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Completed Equity
Self-storage
Class B Self-Storage Facility
Fayetteville, NC
INVESTMENT STRATEGY
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INVESTMENT TYPE
Equity
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100% funded
Offered By StoreSmart Self-Storage
15.7%* TARGET IRR 15.0%-17.0%
9.0%* TARGET AVG CASH ON CASH
* TARGET EQUITY MULTIPLE
Estimated Hold Period 5 to 10 years
Estimated First Distribution
*Please carefully review the Disclaimers section below, including regarding Sponsor’s assumptions and target returns
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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 has developed 9 facilities in the southeastern region, operates another 8 facilities in these markets, and 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 Allen - Vice President
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 Allen - Vice President

Todd M. Allen is Vice President of Operations of StoreSmart, and 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: 5-10 years
Total Project Budget: $7,975,102
Property Type: Self-Storage
Net Rentable Area: 168,540 square feet
Distributions to Realty Mogul 10, LLC: 8% preferred return with excess cash flow and appreciation shared 80/20

 

Investment Details

StoreSmart Self-Storage ("StoreSmart") plans to acquire, renovate and re-brand Hope Mills Mini-Storage, a 168,540 square feet, stabilized Class B self-storage facility located in Fayetteville, North Carolina.

Realty Mogul investors are being afforded the opportunity to invest in Realty Mogul 10, LLC. Realty Mogul 10, LLC, will be making an investment in another entity which will hold title to the Hope Mills Mini-Storage property at 5607 Camden Rd, Fayetteville, NC‎.

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, 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.

StoreSmart plans on holding the property for 5-10 years before exiting the investment, but the hold period may 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, with the first distribution expected in month four after the purchase of the property.

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.  

This property represents a unique opportunity to invest in a mismanaged 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 strategic renovation and rebranding program.

Investment Highlights

  • Significant Upside with Repositioning Plan and Under Market Rents: 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. Furthermore, the property's current rents are currently 1-26% below market, depending on unit type. StoreSmart and Reliant plan to capitalize on the characteristics of the subject property by providing the underserved market with a Class A facility which will be able to push rental rates while maintaining stabilized physical occupancy levels.
  • Strong 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 $97 million in self-storage projects in Arkansas, Florida, Georgia, Illinois, North Carolina, and South Carolina involving, in aggregate, more than 1.6 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. StoreSmart typically only works with institutional investors. This particular investment is an exception due to its smaller size. 
  • Stabilized Property with Diversified Tenant Base: The property has over 1,200 individual storage units and is currently 72% occupied, providing investors with immediate cash flow from a diversified tenant base. 
  • Discount to Replacement Cost:  StoreSmart estimates that the replacement cost for a self-storage facility similar to the subject property ranges from $48-65 per square foot, exclusive of soft costs and fees. With a purchase price of $6.75 million or $40 per rentable square foot, the subject property is being purchased for 17-38% below replacement cost. The all-in basis, assuming a total transaction capitalization of $7.95 million, is approximately $47 per square foot and falls on the low end of the estimated cost range.  

Risks and Risk Mitigation*

  • Decrease in Rents or Occupancy: One of the major risks associated with this transaction is the possibility of a significant decline in rents or occupancy. This risk is mitigated primarily by StoreSmart's renovation and rebranding plan to bring the property up to Class A standards and a focus on increasing rental rates consistent with Class A product in an underserved market. In addition, while the average occupancy of the competitive set is currently 85%, StoreSmart is projecting that the subject property will stabilize at 82%. 
  • 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.  

*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: 5607 Camden Road
Fayetteville, NC 28306
Year Built: 1995
Current Occupancy: 72.0%
Net Rentable Area: 168,540 square feet
Total Units: 1,242 total units
1,107 non-climate and parking units
135 climate controlled units
Street Frontage: Approximately 1,000 feet
Daily Traffic Count: 17,000 

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

Current Rent Roll
UNIT TYPE TOTAL UNITS SF TOTAL SF
5x5 75 25 1,875
5x5 CC 16 25 400
5x10 196 50 9,850
5x10 CC 12 50 600
5x15 141 75 10,575
5x15 CC 20 75 1,500
5x20 5 100 500
10x10 259 100 25,900
10x10 CC 17 100 1,700
10x15 21 150 3,150
10x15 CC 30 150 4,500
10x20  244 200 48,800
10x20 CC 7 200 1,400
10x25 CC 19 250 4,750
10x30 114 300 34,200
10x30 CC 14 300 4,200
10x40  15 400 6,000
Outside Parking 36   8,640
TOTAL 1,242   168,540

In addition to the storage units, the property has a business center, which is a two-story brick veneer mixed-use office and apartment building. The building is 2,400 gross square feet, with the square footage split between the uses vertically - 1,200 SF per floor with the apartment upstairs. There are 24 buildings total on the property, and two are labeled as climate controlled storage. The storage structures are all single story, pre-engineered metal buildings.

Location

The property is strategically located on Camden Road, a major thoroughfare which boasts traffic counts on average in excess of 17,000 vehicles per day. The site enjoys excellent access and visibility to numerous retailers, eateries and residence. These strong traffic counts, coupled with the destination point characteristics brought about by the surrounding retail markets, increase the visibility of the subject site and its potential tenant base significantly.

Fayetteville Market Overview

Fayetteville is the sixth-largest city in North Carolina and has numerous historic sites, seven museums, three colleges and universities, multiple entertainment venues, a historic downtown and several award-winning golf courses. The suburban areas of metro Fayetteville include Fort Bragg, Hope Mills, Spring Lake, Raeford, Pope Army Airfield, Rockfish, Stedman, and Eastover. Fayetteville is also home to the Fort Bragg, a major U.S. army installation northwest of the city. Transportation needs for the city and metropolitan area are served by Fayetteville Regional Airport and Interstate 95, a major north-south thoroughfare.

Fayetteville has received the prestigious All‐America City Award from the National Civic League three times, winning the award in 1985, 2001 and 2011. No other North Carolina city has won this award more times than Fayetteville. The benefits of being designated as an All-American City include community pride, networking with civic activists from across the country and national recognition. The All‐America City designation has helped communities win grants and new resources to attract new employers.

Fayetteville Self-Storage Overview

Reliant, the real estate management affiliate of StoreSmart, conducted a study of the self storage competition within the market area in August 2013. 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 compiled results are presented in the attached “Competition Study” on the sidebar to the right. The results of the market study are the basis for determining market rate rent structure and unit mix for the property. 

There are currently 10 direct competitors located within the immediate five-mile market area. Taking into consideration the closest eight competitors, there is one national brand (Extra Space Storage) and two regional competitors (American Flag Storage and AAA All American Self Storage). Extra Space Storage is the closest direct competitor and national brand to the subject property. This new Class A competitor only offers climate controlled unit types, which is directly correlated with its reported average physical occupancy of 65%. The two regional competitors - American Flag Storage, with three facilities, and AAA All American Self Storage, with two facilities - are in the market area offering roughly the same amenities and unit types as the subject property. These two properties report average annual physical occupancy of 80%+, with the American Flag Storage facility closest to the subject property reporting the highest physical occupancy of 88%.

The local brands in the market area are USA Storage Center and Mini Max Storage. USA Storage Center is located approximately a mile from the subject site and would seem to be at a competitive disadvantage due to its lack of curb appeal, amenities and unit types. Despite these drawbacks the property reports average annual physical occupancy of 89% and the USA Storage Center is the price leader in the market for most unit types. Mini Max Storage is a Class C competitor whose threat is diminished due to its poor visibility, management and lack of amenities. Despite being the oldest facility in the market (it was built in the 1970’s), the Mini Max Storage facility still reports 90% average annual physical occupancy, a fact that further confirms the self storage demand in the market.

The 10 direct competitors account for approximately 620,373 net rentable square feet of storage in a market with demand estimated at roughly 830,219 net rentable square feet. With 168,540 net rentable square feet, the subject property is currently operating in a market that is below its equilibrium point and should therefore be well-positioned to take advantage of this underserved self-storage market.

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