, I don’t know if it’s a lot, a little or average.”

Hynd owned Allstate Insurance Co. for 19 years before selling the business. He also taught economics at Bangkok University in Thailand and worked for a Fortune 500 company.

Source:

The Dalles Chronicle, New Mini Storage Open in The Dalles