How do I invest with SSSE?

At SSSE, we provide both accredited and non-accredited investors access to tax-advantaged self storage investments with an emphasis on downside mitigation and social stewardship. Our syndications range from acquiring existing value-add self storage facilities to expanding existing facilities, from converting vacant big box stores into self storage to building from the ground up. The first step to investing with Self Storage Syndicated Equities is to fill out our investor onboarding webform. It is quick and easy and can be found on our website SSSE.com by clicking the “Investors” menu link in the upper left corner. Once you have submitted your investor webform, you will have the opportunity to schedule an introductory phone call with one of our investor relations team members. A scheduling program will automatically appear. After that, stay tuned for the next investment opportunity! If we have any active raises occurring that are a good fit for your investor profile, our investor relations team member will let you know on the call and will walk you through getting access to the investor portal. Otherwise, we typically will send out an email whenever there is a new investment opportunity. It will have the high level details including whether it is a 506(b) syndication (for both accredited and non-accredited investors that we have pre-existing relationships with) or a 506(c) syndication (for accredited investors only). There will also be a link to the investment opportunity’s web page! On the webpage will be more details including a short description at the top, followed by buttons to schedule a call, access the investor portal to review the documents, and a video summary. The investment process concludes with accessing the investor portal and signing the subscription documents and wiring funds through the investment portal. Our investor relations team will be there to help every step of the way.

What is an accredited investor?

Often we get asked, what is an accredited vs. a non-accredited investor. We get asked this because only accredited investors can invest in 506(c) syndications. We do both 506(b) and 506(c), so if you’re not yet an accredited investor, if you invest in enough of our 506(b) offerings, you’ll be headed in the right direction. The Securities and Exchange Commission sets the definition of an accredited investor. The definition is subject to change but as of the time of this writing, an accredited investor is someone who meets one of the following 3 requirements. 1. Income. You can be considered an accredited investor if you have a sustained annual income of at least $200,000 as a single investor, or $300,000 total if combined with a spouse’s income. 2. Professional. If you hold a valid Series 7, 65, or 82 license OR are a “knowledgeable employee” of certain investment entities. 3. Net Worth. Excluding the value of your primary home, if you have a net worth of $1 million or more, by yourself or combined with your spouse, you qualify to be an accredited investor. A couple reminders: part of the 506(c) syndication investment process will be verifying that you are an accredited investor, so “fake it til you make it” does not apply. Lastly, I am not an attorney or investment advisor. This information is purely for educational purposes. Please consult your legal and financial counsel for any questions, guidance, or advice.

How much does a ground up development cost to build?

The cost to build a multi-story, temperature controlled, self storage facility is going to be one of the most expensive ways to build self storage. Self storage is primarily made of steel and concrete, with steel being a highly traded commodity susceptible to supply chain disruptions, geopolitical factors, and economic events. As a result, the cost to build any type of self storage can vary greatly from location to location, month to month. As of the time of this writing, we have seen the cost of building a class-A, multi-story, temperature controlled self storage facility range from $75 to $125 per square foot. Decisions like how many stories, how many elevators, smart locks, etc. will increase prices. There are ways to reduce costs like prefabricated components that are flat shipped and assembled on site. Involving your general contractor in the equity stack and incentivizing price reductions through a profit share structure can help ensure the best price and timely performance. We believe in getting multiple bids on every job.

How much money do I need to invest as a syndication participant?

How much you need to invest as a syndication participant is dependent on the investment opportunity. The syndication sponsors set the minimum investment amount and communicate that to the potential investors. This can be as little as $25,000 but can be much higher. There is often a maximum investment amount as well in order for the syndication sponsors to protect ownership interest so that a single investor does not come in and take over a deal or break a threshold which would require an investor to be a loan guarantor based on their ownership percentage. Each of our syndications at Self Storage Syndicated Equities has the minimum investment and maximum investment established on a deal by deal basis with our lowest minimum investment at $25,000.

How does self storage compare to other real estate assets in regards to return on investment?

Self storage has the highest return on investment in comparison to any other real estate asset class. From 1994-2017, storage returned an annual average of 17.43%. Based on that annual average, $100,000 invested in 1994 would be over $4,000,000 as of 2017. In comparison, if you invested in apartment buildings over that same time, the $100,000 would be $1,774,397 as of 2017.

2017 Value of $100,000 Invested in 1994 Based on Average Annual Return by REIT Sector

Is self storage recession resilient?

From 2007-2009, self-storage dropped -3.8% in comparison to the S&P’s -22.0%. This was the smallest drop of any real estate asset class. Self storage had some of its best performing years during the COVID-19 Pandemic when some other real estate asset classes performed poorly. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage.

Do banks like to loan on self storage?

From 2011-2018, self storage had the lowest default rate of any real estate asset class. When those rare few properties did default, the banks only lost an average of 1.52% per default. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage. Lending on self storage is one of the safest loans a bank can make.

Is self storage easy to manage and operate?

Self storage often has one of the lowest expense ratios of real estate assets due to its minimal staffing requirements, simplified construction, and low turnover costs. By leveraging technology and online tools, self storage facilities can often be operated by a few key employees or even fully automated. The simplified construction of steel and concrete with reduced utilities results in lower ongoing maintenance. When a renter moves out, the turnover cost and process is not like a tenant moving out of an apartment; disposal and broom sweeping are all that are needed in most scenarios.

What is the break-even occupancy needed for self storage?

Un-leveraged self storage facilities have break-even occupancy figures in the low to mid 30% occupancy range. Leveraged assets have break-even occupancy figures in the low to mid 60% occupancy range. This is partially due to much lower overhead because of no “tenants, toilets, and trash”.

How is self-storage revenue generated?

Self-storage revenue is generated primarily through rental income from tenants. This rental income is typically collected on a monthly basis and is based on the size of the rental unit and the rental rate in the market. In addition to rental income, some self-storage facilities may generate revenue from additional services such as insurance, truck rentals, and retail sales of moving and storage supplies. Some facilities may also generate revenue from late fees, auction proceeds, and other charges related to delinquent accounts. Overall, self-storage revenue is a combination of rental income and income from ancillary services, and it can be influenced by factors such as occupancy rates, rental rates, competition in the market, and local economic conditions.

What is the typical revenue per square foot for a self-storage facility?

The typical revenue per square foot for a self-storage facility varies depending on a number of factors such as location, competition, occupancy rates, and the mix of unit sizes. On average, the revenue per square foot for self-storage facilities ranges from $10 to $25, but can be higher or lower depending on market conditions. Higher revenue per square foot typically indicates a more profitable facility, but there are many factors that can influence revenue per square foot, including rental rates, occupancy rates, competition, local economic conditions, and the cost of operating the facility. It is important to note that revenue per square foot is just one metric used to measure the performance of a self-storage facility, and a more comprehensive analysis of financial performance should consider factors such as operating expenses, occupancy rates, and cash flow.

According to the 2022 Self-Storage Expense Guidebook by MiniCo Insurance Agency, the national average effective gross income per square foot for 2022 was $13.75.

What is the typical operating expense ratio for self-storage?

The typical operating expense ratio for self-storage facilities ranges from 30% to 55% of gross operating income. Operating expenses for self-storage facilities can include property taxes, insurance, utilities, maintenance and repairs, management fees, marketing and advertising, legal and professional fees, and payroll. The exact operating expense ratio for a self-storage facility will depend on a number of factors such as the size and location of the facility, local economic conditions, and competition in the market. In general, a lower operating expense ratio is desirable as it indicates that a larger portion of revenue is being retained as net income. It is important to note that the operating expense ratio is just one metric used to measure the financial performance of a self-storage facility, and a more comprehensive analysis should consider factors such as occupancy rates, rental rates, and cash flow.

According to the 2022 Self-Storage Expense Guidebook by MiniCo Insurance Agency, the national average operating expense ratio for 2022 was 41.79%.

What is the typical cap rate for self-storage?

The typical cap rate for self-storage facilities ranges from 6% to 9%, but can be higher or lower depending on a number of factors such as location, competition, and the overall health of the self-storage market. The cap rate is a measure of the rate of return on investment that an owner can expect from a self-storage facility and is calculated as the net operating income divided by the purchase price. A higher cap rate indicates a higher return on investment, and a lower cap rate indicates a lower return. Factors that can impact the cap rate for self-storage facilities include the local real estate market, competition, occupancy rates, rental rates, and operating expenses. It is important to note that the cap rate is just one metric used to measure the financial performance of a self-storage facility, and a more comprehensive analysis should consider factors such as cash flow, occupancy rates, and rental rates.

How does self-storage compare to other real estate investments?

Self-storage can be compared to other real estate investments in terms of investment return, risk, and stability.

Investment return: On an individual facility level, self-storage has historically provided solid returns for investors, with returns typically ranging from 6% to 9% based on the cap rate. However, returns will vary based on location, competition, occupancy rates, and operating expenses. On a macro economics level, self storage has the highest return on investment in comparison to any other real estate asset class. From 1994-2017, storage returned an annual average of 17.43%. Based on that annual average, $100,000 invested in 1994 would be over $4,000,000 today.

Risk: On an individual facility level, the level of risk for self-storage is relatively low compared to other types of real estate investments. The demand for self-storage is generally stable and not tied to the performance of the broader economy. Additionally, self-storage tenants typically sign lease agreements, which provides a steady stream of rental income. However, as with any real estate investment, the value of the property can be impacted by economic downturns, changes in competition, or local zoning regulations. On a macro level, from 2007-2009, self-storage dropped -3.8% in comparison to the S&P’s -22.0%. This was the smallest drop of any real estate asset class. Self storage had some of its best performing years during the COVID-19 Pandemic when some other real estate asset classes performed poorly. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage.

Stability: Self-storage is considered a stable real estate investment due to the consistent demand for storage space. Even during economic downturns, the demand for self-storage typically remains strong as people downsize or move to new locations. The stable demand and predictable rental income make self-storage a relatively stable investment compared to other types of real estate.

Overall, self-storage can be a solid real estate investment for those looking for a lower-risk, stable investment with solid returns. However, as with any investment, it is important to thoroughly research the market, competition, and local economic conditions before making a decision.

What are the most important factors in buying a self-storage facility?

The most important factors in buying a self-storage facility are:

Location: The location of the self-storage facility is critical in determining its success. Factors to consider include population density, economic conditions, competition, and accessibility.

Occupancy and Rent Rates: The occupancy and rent rates of the facility will have a direct impact on its revenue and profitability. It's important to research the current and projected market conditions to determine the potential for growth.

Operating Costs: The operating costs for a self-storage facility include utilities, insurance, maintenance, marketing, and management. It's important to have a clear understanding of the operating costs before purchasing a facility, to ensure that the revenue from the facility will be sufficient to cover these costs and generate a profit.

Physical Condition: The physical condition of the self-storage facility is also an important factor to consider when buying. Factors to consider include the condition of the buildings and grounds, security features, and any necessary repairs or upgrades that may be required.

Legal and Regulatory Environment: The legal and regulatory environment of the self-storage industry can vary widely by location. It's important to research and understand any local zoning, permitting, and licensing requirements before buying a facility.

Management Team: The management team is critical to the success of the self-storage facility. It's important to have a clear understanding of the management structure, experience, and skills of the current management team, or to consider hiring a management company if necessary.

Financing Options: The financing options for a self-storage facility can vary widely depending on the type of facility, its size, location, and financial condition. It's important to research and understand the financing options available and to work with a lender that has experience in the self-storage industry.

What sort of fees do self storage syndicators collect?

Self-storage syndicators typically collect the following fees:

Acquisition fee: A fee charged by the syndicator at the time of acquisition, usually a percentage of the total acquisition cost.

Property management fee: A fee for managing the day-to-day operations of the self-storage facility, typically a percentage of the monthly revenue.

Asset management fee: A fee for overseeing the overall performance of the investment, typically a percentage of the monthly revenue or net operating income.

Development fee: A fee for overseeing the construction and development of a new self-storage facility, usually a percentage of the total development cost.

Disposition fee: A fee charged by the syndicator at the time of sale of the facility, usually a percentage of the sale price.

Performance fee: A fee based on the performance of the investment, usually a percentage of the returns generated by the investment.

Capital calls: A fee charged to the investors to cover unexpected expenses or to provide additional funds for the operation of the self-storage facility.

It's important to note that the fees and their structure vary from syndicator to syndicator and from investment to investment, so it's important to carefully review and understand the terms and fees associated with any self-storage investment opportunity.

What is the difference between a limited partner (LP) and a general partner (GP) in real estate syndications?

In a real estate syndication, the limited partner (LP) and the general partner (GP) are two distinct roles that are critical to the structure and operation of the investment.

Limited Partner (LP): The limited partner is an investor in the syndication who provides capital to the investment. They have limited liability, meaning they are only responsible for the amount they invested and are not responsible for the day-to-day operations of the investment. They receive a share of the profits and distributions, but they do not have a say in the decision-making or management of the investment.

General Partner (GP): The general partner is responsible for the day-to-day management and operation of the investment. They have unlimited liability, meaning they are responsible for any debts or obligations incurred by the investment. They are also entitled to receive a portion of the profits and distributions, but their primary role is to manage the investment and make decisions on behalf of the limited partners.

In a typical real estate syndication, the GP is usually a professional real estate developer or management company that has the expertise and experience to manage the investment effectively. The LP is usually made up of individual investors who want to invest in real estate but do not have the expertise or experience to manage the investment themselves. The GP and LP work together to achieve the investment goals and maximize returns for the limited partners.

What is the difference between Reg D 506(b) and 506(c) syndications?

Reg D 506(b) and Reg D 506(c) are two different exemptions from SEC registration requirements for private offerings. The main difference between the two is the method of marketing and advertising the investment to potential investors.

Reg D 506(b): Reg D 506(b) allows companies to offer and sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors, but with some restrictions on advertising and general solicitation. In other words, under 506(b), companies cannot use publicly accessible means (e.g. advertisements, public websites) to advertise their investment offerings, but they can approach potential investors through personal and other non-public means.

Reg D 506(c): Reg D 506(c) allows companies to engage in general solicitation and advertising of their investment offerings, but requires that all investors be accredited. In other words, companies can use publicly accessible means to advertise their investment offerings, but they must take reasonable steps to verify that all investors are accredited before accepting their investment.

In general, Reg D 506(c) is considered a more flexible option for companies looking to raise capital, as it allows for a wider range of potential investors and greater marketing and advertising flexibility. However, the requirement to verify that all investors are accredited can add additional administrative costs and responsibilities to the investment process.

Which real estate asset class performs best in a recession?

It is difficult to determine which real estate asset class will perform best during a recession, as real estate markets are influenced by many factors, including the overall economy, local market conditions, and the specific asset type. However, the following 4 asset classes are generally considered to be more resilient during a recession, with one clear winner.

Essential use properties: Properties with essential uses such as supermarkets, drug stores, and grocery stores tend to be more resilient during a recession as people still need to purchase necessities even during tough economic times.

Multi-Family Housing: The demand for rental housing typically remains relatively stable during a recession, making multi-family housing a relatively safe investment during tough economic times.

Industrial Properties: Industrial properties such as warehouses and distribution centers are often less affected by a recession, as the demand for goods and services continues even during a downturn.

Self-Storage: Self-storage facilities are considered to be the most recession resilient real estate asset. People may need to store their belongings due to downsizing or other economic factors. Historically, self storage has performed the best of any real estate asset in recessions. From 2007-2009, self-storage dropped -3.8% in comparison to the S&P’s -22.0%. This was the smallest drop of any real estate asset class. Self storage had some of its best performing years during the COVID-19 Pandemic when some other real estate asset classes performed poorly. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage. Self storage has the highest return on investment in comparison to any other real estate asset class. From 1994-2017, storage returned an annual average of 17.43%. Based on that annual average, $100,000 invested in 1994 would be over $4,000,000 today.

It is important to note that real estate performance during a recession can vary widely depending on the specific asset and market conditions. Additionally, a recession can result in a decrease in property values, which may impact real estate investors negatively. It is always advisable to conduct thorough research and consult with a professional before making any real estate investment decisions.

What questions should I ask a syndicator?

If you are considering investing in a real estate syndication, it is important to thoroughly vet the investment opportunity and the syndicator. Here are some key questions you should consider asking:

What is your track record and experience in the real estate industry?

What is the investment strategy for the specific property or portfolio?

How is the investment structured and what are my potential returns?

What is the timeline for the investment and expected exit strategy?

How will capital be raised and how will investor funds be used?

What is the risk profile of the investment and how is risk being managed?

Who will be responsible for managing the property and what is their experience?

What is the plan for addressing potential challenges or market downturns?

How will distributions and profits be allocated and paid to investors?

What is the fee structure for the syndicator and any other third-party providers?

What is the current market demand for the specific property type and location?

Are there any potential liabilities or concerns that the syndicator is aware of?

It is important to thoroughly research the investment opportunity and the syndicator, and to consult with a financial advisor before making any investment decisions.