Growth Fund 2: A New Chapter in Self Storage Investment

Summary: Growth Fund 2 offers potential investors an efficient, diversified pathway to tap into the self-storage and office industrial flex markets.

The Evolution to a Fund Model

AAA Storage has steadily evolved from single property syndications to a fund model, recognizing shifts in the real estate market that necessitated a more comprehensive approach. Over the past 30 years, the company has successfully developed self-storage and office industrial flex properties, traditionally involving a small cohort of investors in each project. The transition to a fund model, first realized with Growth Fund One, followed market fluctuations spurred by COVID-19, such as skyrocketing occupancy rates and an influx of new developments. AAA Storage identified an oversupply, prompting a strategic pivot to capitalize on the anticipated market realignment. This approach provides a streamlined and scalable investment avenue, allowing for simultaneous dealings in multiple properties and broadening investor participation.

Market Understanding and Strategic Shifts

Initial motivations for adopting a fund structure stemmed from recognizing market inefficiencies and capitalizing on opportunities created by those conditions. The COVID-era market saw disproportionate development due to previously low-interest rates and high demand, leading to an eventual oversupply. By transitioning to a fund model, AAA Storage can better navigate these challenges through collective investment efforts. This enables the company to respond dynamically to market demands, scaling operations at a pace aligned with investor interest and projected timing advantages in property development cycles.

A Strategic Approach in Growth Fund 2

Growth Fund 2 continues the successful strategy of its predecessor, focusing on ground-up development rather than acquiring existing properties with immediate cash flow. The aim is to capitalize on the development process itself—creating value by bridging the gap between construction cost and market valuation based on eventual cash flows. This merchant development model promises higher internal rates of return, distinguishing it from typical cash flow-driven real estate investments. The fund will focus on creating value through developing, stabilizing, and selling properties once occupancy reaches a certain threshold, aligning with market conditions favoring new facilities due to anticipated demand resurgence in the late 2020s.

Value Creation Through Development

The core of Growth Fund 2’s strategy hinges on 'yield on cost' — a focus that directs substantial attention toward development spreads, which in turn drive profitability. This involves stabilizing properties at 80-85% occupancy, allowing the fund to capture the intrinsic value built during the development phase. By concentrating on innovative creation rather than obtaining existing assets, AAA Storage ensures investment capital is utilized to develop larger-scale, high-demand projects. The approach not only maximizes returns but also effectively mitigates risk by delivering new assets in high-demand areas with minimal competition.

Property Mix and Geographical Focus

Growth Fund 2 encompasses a diverse property portfolio, predominantly in self-storage and office industrial flex categories. These properties are strategically located in the Southwest, covering significant metros such as Houston, San Antonio, Austin, and extending to North Carolina. A notable project in the Charlotte-Gastonia corridor, featuring both office industrial flex and self-storage units, exemplifies the fund's robust planning and foresight. AAA Storage meticulously prepares potential sites by investing in land banking, thus mitigating timing and zoning risks for investors. The comprehensive due diligence process includes an analysis of demographics, storage demand, and supply checks, ensuring thorough market readiness before development commencement.

Balanced Portfolio and Regional Expertise

A balanced portfolio is key to Growth Fund 2’s appeal, providing diversification across regions and property types. The fund prioritizes an approximately 60-40 allocation between self-storage and office industrial flex properties, with initial projects skewed slightly more towards self-storage. Geographical diversity within key Texan and North Carolinian markets leverages AAA Storage’s extensive regional knowledge and historical presence, ensuring project success through localized insights. This regional expertise translates into selecting sites with high growth potential and favorable economic conditions, underpinning the fund’s success.

Thorough Due Diligence Processes

AAA Storage’s rigorous due diligence further enhances Growth Fund 2's investment proposition. Every prospective property undergoes in-depth analysis—from demographic evaluations, market trend assessments, to direct engagement with local planning commissions. This comprehensive vetting ensures that properties are not only feasible but also optimally positioned for rapid appreciation and profitability. The company’s ability to anticipate demand and identify properties facing minimal competition stems from thorough market intelligence, bolstering investor confidence.

Navigating Land Banking and Development

Enterprising land banking strategies smooth out potential roadblocks, shielding investors from uncertainty related to zoning or entitlements. Over two years of preparation precede each launch, ensuring every site is ripe for development upon fund initiation. This not only fast-tracks development timelines but also enhances returns by circumventing typical early-stage delays. Investors benefit from projects where entitlement risks are borne by AAA Storage, not the fund, ensuring that investments hit the ground running towards profitability.

Aligned Investor-Sponsor Interests

Alignment between AAA Storage and its investors is central to the fund’s design. By contributing significant capital alongside investors and personally guaranteeing construction debts, AAA Storage exemplifies skin-in-the-game principles—fortifying mutual goals and shared risk. This model negates any conflict of interest, signaling commitment to the fund's success by prioritizing investor returns. Furthermore, AAA Storage’s approach reflects a return-driven philosophy where financial incentives are unequivocally linked to fund performance, reinforcing an investment ethos that prioritizes long-term trust and collaboration.

A History of Consistent Returns

With a historical track record boasting an average near-20% internal rate of return across 90 deals, AAA Storage sets a compelling precedent for prospective investors in Growth Fund 2. This enduring performance makes the fund not only a viable but an attractive prospect for those seeking robust returns through well-calibrated, strategic investments. By focusing on proven approaches and maintaining investor-aligned frameworks, AAA Storage secures its position as a leading sponsor in the self-storage and industrial flex real estate markets.

Conclusion

Growth Fund 2 exemplifies AAA Storage’s commitment to strategic, value-oriented investment in the self-storage and office industrial flex markets. By shifting to a fund model, they offer investors diversified exposure across multiple projects while maintaining direct alignment with investor interests. With a proven track record and an unwavering dedication to meticulous planning and market analysis, AAA Storage positions Growth Fund 2 as a robust opportunity for accredited investors seeking growth and diversification in their portfolios. This model stands as a testament to their expertise and steadfast approach, offering promising avenues for sustainable investment across ever-evolving real estate landscapes.