My first-hand experience with banks has me concluding that they are virtually shut down for new commercial real estate (CRE) loans, especially...
Self storage investing has emerged as a promising avenue for generating substantial returns. As the demand for secure, flexible storage space continues to rise, it presents a compelling investment opportunity for those seeking stable cash flow and long-term appreciation. However, like any investment, careful due diligence is necessary to determine the potential success or failure of such ventures. In this blog post, we will explore the factors that contribute to the success of a self storage investment, outline the due diligence process for evaluating real estate developers and fund managers, and highlight the advantages of investing in self storage over other commercial real estate asset classes.
Analyze the local market to determine if there is a demand for self storage facilities. Factors to consider include rental rates, population growth, demographics, economic indicators, and perhaps most importantly, competition in the area today and in the future. You are only as good as your data. DXD is obsessed with understanding the historical performance, the future indicators, and barriers to entry that mitigate.
Access the location's accessibility, proximity to residential and commercial areas, and visibility to potential customers. A convenient location can significantly impact the facility's success. Because self storage is a commodity, investors who possess the most data are positioned to outperform because they can use these data points to decide where and when to build. DXD’s proprietary technology allows the team to make informed decisions more quickly than a typical developer process.
Evaluate the quality, size, and layout of the facility. Adequate security measures, climate control options, and well-maintained premises are crucial for attracting and retaining customers. DXD analyzes each market to determine the optimal unit mix. We find and capitalize on anomalies in any given market. Most trade areas demand multistory climate controlled facilities managed by a REIT operator like Public Storage or Extra Space. You’ll see these types of assets make up the vast majority of our portfolio.
Carefully analyze the projected revenue and expenses, including operational costs, maintenance, marketing, and any financing terms. Ensure that the investment aligns with your financial goals and offers a reasonable return on investment. DXD is focused on Internal Rate of Return, or IRR and the Equity Multiplier for its investment metrics. The time value of money combined with actual profit provides a holistic view of how to measure investments apples-to-apples.
Consider the potential exit options, such as selling the property or refinancing, and evaluate the feasibility of achieving a profitable exit within a reasonable time frame. DXD employs various exit strategies. We know that creating scale will attract large buyers who will pay portfolio premiums to get into the space. We also know that holding on to our self storage facilities to drive rates will ultimately create more valuable assets. Cash flow is important to many investors and our investment structures allow us to take advantage of tax deferred refi proceeds, push rates and enjoy cash flow while we wait for the optimal time to sell.
Review the track record of the real estate developers and fund managers involved in the project. Examine their previous projects, their success rates, and the performance of investments. DXD is exceeding its proforma expectations with its open facilities and members of its team have incredible depth of success in self storage.
Evaluate the team's expertise in the self storage industry. Look for professionals with experience in site selection, facility management, marketing, and financial analysis. The DXD team is its greatest asset. Deep understanding of the industry at large and hundreds of successful projects at their backs, DXD is poised to be the best investor in self storage.
Access the financial health of the developers and fund managers. This includes reviewing their financial statements, creditworthiness, and ability to secure financing for the project. DXD’s investors invest time and again because they trust in DXD to protect its financial health. Its lenders follow the firm anywhere in the nation and work with other banks to facilitate guidance lines for construction debt and lines of credit.
Seek references from industry professionals and previous investors. Research their reputation, conduct online searches, and check for any legal or regulatory issues associated with the team. Trustworthiness is DXD’s number one core value which is reinforced by its excellent reputation and repeat partners in all aspects of its business.
Ensure that the team's goals align with the investors' interests. Examine the fee structure, profit-sharing arrangements, and transparency in reporting. Look for managers who have significant personal investment in the project, indicating their confidence in its success. DXD Principals and Employees are invested in all DXD investments and investors enjoy best-in-class reporting which includes monthly updates with access to realtime cameras at facilities, pictures, and narrative. A robust investor portal provides a document repository for all documents associated with investments. Quarterly financial reports and yearly audits where applicable all support the investor experience. The returns and deal structures for DXD investment opportunities are varied, but there is always one goal: provide outsized returns to our investors and invest in a host of the top performing self storage trade areas throughout the nation.
Self storage tends to be more recession-resistant compared to other asset classes. During economic downturns, people downsize or move, creating increased demand for storage units. Disruption creates demand for storage. The pandemic was an excellent example of this phenomenon. The industry did not experience seasonality for two years because the disruption was so great: kids moving home from college, moving out guest room furniture to create home offices/gyms, completing home renovation projects, etc. all created incredible demand for self storage.
Self storage facilities generate steady monthly rental income. The month-to-month leasing structure allows for quick adjustments in rental rates to maximize revenue and hedge against inflation.
Compared to other commercial real estate asset classes, self storage facilities require relatively lower management and maintenance efforts. The operating costs are typically lower, resulting in higher net operating income (NOI). Particularly when combined with sophisticated asset management and REIT operations, adjusting pricing levers to achieve the maximum occupancy and rental rates can be the focus of the ownership team.
Self storage investments offer the potential to scale by acquiring multiple facilities in different locations. This diversification reduces risk and enhances long-term returns.
Self storage tenants typically stay for longer periods, reducing the turnover rate and associated costs. Self storage customers are sticky. A recurring bill on a credit card for a relatively small amount of disposable income versus clearing out a unit by selling the contents, finding permanent homes for the stuff, or taking it to the dump are all larger hurdles than the recurring $150 on their credit card in many cases.
Overall, self storage investing offers a promising avenue for investors seeking stable cash flow, long-term appreciation, and a resilient asset class. By carefully assessing the factors that contribute to success, conducting due diligence on developers and fund managers, and capitalizing on the advantages of self storage investments, savvy investors can position themselves to capitalize on this lucrative opportunity. Interested in exploring self storage investment opportunities with DXD Capital? Provide your information and a member of our investment team will reach out to you to discuss current opportunities, answer questions, and when you are ready, guide you through our investment process.