Self-Storage Investing In a Syndicated / Private Placement Deal

9 Replies

I've mostly been an investor in multi-family and would like to enter the self-storage arena. I'm considering a private placement / syndicated deal since I don't really have the time to actively manage or oversee a project right now. I am interested to hear from those who have any knowledge syndicated deals in the self-storage space and if you are aware of any reputable operators who have exhibited solid returns for investors. I've invested in PP's in multifamily so I know it's imperative to trust the sponsor as an operator. I'm looking at a deal right now for one with the 27th largest SS operator in the country. The deal involves 10 properties with a $30MM raise from investors. Projected returns in years 1 & 2 are 4% & 6% respectively while the properties are enhanced and occupancy is increased. The preferred return for investors is 8% cash on cash and a projected 16% IRR post sale / exit, with an estimated hold of 6 years (though it sounds like historically this sponsor sells or refinances within roughly 3.5 years).

Thanks in advance for any thoughts you may have on this opportunity and syndicated self-storage deals in general.

I recently made my first self storage syndication investment, having been a multifamily investor previously. I invested in this particular deal because I'd known the sponsor for a few years and followed their deals and progress.

#1 in all syndications, in my opinion, is the team. Experience, reputability, ethics, and things along those lines all come way before a particular deal. If that all checks out, then I'll look at a deal. Much as you've said.

As far as the returns, I would want to take a look into their due diligence and underwriting calculations to determine whether those return projections are conservative or not. I'm more interested in the business plan than the projected cash flows per year. The business plan being whether we can normalize rents, add space, add amenities, and things like that. If all of that makes sense and there's room in the market for it, then I'll move on to how that impacts the numbers.

So for this particular deal, I think you should have an understanding of what the business plan is, then move on to what the numbers say.

@Barry Dameshek The returns are ok but keep in mind your level of return will go down the larger and more experiences the syndicator you go with. If you go with someone less experienced you will probably get a greater return. Personally alot of these syndications get financing so aggressive that in a down market it would make it nearly impossible to sell or refinance so I would never invest in anything with ultra aggressive financing regardless of the syndicator's ability to execute. One thing I would ask the syndicator is find out who is guaranteeing the loan. In multi its nonrecourse and even then alot of syndicators don't guarantee the loan but in storage its always recourse with unlimited guarantee.

@Charles Kao Thank you for your insight. I was told the principals are required to guaranty the loan but of course this leads to another question: how can that be verified?? I suppose I can request a copy of the loan docs but this is a perfect example of how vetting and finding out some of the granular details can be very challenging.

@Barry Dameshek

There is so much to love about the asset class. Particularly as states like my own make it harder to a residential landlord, the appeal of industrial and self-storage assets will grow.

That being said, it's a popular niche at the moment. You may want to presume some overbuilding. From NREI: https://www.nreionline.com/self-storage/rent-growth-declines-self-storage-sector-developers-slow-down-new-projects

@Trevor Ewen Thanks. I know the asset class has considerable appeal for several reasons and that’s why I’m interested. What I’ve really been trying to find out from this post is if BP investors have had success with syndicated deals in this vertical and if so, with which sponsors and what have typical returns been.

Barry, check out @Scott Myers.  Smart, ethical and extremely knowledgeable.  He has established an exceptional system of educating people about self storage and how to find great opportunities.  They then bring them back to him for his ability and knowledge in setting up syndications.  I have joined them on three syndications.

Originally posted by @John Brennan :

Barry, check out @Scott Myers.  Smart, ethical and extremely knowledgeable.  He has established an exceptional system of educating people about self storage and how to find great opportunities.  They then bring them back to him for his ability and knowledge in setting up syndications.  I have joined them on three syndications.

 Thanks for the shout out! Always happy to help where I can!