How to Get Started with Self-Storage Investing

we talked a lot about the mechanics and things that you guys are thinking about when you're analyzing deals and why self storage is such a great asset to own within the real estate class. now, what I want to get your insight on this week is, what do I do? So, okay, I agree with you, let's say, from episode one, that self storage is in fact a great investment and there are different ways to get involved in that investment. Paul, what would you recommend?

You've got a high net worth individual who's interested in investing in self storage. What do you, where do you start? Where do you go? What would you point them to? Would you give them recommendation, wisdom, you know, that sort of thing.

industrial flex or retail or office, you're generally getting into an area where, number one, there's a lot more capital required. And number two, the markets are more sophisticated in terms of understanding, what the value of a property is or isn't and, what its future might look like. Typically, when people cross over from doing residential real estate, rental houses and that type of thing, they will look to partner with a sponsor.

the whole reason that a fund vehicle as a concept was created was to give Investors, a couple of different advantages that they don't have on their own. first and foremost, it allows them to combine their capital with other investors, which allows them greater diversity and, sort of spreading risk around. the average self storage facility costs five to eight million dollars to build.

you know, even if you're a very wealthy high net worth individual, you probably would be limited to maybe doing one project. so you've got all your eggs in that one basket. The second benefit that you get from a fund is, particularly if you pick the right sponsor, is getting somebody with experience in that asset class, that's focused on it on a full time basis. and, hopefully has a track record that sort of indicates that their likelihood of success is greater than yours would be on your own.

and those are the two principal benefits of investing with a sponsor in a fund vehicle. And then lastly, not only are you diversifying by leveraging other investors capital who are investing alongside you, but typically a fund, like in the case of our Growth Fund One, is invested in eight different properties.

It's actually a total of about 80 million worth of real estate that an investor who invests in the fund today can spread across, 80 million of capital and eight different projects with a simple 100, 000 investment. So. those are the real key benefits, if you will, to investing, via a fund vehicle. the other alternative, is, our single property investment vehicles, where you have a sponsor, a smaller group of investors that's invested in one property.

And that's what we did for more than 30 years. But we went to the fund model because it provides greater diversity across those dollars deployed for our investors in the fund.

But it's better to go with a sponsor because you get diversification of your assets and things like that. But you also get the expertise that I know a firm like yours would bring to the table. There's a lot of things to analyze. So what kinds of things are you doing on behalf of an investor like that when you're thinking about building self storage? So what I mean by that is, what does it look like to engage a firm?

Not necessarily your firm, maybe, but what are some things that I should be looking out for? What are some things that, would, come with investing in a firm that I should be aware of? Anything like that?

So, I think really understanding the sponsor, and the strategy of the particular investment that you're looking at, for example, our focus, our strategy is to really grow people's equity, we are not an income oriented investment in terms of monthly or quarterly dividends, so it sort of starts with determining what your investment objectives are and does the opportunity meet those objectives.

If you're, near retirement or at retirement and you're really investing for income, our growth fund probably isn't the ideal vehicle for you because we're not going to distribute cash on a regular basis. we're doing ground up development and we're going to sell those properties and distribute lumps of cash, as the fund exits each property. So, I think your own investment philosophy and, requirements combined with understanding the sponsor. do they have a track record?

Do they have the experience and expertise? are the first two steps in that process. Once you've cleared those, okay, the opportunity appears to meet my investment objectives, and the sponsor's track record is, if not impressive, at least solid. Then it gets down to looking at the individual opportunity. You know, what markets are they investing in? what is their overall strategy? What is the supply and demand balance in those markets? what's the assumption?

one of the key assumptions that drive the investment returns. For example, in our world, we're developers. we're looking at the value that we can create in the development process. If you're investing in a fund or a vehicle that's acquiring existing facilities, what are their projections in terms of rate growth, and occupancy? And do the dynamics in that market support those assumptions?

Sort of doing a reasonableness check, if you will, to make sure that the underlying assumptions that they've predicated their projected returns on are realistic and achievable.

Those early stage parts of the process, do I like the sponsor, do I like the track record, does the strategy match my investment objectives, can be accomplished in a four page summary. but beyond that, the things I was talking about just a minute ago are really found in the offering memorandum, the private placement memorandum, or PPM as it's referred to.

Typically, an entity like this would be structured as an LLC in today's world and there's an LLC agreement that would have some pretty practical information in it in terms of governance and how some of the really specific aspects of that entity are going to operate over time.

So, once you sort of pass the initial phase of, yeah, this seems to line up with something that makes sense for me, then you really have to dig into the private placement memorandum and the LLCA to get to the nitty gritty details. and then behind that, I strongly suggest before you make the decision to invest that you schedule a call with a sponsor, so that you get to meet them face to face, you get a feel for how responsive they are.

And in that call, you need to have some well thought out questions. Maybe areas of the private placement memorandum that you didn't fully understand. Or, or maybe there's information that wasn't disclosed in the PPM that you'd like to know. For example, we have a, secure data room, to support our fund. And we have, when we have investors who want to dig a little deeper, for example, they want to see the underwriting on each of the properties.

And they want to see, The proformas and the assumptions in those proformas, we don't send those out to folks, but we have them in a secure data room. We provide them with a log in. They can go into that data room and study that data, and then come back with questions for us. if somebody won't that level of information. That would be a red flag for me. but digging as deep as your expertise, and interest will allow you to.

And even I've had multiple situations over the years where, someone's personal attorney or CPA, might engage depending on how much you're investing and, the process you want to run, you can certainly engage your CPA or attorney, to look at the legal documents and the financial projections to kind of give you some third party comfort that they're within reasonable bounds and seem to make sense.

obviously there's a conflict or potentially a conflict of interest there, so it's always a great idea if you've got. an advisor, whether it's an investment advisor, CPA, attorney, or a close friend that may have more financial acumen than you do, it's never a bad idea to get their opinion. we try to provide as much information as any, you know, somebody would want to look at and give them as many opportunities as they'd like to get questions answered or get additional information.

com right now, And I get in touch with your team. We talk through it. What does the next, 30 to 90 days look like? and I know this isn't supposed to be a hard pitch for AAA. You guys do fantastic work, but I want people to know what the process looks like. what does it look like? Do I get, statements? Is there, quarterly reports and that sort of thing.

Andrew Froh our head of investor relations, would send you a link. and invite to that portal. You would log in, and all the documentation that you need to complete to subscribe to the fund would be there. You do it all online, sign it electronically, and then we'll send you a capital call notice. And within two weeks of receipt of that notice, your capital has to be wired into the fund's account. so now you're officially an investor. You've been admitted into the fund as an investor.

From there, we also have an investor portal. It's a secure portal. All of the information related to the fund will be posted in your portal and you'll get an email notice. for example, we do a quarterly update on the fund property by property and sort of do a little discussion about the capital markets in general and then the self storage and office industrial flex markets in particular. and then go through each property where it is in this development process.

If it's in Lisa, What's the occupancy? How are things going? And we send that out on a quarterly basis. In addition, you're going to get an annual K 1, which is reporting your share of the income and loss from the investment. That will be placed in your investment portal, and you'll get a notification. the fund publishes its financial statements every quarter. those are posted, in the investor portal. And then at the end of the year, the fund is audited by Cherry, Beckert Holland.

And those audited financials are posted. in the investor portal as well. So everything moves through the investor portal. You can download it. It's saved there for you, so you don't have to download it, but you can download and save on your own PC or laptop, any of those documents or information that you want. But the investor portal really serves as our key communication link. once somebody is in the fund and we go through the process.

So thank you Paul for that. And I would encourage anybody listening to reach out to the AAA storage team. On social media on the website and this is a great team to talk to. This, we won't get so granular in the process and, and things like that about AAA, but I, I really wanted to get people wrap their minds around what it looks like. From here, we're going to be talking much more about market trends and future trends, things like that, that you guys have stored up in your big brains.

I'm glad you told us about that. So thanks Paul.

And looking at a real estate investment at the end of the day, really in a whole lot different than that. So.