Self Storage In A Phoenix OZ, With YourSpaceAmerica

In this webinar, Russ Colvin presents a self storage project under development in a Phoenix Opportunity Zone.

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Webinar Highlights

  • YourSpace America’s track record developing self storage facilities across the country;
  • The appeal of self storage as an asset class;
  • Case studies of projects that the management team has completed;
  • Review of the favorable demographic factors in the Phoenix market;
  • Live Q&A with OZ Pitch Day attendees.

Industry Spotlight: YourSpace America

YourSpace America, Inc was formed as an investment vehicle to provide superior risk adjusted returns in the growing self-storage industry. This commercial real estate asset class is characterized by strong cash flows, low break-even margins and best in REIT universe returns for the last 28 years. 

Learn More About YourSpace America

Webinar Transcript

Jimmy: Russ, while I’m doing this, can you tell us a little bit about YourSpace America self-storage?

Russ: My name is Russ Colvin. I’m CEO and President of YourSpace America. In our presentation today, I’d like to start by telling you a little about myself, about our company, and why I believe YourSpace will be a great partner for you. We will also discuss track record. Given the short presentation today, I’m available anytime you need to talk after the presentation by personal cell phone or email. I have been in commercial real estate finance and investment for 42 years. I’m kind of new to it. Twenty-two years as commercial real estate lender, banker, and 20 years in commercial real estate investment, with the last 11 years exclusively in self-storage. I’ve developed multiple successful self-storage projects across multiple geographic areas from the West Coast to the Midwest to the South and the East Coast. I’ll provide you some brief detail on those projects, and then discuss the Phoenix Project, why we think it’s an excellent opportunity. Next slide. Now, this next slide is the disclosure. It’s always important to read disclosures. So, please take time and read the disclosure. Next slide. As I was just alluding to a few moments ago, we created YourSpace to create an industry-leading self-storage investment platform with an eye toward longer holds and maximizing returns for investors. We have a great team, strong management, underwriting analysis, as well as excellent industry relationships that allow us to acquire great projects and manage them to their maximum potential, so our investors can maximize returns.

Next slide. The self-storage industry. The self-storage industry has shown itself over a long period of time to be a very persistent, durable, reliable, commercial real estate class. And in fact, as I’ll show you in a few moments here, perhaps the most successful of any commercial real estate class. Definitely a strong performer over a long period of time. Next slide. Next slide. Fundamentals. REIT Sector Fundamentals. This is an interesting bit of information. Next slide. Next slide. So, for the past 27 years, from 1994 to 2021, self-storage was the top-performing product type in the NAREIT index, the National Association of Real Estate Investment Trusts. Over nearly 30 years outperforming every other major type of real estate in the NAREIT index, including industrial, office, retail, residential, all of the ones you see down there below are self-storage over on the right in green. I think that speaks once again to its reliability as an investment. Next slide.

CMBS Data. This is another interesting indicator of the safety and reliability of self-storage as an investment. Next slide. This graph is basically showing the delinquency over a 10-year period for CMBS, Commercial Mortgage Backed Securities, and it has basically every property type, and major property type in here from multi-family to hotel, to healthcare, industrial office. And it shows the delinquency rates from 2006 to 2015. And if you’ll note here, 2009, 10, and 11, which is all related to the great recession, self-storage by far had the lowest delinquency rate of any commercial real estate type. If you look at self-storage, and then look at the others here, most of them were exponentially higher than self-storage. But again, this points to self-storage as an investment, as a safe investment. Next slide. Next slide. This next slide is our management team, myself as CEO, Billy Hayde as Chairman, Corporate Council, Russell Marne, our Chief Financial Officer, Keith Merrell, our acquisition team, our board of directors, and our board of advisors. And I note that we have two industry-leading professionals on our board of advisors, Jeff Higashi, Regional President of Janus, and Brad Dannegger, the chairman and CEO, of ARCO/Murray.

Next slide. This next slide, and the following slides, I’m going to show you some case studies, or projects that have been sold, and a few that are still ongoing to give you some ideas of the projects we’ve done and the returns. Next slide. This next project is in Rancho Cordova, which is a Sacramento market. This was a project that we did as a conversion. It was an envelope processing facility, and we turned it into probably the nicest self-storage facility in this market. Total returns to investors 42.12%. Was sold in 2019. Was sold not too far after completion to one of the self-storage REITs SmartStop. Again, it’s a very successful project. Next slide. This next project also in the Sacramento market, we call Pell because it’s on Bell Avenue, Pell Circle. This was a project that was a conversion, and it turned out to be a beautiful project when it was finished. This is one that we got to a high occupancy. We continued increasing rents and maximizing cash flow. It was sold in 2021. Total returns of 27.21%, so another successful project. Next slide. This next project, Peabody is in Peabody, Massachusetts, which is a neighborhood in the Boston market area, near Salem, Massachusetts. This was a conversion project, and when we were finished with it, it turned out to be probably the nicest self-storage facility in the market. Was sold in 2021 at a sub 4% cap rate, right below 4% cap rate. Our investors did very well with this. It’s 39.01% total return for investors. Next slide.

This next slide is Springfield, which is Springfield, Massachusetts, the third largest city in Massachusetts. This was a conversion project. One that we turned into probably the nicest self-storage marketed facility in the area. And it’s the only self-storage facility in the area that actually has a drive-in facility. So, it could be snowing outside, and our customers can pull in, load, and unload in a, you know, climate-controlled area, and then pull back out. So, essentially, they can utilize their self-storage regardless of the weather outside. So, works very well in an area like this, where there is a lot of snow at various times of the year. Next slide. This project was done in the San Diego, North San Diego County, California market, Escondido. When it was completed, a lot of people have referred to it as the nicest self-storage facility in North San Diego County. I don’t disagree with that. The return was a little lower here because my partner decided to sell it too soon. But that’s another subject we can talk about offline. But it was a beautiful project in a great location. It turned out very successful. Next project, next slide.

This project is in Worcester, Massachusetts. Worcester is the second largest city in Massachusetts. This was a conversion project, one that did very well. Our partner bought us out, but this was a former metal processing facility that we turned into the nicest self-storage facility in central Massachusetts when it was finished. This also had a drive-in feature. We spent about a $1 million adding the drive-in feature, but I think it was well worth it. And it, you know, made it very convenient for customers regardless of the weather outside to pull in, load and unload, and exit from the building. And again, the only property in the area with such a feature. Next slide. This is a project that’s currently under development in Las Vegas. Construction just recently began. This will be, when it’s finished, the nicest facility in this area, but it… Next slide. Las Vegas Owens, this is a project that we should begin construction probably in July, right on Interstate 15 in Las Vegas. I think this will be the nicest facility in that area when it’s finished ongoing development project. Next slide. This next slide is also a Las Vegas market. Out by Nellis Air Force Base. It’s gonna be the largest RV and boat parking facility in Las Vegas when it’s finished, and definitely one of the nicest facilities in Las Vegas, which just gives you an idea of the kinda things that we’re doing. Next slide.

This next slide is the subject property in Phoenix. And this is a rendering here of the project. And I’ll show you another one in a moment, but this is going to be also an area-leading project when it’s finished. One of the nicest facilities in the Phoenix area. It’s a pretty large facility, 168,000,599 gross building area, and about 125,000 net rentable. About 1,225 units with a 1,300 square foot office. I think probably everybody on the call is familiar with the growth that has occurred in this market in the last four decades. An interesting fact, within a five-mile radius, there’s 17,000 residential units and planning and development, which if you assume three people per unit, something like 51,000 people. So, this project is located in the downtown area, 650 feet from Diamondback Stadium. It’s gonna be 50 feet high. So, whether you’re driving into downtown, or you’re at Diamondback Stadium, or you’re several blocks over, anywhere in the area, it will be easily recognizable. Next slide.

This is another view of the property, a different rendering, but really it’s gonna be a beautiful project. Next slide. This gets into, once again, the project. Four stories, 168,599 square feet, 1,225 units. We expect our final approvals at the end of Q3 for permits. So, September, October we’ll be beginning construction. Project cost is $26,876,000. We’re looking for 9,406,000 in equity. I think the returns to our investors is going to be about 29.1%, which is about a 2.77x over five years. And the way we’ve structured this will be a minimum 70-30 to our investors. So, our investors will achieve their 10% preferred return, plus 70%. So, I think it’s very compelling on the return front to our investors. This is gonna be a generation five self-storage facility, you know. Among the newest type of self-storage facilities with high security, and should be very successful in this marketplace. Next slide. This next slide, some map slides. And you can see the proximity of the top photo on the right here. And you can see these people standing in front of our site, Diamondback Stadium, down the street. You can see downtown Phoenix map here with our facility in Chase Field. So, it’s gonna be a well-known facility in this market. There are not a lot of high-quality self-storage facilities in this market. There’s a nice facility from public stores nearby, but other than that, it’s mostly older, lower quality, non-climate control facilities. Next slide.

This slide is representative of what I mentioned in terms of the growth in Phoenix. The MSA went from 1.6 million in 1980 to almost 5 million in 2019. The population in Phoenix went from a little less than 800,000 to almost 1.7 million in that same period of time. It’s an affordable place. As you know, the new Chips Act, there’s all kinds of new jobs being created. A lot of people are talking about it going from the number five largest city in the United States to number four. Next slide. This next slide is a site plan for the subject property, and you can see it’s a rectangular-shaped site. You can see the cut-ins for the two loading areas in the project, and down on the one end is the office. So, you’ll have three loading areas and plenty of parking. So, everybody will be able to reach their unit pretty easily because of the loading and parking right in the front there. Next slide. This next slide basically is a summary of the project. YourSpace America is the developer. The address 815-901 East Jackson in Phoenix. Class A self-storage, 1.78-acre site.

Again, the total equity required 9,406,000. We’re planning to close the project on June 15th. We’ve had it under contract since December of 2021. Planning to start construction, we’re estimating October 15th. And our lease up would start, we’re estimating approximately, one year later with construction completed at that time as well. With stabilization on or before November of 2027. And a sale date. This could be held the entire 10 years, and we’ll get to that in just a second. But it will be obviously the decision of the investors. I would recommend the long-term hold for investors. And then down below we talk about equity. Equity investors will put in 90% and as the breakdown of the various costs. Land, financing costs, hard costs, soft costs, working capital reserves, which is interest and expenses, while the property is being developed [inaudible 00:16:42], and developer fees. Next slide. The next slide is a breakdown of project costs. I won’t go into all that right now given the short timeline, but you can look at it in more detail, and I’m happy to discuss any even offline. Next slide.

The next two slides are a 10-year pro forma that was prepared by life storage, who we’ve been talking to about management of the property. The interesting thing is that the NOI at year 10 under this pro forma is $2,823,000. If you assume a 4.5% cap rate, which seems very reasonable for this type of property, given the location and all the fundamentals here. But a 4.5% cap rate gives you a value of about $62,744,000. Also, we did an analysis, assuming that we refinanced the property shortly after completion, and try to return most capital to investors, there’s about $7 million in net cash flow during that 10-year period. So, given this potential purchase price, and the cash flow, investors’ total returns during that 10-year period will be about $42 million on a $9.4 million investment. Pretty compelling. Next slide.

Okay, next slide. This next slide, construction and management…And I’m kind of ending with this because it’s important. We use a company called ARCO/Murray as our contractor. They’re the fifth-largest design-build firm in the United States. Have done multiple projects with them quite successfully. And in fact, their chairman and CEO is on our board of advisors, a great firm, and probably the biggest in self-storage. They’ll probably do 4 billion this year in construction. And, you know, about a dozen different products. Self-storage management. We use the self-storage REITs, the publicly traded REITs, for management because they are the best in the world at managing self-storage. These four REITs, Public Storage, Life Storage, CubeSmart, Extra Space, have a combined market cap of approximately $100 billion dollars. They’re all traded on the New York Stock Exchange, and they’re all excellent at self-storage management.

Public Storage wants to manage this property, so does Life Storage. Public Storage doesn’t manage anything, nor does Life Storage. They wouldn’t want to own it someday. So, they don’t just take on projects to manage unless it’s something they’d like to own in the future. Not that they’ll be able to, but unless they’ll have that interest, they don’t wanna manage it. So, it tells you something. We want to do the very best in terms of construction, the very best in terms of management, great site, great location, so that we have a successful project. And again, as I said at the outset, anybody would like to talk to me about anything here in greater detail. Please call me on the cell phone anytime you like or email me. And by the way, that is true after you invest as well, call me or email me anytime. And thank you all very much for your time today.

Jimmy: Russ. Well, thank you very much. I believe this is the first self-storage presentation that we’ve ever had on any of our OZ Pitch Days. So, great numbers you have there. Great project. Thank you, Russ, so much. We’ve run outta time. If you have any questions for Russ, please do reach out. But Russ, thanks for partnering with us on OZ Pitch Day today. Really appreciate it.

Russ: Bye-Bye.