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.

How does SSSE underwrite properties?

Self Storage Syndicated Equities is committed to downside mitigation. Our underwriting process is our first step in minimizing risk. From the very first phone call or email we receive with an opportunity, there are at least 3 levels of underwriting that a deal must make it through prior to any consideration of investment.

The first is our “back of the napkin” underwriting. Our acquisition team is fielding constant responses to our marketing efforts day in, day out. In order to be efficient and effective, they must collect a minimum threshold of information from a lead in order for it to be even considered an opportunity and continue to move through our process. That minimum information includes the contact information of the seller, broker, or wholesaler; the name and address of the property; size and/or acreage of the facility; current occupancy or zoning of the property; and current annual gross operating income.

With this information, we are able to identify an as-is financial valuation and replacement cost valuation for existing facilities. For development opportunities, we have standard build types that are possible based on the size of the lot and from that a range of value we can assign to the land with comparison to market value of similar listed and sold land. The purpose of the “back of the napkin” underwriting is to be able to provide an offer range as quickly as possible to the seller, broker, or wholesaler that will be fine tuned in later levels of underwriting.

If the lead passes our “back of the napkin” underwriting and becomes a potential opportunity, we perform our “underwriting lite”. This involves collecting readily available due diligence items and remaining information. Unit mix, pricing, expenses, recent capital improvements, needed capital improvements, management structure, build types, security components, insurance information, and more.

In our “underwriting lite”, we perform the “chicken pox test” on Google Maps, searching for storage in the nearby area to see how many red dots show in order to get a general sense of supply. We virtually drive the market using Google Street View to compare the subject facility to competitor facilities. We pull up census data to get a general understanding of population, trends, and demographics. We compare the subject facility’s unit prices to the 3 nearest competitor’s prices to see what sort of soft value add is available. We call the city building and zoning department to see if there are any active or applied permits for self storage development. Once we have completed underwriting lite, we should be able to solidify value and viability for the subject property. Beyond that, we have our full underwriting and analysis.

Self Storage Syndicated Equities’ full underwriting and analysis takes all of the previous steps of our initial acquisition activities, formalizes them, and expands upon them. We have a full due diligence document checklist that the seller is required to submit prior to the due diligence period starting. We take all of the due diligence documents and audit them by recreating them within our standardized underwriting and analysis template. By auditing and recreating their rent roll, we are then able to create an accurate unit mix with each unit size’s range of rates accounted for.

In our full underwrite and analysis, we conduct an extensive competition study where we compare the supply index number, the competitors’ historic and current occupancy, and the subject facility’s historic and current occupancy in order to get an accurate assessment of the market’s supply and demand. The supply index number is determined by using satellite imagery and secret shopping to measure the size of each of the competitors and the type of storage the competitors provide. Using ArcGIS Esri Business Analyst we are able to map 1, 3 and 5 mile radii in addition to 5 minute, 10 minute, and 15 minute drive times, to establish our potential market and customer base. We analyze our potential market to determine population, income, housing and other metrics within the various radii. Dividing the population by the storage supply within our market radii provides us our supply index numbers which we compare against the state statistics provided by the latest Self Storage Almanac. Our competitor’s historic and current occupancy along with their unit rates is established through secret shopping. This underwriting triumvirate of supply index, subject facility occupancy, and competitor facility occupancy gives us as accurate of a market supply and demand study as possible. We are able to use the market supply and demand results along with the competitor unit rates matrix to determine what the market rates are and update the unit mix with the potential rental rates for each unit size.

By updating the seller’s unit mix with market rental rates gleaned from our competition study, we achieve a projection of gross potential income that can inform development and expansion plans. It allows us to project future years profit and loss in comparison to current income and expenses with downside mitigation factored in through stress tests, applying a range of decreases to income and an increases to expenses. We explore the various debt and equity structures available and the effects on cash after debt service and internal rate of return. Beyond the quantitative analysis, we collect qualitative information: physical appearances, amenities, opportunity zone qualifications, property insurance qualifications, FEMA flood map reference, police reports, and more. We order a Phase I Environmental Site Assessment, a Property Condition Assessment, drone photography, and a site walkthrough. In the scenario of an expansion, adaptive re-use, or ground up development, we order a third party feasibility study to verify our work and further mitigate downside risk for us and our investors.

When everything is said and done, we can identify if there are any changes needed to the purchase price, projections, or structure of each deal.

How does Self Storage Syndicated Equities act on its commitment to “social stewardship”?

Our company on-liner is “tax-advantaged self storage with an emphasis on downside mitigation and social stewardship”.

By nature self storage mitigates downside and is tax-advantaged. In the Great Recession of 2007-2009, self storage dropped -3.8% in comparison to the S&P 500’s -22%. This was the smallest drop of any real estate asset class. 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 1.52% per default. Banks recognize the inherent downside mitigation of self storage and that’s why its one of their favorite assets to lend on.

We further emphasize downside mitigation with our rigorous underwriting and analysis. Each of our syndications and investments is required to have multiple exit strategies. With our robust pipeline of leads and opportunities, we are never in a position where we feel the need to take on a new acquisition or development because of pressure to deploy capital. We pick the best opportunities to move forward with when it makes sense to do so.

As for tax advantages, the government provides incentives for anything that creates food, jobs, or shelter. While self storage is not housing, it is real estate and has all of the great tax benefits like bonus depreciation. We consider tax benefits as part of our analysis process, and choose deals that will result in the greatest tax benefits.

Our company one-liner emphasizes social stewardship. We believe that self storage can be more than metal boxes. We are very fortunate with the opportunities that self storage affords us. One of those is the opportunity to give back to the communities our storage facilities serve and to make environmentally conscious decisions when designing our developments. Energy efficient materials, solar panels, electric vehicle chargers, green roofs, native species landscaping, and more are all considerations we take into account when planning and designing our new self storage facilities. Our primary focus in regards to social stewardship is participating and donating to local charitable causes for each of the communities our storage facilities serve. Self storage is an incredibly localized business. On average, 70% of renters come from a 3 mile radius of a self storage facility. This is an opportunity for us to really participate in our communities. Our charitable donations and participation is focused around food, shelter, and jobs. Some of our most common avenues for giving back to the areas we serve are local food banks, domestic violence shelters, and after school programs. Our renters trust us to store and protect their beloved belongings, and we want to go beyond that to protect and improve the communities that store our properties.

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.

Is the lien and auction timeline the same nationwide?

No, the lien and auction timeline is NOT the same nationwide. Each state has their own requirements for the lien and auction process. Typically, there are requirements of notification, a time period where the tenant has the ability to come current on balances owed, followed by public notice of auction, and then the sale of stored goods. Typically, the lien and auction timeline allows for the recovery of balances owed and new rental to a paying tenant within 60 days.

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”.

What is a reactive pricing model?

With self storage, you can adjust pricing based on real time supply and demand. When a certain type of unit (ex. 10’ x 10’) is in low supply in the market/facility, the pricing can raise by as much as 50%+ and tenants may still rent them. Conversely, when a certain type of unit is in high supply in the market/facility, the pricing can decrease in order to encourage rentals. While this may seem like a basic concept, it’s not one that is as easily implemented in other real estate assets like multifamily, and certainly not to the same premium as available to self storage.

Is rental income the only revenue stream available to a self storage facility?

Self storage facilities implement a large number of ancillary revenue streams. In addition to unit rentals, a facility can experience income from packing and moving supplies, lock sales, truck rentals, business center income, renters insurance commissions, vehicle parking, cell tower leases, billboard advertisements, and more.

What is the default rate for self-storage tenants?

The default rate for self-storage tenants, also known as the non-payment or delinquency rate, is a measure of the number of tenants who fail to pay their rent on time. The default rate for self-storage tenants can vary depending on a number of factors such as the economic climate, competition in the market, and the creditworthiness of tenants. On average, the default rate for self-storage tenants is low, typically less than 5%. This is because self-storage tenants are typically required to pay a deposit and provide credit or debit card information to secure their rental, which acts as a deterrent to default. In addition, self-storage operators often have processes in place to manage delinquent accounts and enforce payment, which helps to minimize the default rate. However, it is important to note that the default rate can fluctuate and can be affected by local economic conditions and the overall health of the self-storage market.

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.

What is the typical net operating income for self-storage?

The typical net operating income (NOI) for self-storage facilities varies widely depending on a number of factors such as location, competition, occupancy rates, rental rates, and operating expenses. On average, the NOI for self-storage facilities ranges from $7 to $25 per square foot, but can be higher or lower depending on market conditions. The NOI is calculated as the gross operating income minus the operating expenses and is a measure of the profitability of a self-storage facility. A higher NOI indicates a more profitable facility, and a lower NOI indicates a less profitable facility. Factors that can impact the NOI for self-storage facilities include occupancy rates, rental rates, operating expenses, competition, and local economic conditions.

According to the 2022 Self-Storage Expense Guidebook by MiniCo Insurance Agency, the national average net operating income was $8 per square foot.

What is the impact of technology on the self-storage industry?

Technology is having a significant impact on the self-storage industry, with new innovations changing the way that customers interact with storage facilities, and the way that facilities are managed and operated. Some of the key ways that technology is impacting the self-storage industry include:

Online Rentals and Reservations: Customers can now easily find and rent storage units online, making the process of finding and reserving a unit more convenient and efficient. This has also made it easier for self-storage facilities to manage their occupancy levels and pricing.

Mobile Access and Control: With the advent of mobile apps and other technology, customers can now access and control their storage units remotely, without having to visit the facility in person. This has made self-storage even more convenient for customers who are on the go.

Smart Storage Units: Some self-storage facilities are now offering "smart storage" units that allow customers to remotely monitor temperature and humidity levels, as well as lock and unlock the unit from their mobile device.

Automated Payment and Billing: Self-storage facilities can now automate payment and billing processes, making it easier for both customers and facility managers to manage payments and invoices.

Inventory Management: Technology is also being used to improve inventory management and optimize occupancy levels. For example, some facilities are using data analytics and predictive algorithms to better forecast demand and set pricing.

In general, technology is making the self-storage industry more efficient, convenient, and customer-friendly, and is helping facilities better manage their operations and maximize profits.

What is the future outlook for the self-storage industry?

The future outlook for the self-storage industry is generally positive, as demand for storage space is expected to continue to grow. Some of the factors that are expected to drive growth in the self-storage industry in the coming years include:

Population Growth: As the population grows, demand for storage space is expected to increase, as people need more space to store their belongings. As of 2020, there is only 10.6% penetration meaning that 1 in 10 US households use self storage. There is an immense opportunity for that penetration rate to increase agnostic of population growth itself.

Urbanization: As cities become more densely populated, many people are downsizing their living spaces and turning to self-storage as a solution for their extra belongings.

E-commerce: The growth of e-commerce is expected to drive demand for self-storage, as more and more people order goods online and need somewhere to store them.

Innovations in Technology: Advances in technology are expected to continue to shape the self-storage industry, making it more convenient, efficient, and customer-friendly.

Investment Opportunities: The self-storage industry is seen as a relatively stable investment opportunity, with low default rates and predictable rental income. 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. Self storage is 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.

While there are some challenges facing the self-storage industry, such as increased competition and changes in local zoning regulations, the overall outlook is positive. As long as demand for storage space continues to grow, the self-storage industry is expected to remain a thriving sector of the economy.

What are the legal requirements for self-storage facilities?

The legal requirements for self-storage facilities can vary depending on the jurisdiction in which the facility is located. However, some common legal requirements include:

Zoning: Self-storage facilities are typically classified as commercial operations and must comply with local zoning regulations.

Building Codes: Self-storage facilities must comply with local building codes, including requirements for fire safety, accessibility, and structural integrity.

Business Licenses: Some self-storage facilities must obtain a business license in order to operate legally.

Insurance: Self-storage facilities must carry liability insurance to protect against damage to stored property or injury to customers. Much of the liability lies with the renters in regards to their belongings as the leases can limit the value of items stored and require renters insurance.

Consumer Protection Laws: Self-storage facilities must comply with consumer protection laws, including rules regarding the terms of rental agreements, security deposits, and notice requirements for eviction.

Data Protection: Self-storage facilities may be subject to data protection laws, such as the General Data Protection Regulation (GDPR) in the European Union.

Environmental Regulations: Self-storage facilities may be subject to environmental regulations, such as rules regarding hazardous waste disposal and energy efficiency.

It is important for self-storage facilities to be aware of and comply with all relevant legal requirements in their jurisdiction, in order to avoid legal and financial liabilities. In addition, facilities should have written policies and procedures in place to ensure that they are operating in a compliant and responsible manner.

What is the typical insurance coverage for self-storage units?

The typical insurance coverage for self-storage units can vary depending on the specific facility and the type of insurance being offered. Some common types of insurance coverage for self-storage units include:

Liability Coverage: This type of insurance protects the self-storage facility against claims related to injury or damage to property that occurs on the facility's premises.

Fire and Natural Disaster Coverage: This type of insurance covers losses related to fires, earthquakes, hurricanes, and other natural disasters.

Theft Coverage: This type of insurance covers losses due to theft or damage to stored property. Much of the liability lies with the renters in regards to their belongings as the leases can limit the value of items stored and require renters insurance.

Business Interruption Coverage: This type of insurance covers losses related to the interruption of business operations, such as those that may occur as a result of a fire or other disaster.

It is important for self-storage facilities to carefully review their insurance coverage and make sure that they have adequate protection against the specific risks they face. Some facilities may also require their tenants to purchase insurance coverage for their stored property, in order to provide additional protection. Tenants should be aware of the coverage that is included with their rental agreement, and should consider purchasing additional insurance if necessary to fully protect their belongings.

What are the typical security features for self-storage facilities?

The typical security features for self-storage facilities can vary depending on the size and location of the facility, as well as the perceived risk of theft and vandalism. Some common security features for self-storage facilities include:

Controlled Access: This may include gated access, keypad or keycard entry systems, and on-site security personnel.

Surveillance Cameras: This may include both interior and exterior cameras, which can be monitored remotely or recorded for later review.

Lighting: This may include well-lit aisles and areas around the facility, and motion-activated lighting in certain areas.

Alarm Systems: This may include alarm systems that are connected to an alarm-monitoring company or the local police department.

Locks: This may include individual locks for each storage unit, or master locks that allow access to multiple units.

Fences: This may include perimeter fencing around the facility, as well as individual fencing around individual units.

Management Presence: This may include on-site management or staff members who are available during business hours, or who live on the premises.

It is important for self-storage facilities to have a comprehensive security plan in place, and to regularly review and update this plan as necessary. The specific security features that are required will depend on the location and size of the facility, as well as the specific risks that are faced. In addition, facilities should educate their tenants about the importance of securing their units, and should provide information about recommended locks and other security measures.

What is the typical maintenance and upkeep for self-storage facilities?

The typical maintenance and upkeep for self-storage facilities can vary depending on the size and age of the facility, as well as the specific needs of the tenants. Some common maintenance and upkeep tasks for self-storage facilities include:

Building Maintenance: This may include regular cleaning, painting, and repairs to the buildings and structures on the property. The roof is the most important item to maintain at a self storage facility. Renters are interested in storing their items safely and securely. While the renter is responsible for securing their unit with a lock, the integrity of the roof (i.e. no leaks) is crucial for the safety of the renter’s items.

Unit Maintenance: This may include regular cleaning, repairs, and upgrades to the individual storage units.

Landscaping: This may include regular lawn care, tree trimming, and other landscaping tasks to keep the property looking well-maintained and attractive.

Electrical and Plumbing: This may include regular inspections, repairs, and upgrades to the electrical and plumbing systems within the buildings and units.

Fencing and Gates: This may include regular inspections, repairs, and upgrades to the fencing and gates that surround the property and provide security.

Pest Control: This may include regular pest control treatments to prevent infestations of insects, rodents, or other pests that can cause damage to stored items.

It is important for self-storage facilities to have a comprehensive maintenance plan in place, and to regularly review and update this plan as necessary. In addition, facilities should educate their tenants about the importance of maintaining their units, and should provide information about recommended cleaning and maintenance practices. By investing in regular maintenance and upkeep, self-storage facilities can help to maintain the safety and security of their tenants' stored items, and can also improve the overall value and appeal of the property.

What is the typical customer base for self-storage facilities?

The typical customer base for self-storage facilities is quite diverse and can include:

Residential Customers: These customers use self-storage for personal items such as furniture, household goods, seasonal items, and recreational equipment. According to the 2023 Self Storage Almanac by MiniCo Insurance Agency, 79% of tenants are residential.

Business Customers: Small businesses often use self-storage to store excess inventory, equipment, and supplies. According to the 2023 Self Storage Almanac by MiniCo Insurance Agency, 14% of tenants are businesses.

Students: Many students use self-storage during the summer or when moving in or out of the dorms. According to the 2023 Self Storage Almanac by MiniCo Insurance Agency, 3% of tenants are students.

Military Personnel: Military personnel often use self-storage during deployments or when moving to new assignments. According to the 2023 Self Storage Almanac by MiniCo Insurance Agency, 4% of tenants are military.

Seniors: Seniors may use self-storage to downsize from a larger home or to store seasonal items. This is a sub-category of residential customers.

Homeowners and Renters: Homeowners and renters may use self-storage during renovations, moving, or to store items they do not have space for in their homes. This is a sub-category of residential customers.

Car and RV Owners: These customers use self-storage to park their vehicles in a secure and convenient location. This is a sub-category of residential customers.

Overall, the customer base for self-storage facilities is made up of people and businesses who need extra space to store their belongings, and are willing to pay for a convenient, secure, and accessible storage solution. The customer base can vary depending on the location, market conditions, and competition, but by understanding the needs and preferences of the target market, self-storage facilities can effectively target and attract the right customers for their facility.

What is the typical operating structure for self-storage facilities?

The typical operating structure for self-storage facilities is as follows:

On-site Manager: Some self-storage facilities have an on-site manager who is responsible for day-to-day operations, including customer service, rent collection, and maintenance.

Owner/Operator: Some self-storage facilities are owned and operated by individuals or small companies. These owners are responsible for all aspects of the business, from marketing and leasing to maintenance and bookkeeping.

Third-Party Management Company: Some self-storage facilities are owned by investors and managed by third-party companies that specialize in self-storage management. This structure allows the owners to focus on investment and financing, while the management company handles the day-to-day operations of the facility.

Publicly Traded Companies: Some self-storage facilities are owned by large publicly traded companies that operate multiple facilities across the country. This structure allows for economies of scale and the ability to leverage best practices across multiple locations.

The operating structure of a self-storage facility will vary based on the size, ownership structure, and location of the facility. The most important factors in determining the operating structure are the owner's goals, available resources, and the level of management experience and expertise they have in the self-storage industry.