Our Next Event: Alts Expo - October 4th
In this webinar, Russ Colvin presents one of the few self storage Opportunity Zone deals accepting investor capital.
Interested In Learning More About This Opportunity?
You can visit the Official OpportunityDb Partner Page for the YourSpace America OZ fund to:
- View beautiful high-resolution images.
- Learn key details about the fund and related projects.
- Request more information from the fund sponsor.
- History of YourSpace America and the management team.
- Review of past completed and in progress self storage deals.
- Historical performance of the self storage industry.
- Overview and renderings of the subject property, located in downtown Phoenix.
- Summary of the booming Phoenix market, including the need for self storage.
- Financial terms of the Phoenix stadium deal.
- Timeline for approvals, construction, and lease up.
- Live Q&A with OZ Pitch Day attendees.
Featured On This Webinar
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
- Visit YourSpaceAmerica.com
Jimmy: So Russ joins us today from YourSpace America Self-Storage, and he is going to present the Stadium Phoenix self-storage facility. Russ, I see ya. How are you doing?
Russ: Very good. Good morning, everybody. Yes. My name is Russ Colvin. I’m the CEO and President of YourSpace America. And I thank you for taking the time to join us this morning for the presentation on the Phoenix Stadium Project, which I believe when completed will be the nicest self-storage facility in the Phoenix market. I’d like to provide you with an overview of YourSpace to start with review, or track record, and then focus on the Phoenix Stadium project. Okay.
The disclosure, everybody should read the disclosure. We created YourSpace to provide superior risk-adjusted returns to investors by acquiring and developing industry-leading self-storage projects, and we are off to a great start. We have a long, successful track record and we look forward to performing for our investors as we have in the past. Our team is, I believe, one of the best in the industry. We have a great management team and great acquisitions and underwriting team and excellent relationships throughout the self-storage industry, which as I go on here, as you’ll see, helps to drive a better investment for our investors.
The self-storage industry, as was alluded to a moment ago, there aren’t a lot of self-storage OZ programs, unfortunately. This is our second one. And the self-storage industry has really become a preferred investment for every type of real estate investor. From individuals to the Harvard Endowment Fund invest in self-storage, government pension funds, including the largest in the world, CalPERS, and major investment funds, you know, throughout the world invest in self-storage.
It is considered a safe harbor investment, like apartments, but with stronger returns. The next few slides, we’ve included in here because I wanted to touch on sort of the fundamentals of the self-storage industry and self-storage as a commercial real estate product type. And I think you’ll find it impressive, and it speaks volumes really about the quality of self-storage as an investment and a product that people basically need through all economic cycles.
REIT sector fundamentals, for the past 28 years, self-storage has been the top-performing property type in the Nareit Index, with average returns of about 18.83% from ’94 to 2021. It virtually outperformed every other type of commercial real estate in the Nareit index, which is impressive, to say the least.
This next slide really illustrates how self-storage over these last 28 years has compared to other property types in terms of overall performance. And literally, every major property type is in here, from industrial, to office, to residential being apartments, to healthcare. Anyway, self-storage has outperformed everybody.
This next slide shows commercial mortgage-backed securities delinquency rates over a 10-year period, which included the Great Recession. And the reason I put this in here is because what it shows you, it shows you self-storage delinquency loan rates in comparison to other property types, and the self-storage number is so low that it doesn’t even represent a delinquency issue. So through every economic cycle, it has outperformed every other product type, meaning that there’s been very little delinquency because there’s been very little defaults on these type of loans.
I think we have a strong management team, an excellent board of directors, excellent board of advisors. It’s a lot of industry-leading professionals on our board of advisors, and I believe you’ll see that we’re a very well-run organization, the kind of organization that should be managing investments for people. This next slide is actually a series of slides and it represents some of our previous projects. And I’ll take just a moment and go through this because I think track record tells you something about future performance. Okay? This is a project that we did, Rancho Cordova, a project we did in the Sacramento market, was very successful.
It was a conversion project, we later sold it to one of the rich, to SmartStop. It was completed and sold in 2019, investors did very well. This next project, Pell, this is also in the Sacramento market. I’ve done, I think, three projects in the Sacramento market. This project was sold in 2021. It’s something we originally had acquired in 2016. Investors did very well here, this was a conversion project, and as you can see, it turned out to be a very attractive project. It was a former warehouse that we converted.
This next slide is a project we did in the Massachusetts market, which was sold in 2021. Investors, again, did very well. This was a conversion project, and when it was completed, certainly one of the nicest self-storage facilities in this market in a very good location. But again, investors did very well. This is a project in the Springfield, Massachusetts market. Again, investors did well. It was sold in 2021, this was a conversion project, and certainly, I think the nicest project in the market when it was completed.
This next slide is a project that we did in the California market in San Diego County and Escondido. And this is one where my partners wanted to sell it, I think it was too soon, obviously, because the buyer received offers for about $5 million more than they were paying us before it was completed. But a lot of people consider this the nicest self-storage facility in North San Diego County, California. Okay?
This is one we did in the Massachusetts market as well, Worcester, which is the second largest city in Massachusetts. When it was completed, it was, I believe, the nicest self-storage facility in Central Massachusetts in this market. we sold our interest to our partner on this one, and they later sold it to Life Storage.
This next project is one that’s currently under construction in Las Vegas and should be completed approximately the end of the year and a very good location and certainly, when it’s finished, it will be the nicest project in this, you know, 3-mile, 4-mile radius of this property on a very busy street. Before we even started construction, we received offers to purchase it that were very compelling, you would say.
This next project is one that we have acquired the site in Las Vegas and should begin construction in the next few months. And again, when it’s completed, will be the nicest in the area. As you can see, a very attractive project. We’re looking forward to completing this. This is also in an Opportunity Zone.
This project is one that is currently under the entitlement process which we just received approval this week from the Las Vegas Planning Commission. And this is on 15 acres, it’d be a combination of self-storage and RV and boat parking. And as we told the planning commission the other evening, when it’s completed, it will certainly be the nicest project in the area. In fact, the neighbors in the area are very strongly in support of this project. So it should be a beautiful project when it’s finished.
This is our Phoenix project, the Subject Property, which we’re very excited about. This is on a 1.78-acre rectangular parcel. the project will be a 4-story, 168,000-square-foot building with a 1300-square-foot office, and approximately 125,000 square feet of net rentable area, and approximately 1,225 self-storage units. It’ll be a fully climate-controlled facility with state-of-the-art security, and without any question, I believe, the nicest project in the market.
This Phoenix market, the downtown, in particular, in the last 10 years, has really been a booming market. There is a huge amount of construction underway in the area. It is a real success story what has happened in Downtown Phoenix. But just a huge amount of development here and certainly a need for self-storage. The competitive properties with one exception nearby, the competitive properties in the market are generally just older projects. And the way this area has grown, it certainly needs quality self-storage, and this project will fit that need.
This next slide is another rendering of the completed property, obviously, an extremely attractive project, and it really looks more like an office or retail property than self-storage, which is really the objective. This next slide here is an overview of the project costs, total equity, returns, equity multiple. Total project cost is about 26.876 million. We’re raising about $9.4 million. We’re projecting a 5-year internal rate of return at 33.1% with a 3.14 equity multiple. And later on, I’ll go into the longer hold, the 10-year hold for the Opportunity Zone.
I mentioned the other information in terms of the overall economics. We designed this project with what I believe were very investor-friendly returns. When we first set this Opportunity Zone project up, I told the attorneys that I wanted a project that was very investor-friendly, and I think that’s the way it’s designed. It has a 10% preferred return and 80/20 split to a 15 IRR and 70/30 thereafter. As I say, certainly, very investor-friendly returns.
This next slide, the very top photo shows you a picture of Diamondback Stadium from our property here on the left. The center photo shows you location of the project in the downtown market, and as you can see, just a lot of development all over the downtown market. This slide, I think, really illustrates the growth of the Phoenix market, how strong it is. At the bottom there, if you look at the population for the MSA in 1980, and you look at the approximate population today of nearly $5 million, it shows you the growth that has gone on here in the last 40 years. It’s the fifth-largest city in the United States. And as I say, incredible growth. And I truly believe that when this project is completed, it will be the nicest self-storage facility in Phoenix, Arizona.
And will meet the needs of a lot of customers from self-storage consumers, to businesses, to college students. And about 30% of customers now in self-storage are businesses that utilize self-storage. So with all the new businesses and so on, it will certainly fit a need for them. And it’s climate control self-storage. Obviously, this is an area that gets very hot in many months of the year which really underscores the need for quality climate control self-storage, and there’s not much around the area.
Interesting thing about the growth of Phoenix Market in a 5-mile radius around this property is there are 17,000 residential units either in planning or development and if you assume about 3 people per household, that’s about 51,000 potential new residents in a 5-mile radius that’s currently in planning or development. And once again, speaks to the growth in this market.
This slide shows you an illustration of the site plan of the property. As I mentioned, it’s a rectangular shape. And actually, this makes for ease for customers to load and unload their storage items. As you can see, the parking stalls there at the front so people can park and go to the loading zone and easily unload their property and then store it without having to travel a long distance, which is really the ideal situation for storage, is for people to be fairly close to their items when they go to take things in or take things out. So it’s just more convenient for the customer.
This next slide is an overview of the project, really, the company Aerospace America, the location on Jackson Street in Phoenix, the number of units estimated, rentable area, gross square feet, investment start date in the center section. We acquired the property on June 15th, so we own the property now and are working towards getting our building permit. We anticipate construction to start later in the fourth quarter. And, of course, lease-up would start, that should be 2024, about a year later with completion in the fourth quarter of ’24 and stabilization in 2027 or sooner.
Given the strength of this market, I would say it’s likely to be sooner. Let’s speak to our construction loan here. Loan development costs are estimated interest rate of 6.5% and down below goes into the equity and financing and so forth, and we ourselves will be contributing about 10% of the equity to the project. So we will be one of the largest investors in the project ourselves. This next slide is really a detail of our project soft costs and hard cost reserves, lays them out, but it also indicates we have a contingency for soft costs and a contingency for hard costs. So if there are any unexpected expenses in the development process, we plan for that.
These next two slides are a 10-year proforma for the property, and this is based on an Opportunity Zone hold, a 10-year hold for the project. The projected net operating income in year 10 is $2,823,000. And if you apply a 4.5% capitalization rate to that, it would indicate the projects itself for about $62.7 million in year 10. Project cost is, as we know, is about 26, so we’re estimating a projected profit of about $35 million in 10 years. Obviously, significant cash flow along the way, which we’ll get into in just a moment, But in terms of an Opportunity Zone project, in terms of the quality of the project, the overall safety of the investment and returns, that combination, I don’t know of anything else out there in terms of real estate Opportunity Zone projects into major locations that is comparable.
And then, again, this is the fifth-largest city in the United States and really a booming area, so that is certainly a major consideration on the investment side as well. This next slide illustrates two different investments. One for $250,000 and one for a million dollars and shows the returns basically over 10 years, which is quite compelling. It has a 4.02 equity multiple, 24.66% return annually, which is very compelling as well. Not many projects of this quality generate those types of returns, but what it shows you is that over this 10-year hold, that there will be, let’s say on a million-dollar investment, and whether it’s a million or $100,000, it’ll be the same percentage numbers.
But on a million-dollar investment, there’s $257,000 worth of cash load during the ownership period. Projected profit of $2.76 million on a million-dollar investment for total returns of $3,018,000. The other thing is that the annual depreciation amount is $65,000 estimated, which is far more than any cashflow from the property. So it will shield income beyond just whatever income comes from the property. And, of course, in an Opportunity Zone, there is no recapture of depreciation on sale, so there will be no recapture as I say at the end. So you won’t have to pay any taxes on that depreciation that you’ve claimed.
And our other plan, which I think is one of the most appealing parts as well, is that we’re planning to return capital to investors at the end of year two. So after that point, investors will not have any money invested, but they will still be receiving these strong returns based on their original investment, and of course, at that point, somebody can take their investment and go out and invest in other things as well. So the returns on that million dollars, in the end, will be far and excessive even what we project here.
Okay? I like to say that we run a tight ship on the development side, and that, frankly, it comes from having gray hair, and experience, and having done a lot of projects. We have really, a proprietary system for managing the construction process, from the general contractor selection to making sure that we have plenty of liability insurance on our project. Unfortunately, we’ve never had an incident, but we always want to be prepared if anything ever happens, any accident on a job site or anything like that, we have security on every project.
We have online project monitoring, so as the construction process goes along, the superintendent on the project posts photos of the job every day so you can see what’s going on at the site and we can certainly make that available to our partners if they would care to monitor that. We have weekly conference calls on the project. we have safety protocols on the project, and we update the project schedule on a monthly basis. These are all things that we’ve learned are a key factor in having a project that gets done on time and on budget.
This next slide, I think really speaks volumes as well about the quality of this investment, just not only in the development process, but in the ownership and management process. So we use the top contractor in the self-storage industry, Arco Murray. We’ve had a lot of experience with them, very successful, no issues. They’re the third-largest design-build contractor in the United States, so a major contractor, the top in self-storage.
And when the project is completed, we use REIT management, which there are four primary publicly traded self-storage REITs in the United States, and they are very good at management. So when the project is completed, we will have one of them managing the project. And at this point, it looks like it’ll probably be extra space because as of today, extra space and life storage will have merged and that merged company will be the largest owner/manager of self-storage projects in the world.
And they have excellent reporting, excellent management. We of course, manage them, but they’re excellent managers. They put out very high-quality reporting, they put out daily reporting in terms of occupancy at the property. So this combination of having a great contractor or great management, all that I think bodes for having a really successful investment in performing for our investors.
In conclusion, I like to say that I am available anytime you need to speak with me or have any questions. My email is in the deck. My cell phone number is 949-315-0044. Welcome to call me anytime, you’re welcome to email me. Happy to help any way I can or answer any questions. And again, I thank you all very much for your time today. I know how busy, and I’m sure all of you are, and I appreciate your time today. Thank you.
Jimmy: Thank you, Russ. Great presentation. Thanks so much. Again, we don’t get a lot of self-storage. This is the only self-storage Opportunity Zone deal that is presenting today and the only one that I know of. I’m gonna put your phone number and your email address in the chat right now, yours is america.com.
Russ: Do you need my phone number again?
Jimmy: I’ve got your phone number here on the deck, I’m just copying it down. 949-373-0503.
Russ: Let me give you my cell number so they have that. 949-315-0044. Call me on that number anytime. Okay?
Jimmy: Okay, perfect. Well, thank you, Russ. We’ve run out of time, so we don’t have time for questions. But I will try to forward some questions over to you maybe you can get to later if we’ve got anybody who has questions for you, but…
Russ: Okay. Give me a call. Thank you.
Jimmy: Thank you so much, Russ. I appreciate your time…