SSSE’s core values are Fun, Integrity, Drive, and Others-First. As part of our commitment to Others-First, we strive to educate our investors, partners, and the general public about self storage. The Roman philosopher Seneca once said, “Luck is what happens when preparation meets opportunity”. This Frequently Asked Questions page is to serve as preparation for anyone interested in learning more about self storage and SSSE. The opportunities come when you sign up for SSSE’s investors list or buyers list by clicking the links in our menu bar. We hope to be lucky enough to work together.
If there are any questions that you have that are not answered below, please contact info@ssse.com
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.