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Completed Equity
Self-storage
Apollo Storage
Melbourne, FL
INVESTMENT STRATEGY
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INVESTMENT TYPE
Equity
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100% funded
Offered By StoreSmart Self Storage
22.1%* TARGET IRR 22.0%-23.0%
9.0%* TARGET AVG CASH ON CASH
* TARGET EQUITY MULTIPLE
Estimated Hold Period 6 years
Estimated First Distribution
*Please carefully review the Disclaimers section below, including regarding Sponsor’s assumptions and target returns
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Overview
Management
Cumulative Distributions

StoreSmart Self Storage

StoreSmart Self Storage ("StoreSmart"), is a national developer and asset manager of premier self storage properties. StoreSmart represents the formalization of the collaboration since 2004 of Lewis G. Pollack and W. Bradford Sherman. The company has been named one of the Top Self-Storage Operators in the U.S. by Inside Self-Storage Magazine.

StoreSmart's goal is to acquire and/or construct Class A self storage facilities in strategically located and underserved market areas across the U.S. utilizing strict budget controls and efficient execution. StoreSmart’s facilities are managed by its affiliated property management company, Reliant Real Estate Management, LLC (“Reliant”), utilizing the most modern technology and time tested methods to drive efficiency and profitability. Reliant manages StoreSmart’s portfolio and performs third party self storage management services to other owners of self storage facilities.

Georgia, South Carolina, North Carolina and Virginia are preferred markets for their higher than average household income, substantial and underserved population of residential and commercial users, with marked shortage of Class A self storage capacity in many areas. Florida, historically one of the strongest self storage markets in the U.S., has also been one of the hardest hit by the economic downturn, providing distressed purchase opportunities. These characteristics combined offer attractive submarkets for self storage. StoreSmart is actively seeking sites or properties in various first, second, and third tier markets in these states.

Sample Transaction

Where StoreSmart finds existing self storage properties, with some occupancy, that are in excellent locations but suffer from substantial deferred maintenance or are antiquated, or do not offer Class A amenities, StoreSmart redevelops such facilities as Class A facilities. Such an example is StoreSmart’s project in Rock Hill, SC. This facility was an antiquated, Class B-/C property in an excellent location, and offered no climate controlled units. StoreSmart redeveloped this facility, completed in August 2012, by demolishing a portion of the existing project and constructing a new climate controlled building, along with renovating the overall facility. Pre-redevelopment and post-redevelopment pictures have been included below.

Investment Approach

StoreSmart’s investment strategy entails one of four scenarios. The first of these scenarios is the acquisition of existing fully-occupied facilities that include additional land, in markets that evidence pent-up demand for additional storage space. StoreSmart then develops such additional space to maximize the operational efficiency and value of such facilities. The second development scenario utilized by StoreSmart is the acquisition of existing, antiquated or Class B or C self storage facilities, with some existing occupancy, and to redevelop such facilities as Class A facilities. In this transaction, StoreSmart is utilizing this investment approach. The third development scenario is the acquisition of undeveloped sites in the most underserved regions across the U.S and the development of self storage facilities to serve these markets. The fourth development scenario involves the redevelopment of retail “big box” tenant spaces in strong locations into self storage facilities.

StoreSmart develops all of its projects with a view toward long-term ownership but has agreed to sell certain of its facilities where advantageous due to price, local market conditions or otherwise. In any event, if StoreSmart does not plan to own a prospective facility long-term, it is not a suitable project for StoreSmart.

Site Selection and Analysis

StoreSmart has established a network of strategic alliances with commercial realtors, consultants and competitors across the U.S. The purpose of this network is to provide a steady stream of potential sites and existing facilities in StoreSmart’s target markets for feasibility evaluation. Once a target site or existing facility is identified by StoreSmart, the site selection process typically takes from 30 to 180 days, including contracting for the site, entitlement and site plan approval, environmental and geo-technical review, and all other actions necessary to commence construction of a self storage project thereon.

StoreSmart performs extensive due diligence in connection with analyzing the feasibility of a potential project and accurately interpreting the competitive climate, including, without limitation, the evaluation of the occupancy, location, unit size, unit mix, layout, deferred maintenance and management of every competitor within the market area of the proposed site, as well as the evaluation of relevant demographics within the market area. When StoreSmart is evaluating the purchase of an existing self storage facility, it performs extensive due diligence including, which includes the analysis of deferred maintenance of the facility and the unit mix currently occupied.

The most accurate measure of the demand for additional storage inventory in a given market is the current level of occupied space within existing facilities in that market. No matter how small a community’s population, high rates of occupancy within a market area indicate pent-up demand for additional storage in general, or of a specific unit size or type. Lower occupancy levels are not necessarily indicative of low demand. Instead, they may mask pent-up demand under any, some, or all of the following circumstances: poor management, the unit mix of the area’s inventory may not match the sizes customers want or need; even with appropriate sizes, competition may suffer from a bad location or deferred maintenance; there may be a need as yet unrecognized in the market area. StoreSmart uses all the tools at its disposal in evaluating its relevant market area, competition and feasibility of development.

Keys to Success

  • Careful identification of target self storage markets in underserved regions across the U.S. meeting consistent, established market criteria
  • Location of sites in outstanding locations within target markets
  • Construction and acquisition of only institutional grade, Class A facilities with appealing architectural and amenity-rich designs
  • Staffing with well trained and experienced management professionals
  • Efficiency in scheduling and execution in the entitlement and construction process, when applicable
  • Stringent cost controls, resulting in the minimization of overhead costs associated with the development process
  • Maintaining stringent development cost standards
  • Identification and maximization of profit centers complimentary to self storage
  • Management of entire self storage portfolio to maximize profitability
  • Development and maintenance of beneficial strategic alliances
http://www.storesmart.org/
  • W. Bradford Sherman - Managing Principal
  • Lewis G. Pollack - Managing Principal
  • Todd M. Allen - Principal
W. Bradford Sherman - Managing Principal

W. Bradford Sherman operates the Carbondale, Colorado office of StoreSmart, and has primary responsibility over StoreSmart’s legal, investment and finance matters. Mr. Sherman, a real-estate and corporate lawyer for over 25 years, was formerly a partner with the Little Rock, Arkansas law firm of Gill Elrod Ragon Owen & Sherman, P.A. For much of his tenure with the firm, Mr. Sherman ran the firm’s real estate development group, representing real estate developers nationwide. Mr. Sherman has over 20 years of experience of investment in, or development of numerous retail and single family real estate developments. Mr. Sherman is a frequent speaker and writer on real estate development and finance topics, and has served on the Board of Editors of Retail Law Strategist, a publication of the International Council of Shopping Centers. Mr. Sherman is a graduate of Washington University in St. Louis, and holds a law degree from University of Arkansas. Mr. Sherman is a member of the Arkansas Self Storage Association.

Lewis G. Pollack - Managing Principal

Lewis G. Pollack operates the Boca Raton, Florida offices of StoreSmart and Reliant, and has primary responsibility over StoreSmart’s operational matters, including without limitation - site identification, competitive analysis, absorption analysis and construction associated with StoreSmart’s projects. Mr. Pollack, a long-time corporate executive and entrepreneur, has been involved in the development and management of self storage in excess of 30 years. Mr. Pollack is a graduate of Franklin and Marshall College, Trenton State College, and holds a Ph. D. (ABD) from University of California at Los Angeles. Mr. Pollack is serving his second term as a Trustee of the Florida Self Storage Association.

Todd M. Allen - Principal

Todd M. Allen operates the Atlanta, Georgia office of Reliant. Mr. Allen is primarily responsible for site identification and initial evaluation, project feasibility and analysis and preparation of preliminary pro forma analyses, as well as all operations matters of StoreSmart.

Prior to joining StoreSmart, Mr. Allen served as Director of Analyses for O.B. Companies, the largest privately held self storage operator in the world. Prior to his employment with O.B., Mr. Allen has served as Vice President of Operations for Meridian Storage, Inc., a regional self storage developer and as a Regional Manager for Sterling Management, a regional self storage and multi-family developer. Mr. Allen is a graduate of Clemson University. Mr. Allen is a member of the Florida Self Storage Association and the Indiana Self Storage Association.

Track Record

Business Plan
Property

At A Glance

Investment Strategy: Buy and Hold
Hold Period: 6 years
Total Project Budget: $10,710,088
Property Type: Self-Storage
Net Rentable Area: 112,030 square feet
Distributions to Realty Mogul 18, LLC: 8% preferred return with excess cash flow and appreciation shared 70/30
Going-In Cap Rate: 7.8% (based on in place income)

Investment Details

StoreSmart Self-Storage ("StoreSmart") plans to acquire, renovate and re-brand Apollo Storage, a 112,030 square foot, stabilized Class B self-storage facility located in Melbourne, Florida. Realty Mogul investors are being provided the opportunity to invest in Realty Mogul 18, LLC. Realty Mogul 18, LLC, will be making an investment in Storage Partners-Melbourne, FL, LLC, the entity that will hold title to the Property.

The managers of StoreSmart will handle all aspects of the investment including acquiring the Property, completing a strategic renovation and rebranding program, and ultimately selling the asset. They will be responsible for implementing a capital expenditures program designed to bring the facility up to standards consistent with a Class A self-storage facility. This plan includes renovation of the management office/retail showroom, attending to deferred maintenance needs, such as roof repairs, partial resurfacing and striping of the parking fields, upgraded security cameras, improved gates and fencing, HVAC repairs, roll-up door replacements and general site work. The rebranding of the facility will include new signage and paint. 

The Property will be managed by Reliant Real Estate Management ("Reliant"), StoreSmart's affiliated property management company. Reliant manages StoreSmart's portfolio and also performs third party self-storage management services for owners of other self-storage facilities. The storage facility currently offers truck rental services, but StoreSmart does not believe that the service is being marketed sufficiently. StoreSmart offers U-Haul truck rental at all of its facilities and intends to offer this service, which may potentially increase revenue and drive new customers to the property. The storage facility also does not currently offer tenant insurance. StoreSmart requires all customers to either provide proof of insurance coverage for all items stored or allows customers the ability to purchase insurance insurance offered at each facility. StoreSmart intends to offer tenant insurance at the storage facility, which may potentially provide a new source of revenue at the Property. 

StoreSmart intends to hold the Property for six (6) years before exiting the investment, though the hold period could be longer or shorter. Realty Mogul investors have the opportunity to participate as equity stakeholders and earn a share of the cash-flow and appreciation. Investors can expect to receive quarterly updates and quarterly distributions.

This Property represents a unique opportunity to invest in a self-storage facility located in an underserved market. The Property has existing, in-place cash flow while also offering investors value-add potential through a renovation and rebranding program.

Investment Highlights

  • Highly Occupied Property With Diversified Tenant Base: The Property currently has 989 individual storage units and is currently 95% occupied, providing investors with immediate cash flow from a strong in-place tenant base. The purchase cap rate of 7.8% on in-place income will provide investors the possibility for immediate cash distributions while retaining continued upside potential because of the additional 8,800 square foot build-out, renovation and rebranding of the facility to Class A standards, and potential for reducing expenses through management under the Reliant operational umbrella.
  • Potential Upside with Repositioning Plan: The anticipated capital expenditures plan for this transaction are designed to bring the facility up to standards consistent with a Class A self-storage facility. StoreSmart and Reliant plan to capitalize on the characteristics of the subject property by providing what they have deemed is an underserved market with a Class A facility which may allow management to push rental rates while maintaining stabilized physical occupancy levels. Revenue may be further increased upon completion of the 42 new storage units currently under construction, as well as through energy and operational efficiencies and from improvements in the facility's truck rental operations.
  • Experienced Sponsorship: StoreSmart is a national developer and asset manager of self-storage properties across the country. The company has developed, acquired, or is in the process of acquiring over $150 million in self-storage projects in Arkansas, Florida, Georgia, Illinois, North Carolina, and South Carolina involving, in aggregate, more than 2.25 million square feet of space across 22 properties. Reliant manages the entire StoreSmart portfolio and also performs third party management for numerous other self-storage owners for a total of 30 assets under management. StoreSmart generally works only with institutional investors and certain specific investors such as Realty Mogul, with which it has an established relationship. This will be Realty Mogul's second transaction with StoreSmart. 

Risks and Risk Mitigation*

  • Forward-Looking Statements: Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated,” “projected”, “forecasted”, “estimated”, “prospective”, “believes,” “expects,” ”plans” “future” “intends,”, “should,” “can”, “could”, “might”,“potential,” “continue,” “may,” “will,” and similar expressions to identify these forward-looking statements.
  • Illiquid Investment - Transfer Restrictions & No Public Market: The transferability of membership interests in Realty Mogul 18, LLC are restricted both by the operating agreement for that entity and by U.S. federal and state securities laws. In general, investors will not be able to sell or transfer their interests. There is also no public market for the investment interests and none is expected to be available in the future. Persons should not invest if they require any of their investment to be liquid. This is particularly important for persons of retirement age, who should plan carefully to assure that their assets last throughout retirement.
  • Construction Completion: The new building is currently under construction and will not likely be completed prior to closing. However, the lender is aware of the construction status and should therefore not delay closing. Assuming construction is not completed, a completion price will be determined, funds will be placed in escrow and administered once the work is completed. In addition, StoreSmart and Reliant are experienced self-storage operators whose proforma analysis assumes stabilization is not achieved until month seven (7) of operations.
  • Decrease in Rents or Occupancy: One of the major risks associated with this transaction is the possibility of a decline in rents or occupancy, a risk increased by the addition of 42 units that will need to be leased upon completion of the new building.  This risk is mitigated by two things: 1.) StoreSmart's renovation and rebranding plan to bring the property up to Class A standards, which focuses on increasing rental rates consistent with Class A product and 2.) the Property is located in a market that, based on StoreSmart's analysis, is under supplied by approximately 790,985 net rentable square feet of storage. In addition, very little, if any, marketing has been performed at the site to date. StoreSmart believes that the strong marketing provided by Reliant will have a material positive impact on the facility's operations.
  • Ground Lease: The Property is located on a ground lease. However, there is a remaining term of 43 years on the ground lease. In addition, while it is not a certainty, StoreSmart has received positive feedback from the Melbourne Airport Authority regarding an extension of the ground lease.
  • Non-Primary Market Location: The Property is not located in a primary market of the U.S. While there is greater risk because it is not located in a primary market, this is partially mitigated by the high cash-on-cash returns projected for this transaction.  
  • Management Risk: Investors will be relying solely on the manager of Storage Partners-Melbourne, FL, LLC for the execution of its business plan. That manager in turn may rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of Storage Partners-Melbourne, FL, LLC (including Realty Mogul 18, LLC) will agree to indemnify the manager in certain circumstances, which may result in a financial burden if any litigation results from the execution of the business plan. While the manager of Storage Partners-Melbourne, FL, LLC has significant operating experience, Storage Partners-Melbourne, FL, LLC is a newly formed company and has no operating history or record of performance. 
  • Uncertain Distributions: The manager of Storage Partners-Melbourne, FL, LLC cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 18, LLC) from either net cash from operations or proceeds from the sale of the asset. That manager, in its discretion, may retain any portion of such funds for tenant improvements, tenant refurbishments and other lease-up costs or for working capital reserves.
  • Hurricane Risk in Florida: Melbourne, Florida lies near the Atlantic Ocean, which is subject to frequent and sometimes destructive hurricanes. Hurricane or flood insurance is expensive, however, and Storage Partners-Melbourne, FL, LLC does not intend to procure hurricane or flood insurance for the Property. There can be no assurance that a sizable hurricane will not cause significant damage to the Property, in which case the business and financial condition of Storage Partners-Melbourne, FL, LLC would be materially adversely affected.
  • General Economic and Market Risks: While StoreSmart has conducted significant research to justify the intended rental rates and sales price relative to comparable properties in the market, its best efforts to forecast economic conditions cannot state for certain whether or not investor sentiment and the capital markets will be favorable to the property at the intended disposition date. The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including supply and demand for real estate investments, all of which are beyond the control of the manager of Storage Partners-Melbourne, FL, LLC.

*The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Investor Document Package for a discussion of additional risks.

Property Details

Address: 575 North Apollo Boulevard
Melbourne, FL 32935
Year Built / Renovated: 2006 / 2014
Current Occupancy: 95%
Net Rentable Area: 112,030 square feet
Total Units: 989 total units
419 non-climate controlled units
545 climate controlled units
25 RV Parking spaces
Street Frontage: Approximately 1,000 feet
Daily Traffic Count: 21,310 

The Property consists of storage units and climate controlled ("CC") storage units of the following sizes.

Current Unit Mix
UNIT TYPE TOTAL UNITS SF TOTAL SF
5x5 11 25 275
5x5 CC 24 25 600
5x10 40 50 2,000
5x10 CC 72 50 3,600
5x15 16 75 1,200
5x15 CC 24 75 1,800
10x5 3 50 150
10x5 CC 55 50 2,750
10x10 125 100 12,500
10x10 CC 227 100 22,700
10x15 112 150 16,800
10x15 CC 66 150 9,900
10x20  101 200 20,200
10x20 CC 69 200 13,800
10x25 11 250 2,750
10x25 CC 4 250 1,000
PO Boxes 4   5
RV Parking Spaces 25    
TOTAL 989   112,030

Property Highlights

  • There are currently 9 buildings total on the Property, with another building under construction.
  • The storage structures are all single story, pre-engineered metal buildings with keypad controlled entry.
  •  There are 13 security cameras and an 800 square foot office on the site.
Location

The Property is located on North Apollo Boulevard, a traffic artery in the region with average traffic counts of 21,310 vehicles per day. The Property was developed on land leased from the Melbourne Airport Authority, a 50-year lease with 43 years remaining. Northrop Grumman recently announced that it plans to design and build next generation bombers at the Melbourne Airport property, which will potentially generate up to 1,800 jobs.

Melbourne Market Overview

The City of Melbourne, with a population of 77,000+, is located on east central Florida’s Space Coast, about an hour's drive south of the Kennedy Space Center and 1 1/2 hours due east of Disney World. Spanning approximately 41 square miles, approximately 75% of the land is in use. Melbourne is in the southern portion of Brevard County and is part of the larger Palm Bay-Melbourne-Titusville MSA. Transportation needs for the city and metropolitan area are served by Melbourne International Airport and Interstate 95, a north-south thoroughfare.

Melbourne Self-Storage Overview

Reliant, the real estate management affiliate of StoreSmart, conducted a study of the self storage competition within the market area in July 2014. The study set out to determine the potential demand for additional self-storage within the market area based on current occupancy levels, rate structure, physical and management characteristics of the existing facilities, and perceived preferences of existing customers. The study utilized a variety of techniques, including on-site physical assessments and manager interviews, “secret shopper” telephone and internet rate inquiries, and discussions with area wide managers of competitors. The results of the market study are the basis for determining the market rate rent structure and unit mix for the property. The compiled results are presented in the attached competitive analysis on the sidebar to the right, and below is an overview of those results.

There are currently 16 direct competitors located within the immediate five-mile market area. Taking into consideration the closest eight competitors, there are three national brands (Private Mini Storage, Public Storage & Uncle Bob’s Self Storage) and five “mom & pop” competitors (Eau Gallie Self Storage, KC Mini Storage, Ample Storage, A/C Storage Place & Secureway Self Storage). Private Mini Storage is the most similar direct competitor and national brand to the subject site. This Class A competitor offers climate controlled and drive-up non-climate controlled unit types with all of the amenities the subject site will provide and is an excellent operational benchmark for the minimum the subject site can expect in way of performance.

The remaining competitors in the market would be classified as “mom & pop” facilities. Eau Gallie Self Storage, the closest competitor to the subject site at less than a mile away, suffers from the classic errors of these one-off facilities like poor access, visibility and curb-appeal and a lack of amenities ranging from truck rentals to climate controlled units. Despite these drawbacks, the property reports 85% average physical occupancy. KC Mini Storage is the smallest facility in the competitive study with approximately 85 units. The property is well occupied and provides no competitive threat to the subject site. Ample Storage and A/C Storage Place have roughly the same amenities of the subject site; however, their small drive aisles and odd unit sizes diminish their competitive threat. Both sites report average annual physical occupancy in the high 70%-range. This underperformance in the market is most likely due to the lack of urgency from their management staff to lease units or complete marketing. Secureway Self Storage, though a local “mom & pop” competitor, should be designated as a Class A product due to its amenities, lack of deferred maintenance and strong site characteristics. The facility is the furthest away from the subject site at approximately three miles which considerably diminishes its competitive threat. Furthermore, the access and visibility are less than customer friendly and explain the reported 79% average physical occupancy. The ability for all self storage class types to flourish in this market support the self storage demand assumption needed in the market.

The 16 direct competitors account for approximately 738,800 net rentable square feet of storage in a market with demand estimated at roughly 1,529,785 net rentable square feet. The subject site’s 112,030 net rentable square feet is below the market’s equilibrium point and should; therefore, be well-positioned to take advantage of this under-served self-storage market.

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