#84: Self-Storage Investing

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Joining us today is Kris Benson, is the Chief Investment Officer of Reliant Investments, a subsidiary of Reliant Real Estate Management and one of the top 25 commercial self-storage operators in the U.S. in 2019. Reliant has completed over $650,000,000 in self-storage acquisitions and dispositions in the past 5 years and recently completed Reliant Self-Storage Fund I, a $50,000,000 equity fund focused on self-storage acquisitions in the southeastern U.S.

Kris is part of the investment committee at Reliant and helps to develop institutional quality self-storage investment opportunities for accredited investors.

Kris’s investing goals have always been about changing the paradigm of trading time for money in order to have time for more of the things we love to do. Likewise, investing in real estate has been Kris’s steadfast path to passive income and he is passionate about inspiring others to change their mindset around investing for their future.

In this episode we’re discussing…

[2:12] How he started in sales and how he changed his mindset to start investing, and now they’re the 25th largest Self Storage Operator in the US

[8:25] Why self-storage is still a good option to invest, and now with COVID-19

[10:54] The self-storage itself trend due to demographic, and climate control building

[13:44] The 4 D’s, demand drivers of self-storage, and now more because of COVID-19

[17:24] The investments type they can offer to raise equity, and what happened with syndications

[19:11] The value-added for every asset they buy and how they manage every deal

[20:29] The real return of investments that investors can expect

[24:49] Investors have to be accredited, and the minimum amount to invest with them

Kris Benson’s Top Tip’s

“I think that's a big part of the last five years, we've seen a substantial development cycle in the market. There's been a lot of new development, reliant, our particular focus is secondary and tertiary markets”

“So, think of the smaller markets, I think with our track record, we've proved that the reads will go out and buy if you can, in those markets, if you can provide scale. So, the 14-property portfolio in March to one of the readings, and it was primarily all tertiary market, so, it's certainly something like that you have to be cognizant of, and our acquisitions team, it's one of them, the many checklists we're trying to understand is what is the market supply?”

“For your listeners, if they're looking at a self-storage facility, you want to be very cognizant of what the supply is in the market. Because it's basic, you know, macroeconomics, you get a lot of supply prices to go down, if you don't prices go up. It's more than just one individual metric”

“Think about the demand drivers of self-storage, in the industry, we talked about the four D’s, death, dislocation, downsizing, and divorce, right. So usually, if one of those things is happening in your life, you're going to create some demand for self-storage. With COVID-19, unfortunately, for everyone, and probably fortunate for the industry, is probably creating a little bit of all of those”

“If you think about storage, one big difference versus residential or multifamily is that the leases are 30 days. So, we see a lot of turn of tents. And what's interesting is people are staying longer right now. Consumer behavior change because of COVID”

“Our sweet spot really is the value add play, where we're buying an asset, current cash-flowing asset, and doing some forced appreciation model, that could come in a number of formats, it could come in us build an additional building, you know, some additional square footage and getting that leased up.”

“Sometimes the operational value add is lease-up. So, we'll buy an asset where the current owner completed an expansion and we take over at 0% occupancy for that building right now our job is to get leased up. I would call it an opportunistic Self-Storage operator; we'll look at almost anything”

“The investors return is projected to be a six-year-old period, and between 12 and 15% a year, including the profits from the sale. The cash flows of current yields. We plan to pay between four and 7% a year. And then upon exit, you'll get the rest of that pop, and we expect the returns to be $100,000 in an example, we expect to return between 172 to 190,000, including your principal, so 72 to 90%, over a six-year-old”

Resources from Kris Benson

Reliant Investments | LinkedIn | Facebook | Phone | Email

+ Read the transcript

Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no flow. Welcome to the richer geek podcast. We're here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler, and in this podcast, you'll hear from others who are already doing these things, and learn how you can too. Welcome back everybody, joining us today is Kris Benson, is the CIO of reliance investments, a subsidiary of reliance real estate management, and one of the top 25 commercial Self Storage operators in the US. reliance has completed over $650 million in self-storage acquisitions and dispositions in the past five years, and release and recently completed reliance Self Storage fund one, which is a $50 million equity fund focused on self-storage acquisitions in the southeastern us. Kris is part of the Investment Committee at Reliant and helps to develop institutional quality Self Storage investment opportunities for accredited investors. Welcome back to the richer geek, and today's episode, I am pleased to have Kris Benson on the podcast with us how you doing Kris?

Kris Benson Do well Mike, Thanks for having me.

Mike Stohler So, you know, we're going to talk a little bit about self storage and what you're doing Self Storage, give me a little bit of, and our viewers a little bit about your background, and why Self Storage, what we're gonna What made you get into it?

Kris Benson
Sure, be happy to. So my background like is my last corporate job was in sales. So I work for a company called Intuitive Surgical. So your listeners may know that they make the Vinci robot was really fortunate to be a part of that company, incredible technology, incredible organization, incredible people that say, but, you know, I got into real estate probably like many of your listeners have. You know, there was a moment when I was about 30, that I woke up and said, Nope, like I'm not doing this another 30 years. So for me to create that passive income. The only path that I really understood was real estate. I'm not a super creative guy. But, you know, real estate's just numbers. And that makes sense to me. So we started just like probably many listeners out, we bought a bunch of duplexes in the area that we lived in and did that for a little while hated it. realized really quickly that that was not scalable for what I wanted to do as far as replacing our income. So we sold those and I listened or read, I wish I could give credit to where I heard it. But somebody said, big deals and small deals with the same amount of work, you just make less money on small deals. And that was sort of my aha, like, I just need to get bigger. So we ended up building a 64 unit apartment complex. We sold all the duplexes gave us a little bit of capital, and I was making good money at intuitive as well. And that was sort of the light bulbs for me is when I set out this is how you make money in real estate at a little bit of scale. Could third party manage it? So we invested in some multifamily properties. In some of the primary MSA is focused primarily on both the passive side and direct. And what was kind of happening alongside Mike was that my my organic peer group knew what I was doing, and basically just started asking like, hey, next, do let me know about it. So pretty quickly, a fairly sizable amount of equity. We were able to raise for the deals that we were participating in individually. And so about five years ago, one of the operators that we hit invested with was talking about compressing cap rates and what was happening in the space and how much capital was chasing deals and not much has changed in the last five years. It's seems to be only more frothy. But that that got me looking at other asset classes. And that's where Self Storage came in. I'm a data guy. And so I went back and looked at and I can send you the link to this for your listeners, but there's National Association of real data Which is a really nice compare there where you can look asset class by asset class and see how all the publicly traded reads have done, which, which is a nice representative set of the asset class. And storage historically has performed incredibly well. So over the last 25 years, just under 17% a year. And once I saw that it outperformed performed departments kind of the core four departments retail office industrial. And the next thing I wanted to see is how it done in the last economic downturn. So 20789 storage did really well last less than 4% of its value, but at least at the reed level, in compared to apartments and retail and office it outperform again, so now I have this thing with a real strong historical return, some nice downside protection. And then, you know, the third thing for me that really kind of sealed the deal, not not that I don't love multifamily, but it was the consolidation play that exists in self storage. So, you know, there's five publicly traded reads in the space. And they own about 25% of the market. The other 75 is still up in the air. So I'm Reliant. We're the 25th largest Self Storage operator in the US, we have 52 properties, right. So there's a lot of mom and pop operators. And so there's a consolidation play there, right roll up strategy where, you know, you take a bunch of mom and pop operated facilities, roll them up into a big portfolio, then there's an exit opportunity to either institutional capital, or, you know, one of the reads, so that's why I originally made the jump, and then, you know, storage. That was five years ago, first, I was an investor with reliant, and then about three years ago, they needed help raising some capital. And by this time, I had had some experience in that. And so we create a partnership. And it's been an adventure ever since I'm talking from our office in Roswell, Georgia. So, our corporate office is located just north of Atlanta about 20 miles and self-storage is at an interesting time, you know, we're recording this in the middle of December. And obviously, it's still in the midst of COVID. And it looks as if storage is going to come through COVID-19 relatively unscathed.

So this will be two second separate economic cycles that storage has performed well, and and so you know, right now, there's a lot of capital looking to be deployed in the space. So it's been an interesting journey, I've bounced around a little bit and seen a lot of stuff.

Mike Stohler You know, it's fascinating, you know, when I will get into a couple questions, and thank you, it's very fascinating story. And I think, you know, a lot of us that have been successful in real estate kind of have that same kind of path and that kind of same journey. You start out small, and then you just kind of start bouncing upward and onward. And, and getting into a more and more different types of units and diversifying. When it comes to self storage. One of the questions that I always get is, it seems to be oversaturated. You know, that's the first thing you know, well, you know, if there's a self-storage on every corner, talk to us a little bit about that, because I would think that that was probably the number one question that our listeners would have, in wanting to invest in self-storage is, they see a lot of them.

Kris Benson
Yeah, yeah, there's no doubt, I think you can look back at why that development cycle happened with 2007,8, 9. Right? So you know, 2010, everybody started saying, Well, how stores do well, we're going to get into this space, there were a lot of merchant builders, guys who were not and gals who are not self-storage operators, who decided, hey, we can develop the space, get it full and sell it to a rate, and they'll come and buy it. And there was a real a very nice, you know, return on the yield on stabilized costs. So they're stabilized yield on cost. So, you know, I think that's a big part of the last five years, we've seen a substantial development cycle in the market, especially in the top 50, msps. around the country. Yeah, there's been a lot of new development, you know, reliant, our particular focus is secondary and tertiary markets. So think the smaller markets. And, you know, I think with our track record, we've proved that that the reads will go out and buy if you can, in those markets, if you can provide scale. So the 14 property portfolio in March to one of the readings, and it was primarily all tertiary market, so, you know, it's certainly something like that you have to be cognizant of, and our acquisitions team, it's one of the, you know, the many checklists we're trying to understand is what is the market supply? You know, what's creating the demand in the market and, you know, there's no magic formula for it. There's numbers that people throw around, you know, seven square feet per person, right? So, in a five-mile radius, there's 100,000 people The seven square feet per person metric would suggest that you should have 700,000 square feet of storage to support that, right. And you know that that's there's not a lot of great science to support that algorithm. So it's more about understanding the true market. And you know what the competitive set occupancy looks like, right? If you go into a market and everybody's full, it doesn't really matter what the support the supply number is. Its demand, the demand is high, right? Because you got 10 facilities, and all of them are 90 plus percent full. There's proof that there's high demand there. So it's more than just one individual metric. But for your listeners, if they're looking at self storage facility, you want to be very cognizant of what the supply is in the market. Because it's basic, you know, macroeconomics, you get a lot of supply prices go down, if you don't prices go up?

Mike Stohler
Yep. Now do you do, I'm seeing this trend of this, like the end or self-storage, where it's like in a building, instead of you roll up with your truck or your car, and you roll it up and roll it down? Are you seeing that trend continues? Or are you focusing on that type of the building type? Or is the money more in just your standard self-storage unit where you roll up?

Kris Benson
Yeah, I think what you're describing is a drive-up unit or a climate control unit. And, you know, especially in, in many of the larger markets, the new development has all been, you know, think three storey glass and steel building. Everything sell climate control, it depends. Each market kind of has its own unit mix. You know, if you're in South Florida, right, everything's super humid, there's not a lot of drive up because the humidity is gonna mold and mildew on anything that's in a unit. That's not climate control, you know, in we just bought a property in Midland, North Carolina, that, you know, there's probably a 75 probably 60x between climate and not so you know, there Yeah, yep. There we go. Sorry about that. For a second. Hopefully, you can edit that out,

Mike Stohler
I can get I was getting ready to pause the recording with. Yeah, we're good.

Kris Benson Let me just double check that it's not on my end, I think I'm good. But any event between climate, not climate control units, and it really depends on the market. But certainly, over the last, a lot of the new development that's come out is built around those climate control buildings.

Mike Stohler
Okay. Yeah, I was just curious about that, because I'm seeing more of that. And maybe it's because I live in an urban area. Now. Talk to me a little bit about the diversification of going into self storage. We've talked a little bit about the great recession. And now I would think that during COVID, the demand would still be there, because it's or maybe even greater, because maybe people are needing to downsize. You know, talk to us a little about how, and why you're thinking that it's recession resilient. But also, you know, there's got to be this new word, you know, virus resilient. Yeah. Talk to us a little bit about that.

Kris Benson
Yeah, I mean, I think if you think about the demand drivers of self storage, you know, in the industry, we talked about the four DS, death, dislocation, downsizing, and divorce, right. So usually, if one of those things is happening in your life, you're going to create some demand for self storage. And, you know, in our particular case, or with with COVID-19, unfortunately, for everyone, and probably fortunate for the industry, COVID-19 is probably creating a little bit of all of those, right? People are dying, people are downsizing. And people are being dislocated to new areas, and maybe people are getting divorced because of COVID because they're spending too much time together. But, you know, generally that's those are the demand drivers, and they're creating more of those. So, you know, if, if that happens, generally demand is going to go up. So what we've seen, you know, across the industry, our portfolios, you know, rather small 52 properties across eight states, right? So we see a very small portion of the asset class, but we look to the reads, and they kind of give us insight into what's happening at a national level, and they're seeing the same thing and that April, May, June was slow as people kind of were huddled and locked down. Wondering what the new world is gonna look like. And then, you know, July, August, September, October. So far, so good, the demand came back, our occupancy across our portfolio actually went up, as did revenues. So you know, we're seeing demand drivers one one interesting statistic though, that we don't necessarily know what it means yet is the average tenure of a tenant is longer during COVID than it was previous. So you know, if you think about storage, one big difference versus residential or multifamily is that the leases are 30 days. So we see a lot of turn of tents. And what's interesting is people are staying longer right now. And we don't know if that's kind of ghosts, we caught those occupancy where once the virus, you know, clears out maybe those people all leave? Or is this a different consumer behavior? And so we don't we don't know that yet. But you know, times gonna tell and the data will tell that story.

Mike Stohler And it's a very good future outlook, you know, your thinking is, it's not going to go down for any reason that it's going to in the new world that you think you're going to see a very strong future.

Kris Benson
Yeah, I mean, Mike, what I would say is, one of the things that COVID accelerated for us as an operator was touchless. leasing, you know, so the ability for someone to do everything online, and literally, if they don't want to talk to someone they don't have to. So there's going to be more technology deployed in the space to do to offer those kinds of things. But, you know, generally, we don't see consumer behavior changing. You know, I mean, COVID is causing a lot of people to move right now, right, and then move into new areas. And the net migration out of the northeast and kind of the Rust Belt states into southeast or the Sunbelt states is, is real. So you know, time will tell I certainly can't predict the future but we don't think there's going to be a major you know, consumer behavior change because of COVID.

Mike Stohler Now, a little bit about Reliant investments is what you do more of a rich style, is it a fund? Do you do syndications? Tell us a little bit about what type of investment that you offer? our listeners?

Kris Benson
You're saying how we raise equity, Mike? Yep. Yeah, so right now, we're raising equity through a fun vehicle. So you know, the best way to describe it is think mutual fund and self storage. So we used to in the past syndicate individual deals. So you know, we would take to our investor base, hey, we're buying a property in Wilmington, North Carolina, would you like to invest in that. And then, in 2019, we launched our first fund, with the idea behind it of, you know, for our retail investors, guys and gals, you know, maybe they deploy $100,000 in the space, we wanted to be able to create that diversification for them. And so the fund does that. So fund one, we ended up raising $47 million. And there were 11 properties in the fund. So it gives the investor ownership in all 11 properties. And that's good and bad, right? it smooths out the returns. So if one property goes down the tubes, the performance is buoyed by the other but the opposite happens as well. If one property absolutely crushes, it's pulled down by the other property, so it kind of smoothes out those returns. So right now we're doing funds to essentially a very similar structure, we plan to raise $50 million. If two properties in the portfolio today, a third closes in January, and then we have four more under contract that are in the due diligence process, which will get us to seven, hopefully, we'll have all of those closed by the end of q1 beginning of q2 of 2021.

Mike Stohler And as most of your acquisitions, it seems like you're closing on ones that are already built. They're already there, or you are you ground up.

Kris Benson Yeah, so our sweet spot really is the value add play, where we're buying an asset, a cash, current cash flowing asset asset, and doing some forced appreciation model Do you know that could come in a number of formats, it could come in US building an additional building, you know, some additional square footage and getting that leased up. And that's where the growth of noi comes from. It could be a management value add where, you know, we're adding ancillary income items like u haul truck rental and tenant insurance programs and, you know, retail sales of boxes and locks and blank moving blankets, all that kind of stuff. And sometimes the operational value add is is lease up. So we'll buy an asset where the current owner completed an expansion and we take over At 0% occupancy for that building right now our job is to get leased up. So we're I would call it an opportunistic Self Storage operator, we'll look at almost anything. But that value add play. Although we do do some ground up development that value add and stabilize deals is really where our sweet spot isn't fun to all of the deals, those seven that I mentioned, are a combination of either value add or stabilize, none of those are ground development deals.

Mike Stohler
Now, what is the real return on investment that investors can expect with your type of based on your data, and what the investors are currently doing?

Kris Benson Sure. So I'll start with our track record, we've sold 22 properties in our history. And our average depends what metric you want to look at. But our average project level IRR, for example, is in the 40s, which is really, really high. But our timing was really good. We had two things kind of happening. At the same time, you know, we were buying properties at a perfect time. And cap, we were doing value add to those properties and cap rates were compressing storage was becoming more valuable because more people wanted it. So we're generally underwriting like our funds. Now, Mike is projected to be a six year old period, and between 12 and 15% a year, including the profits from sale. So, you know, the cash flows of current yields. And what we plan to pay right now are between four and 7% a year. And then upon exit, you know, you'll get the rest of that pop, and we expect the returns to be, you know, $100,000. In example, we expect to return between 172 to 190,000. To you, including your principal, so 72 to 90%, over a six year old is the projected return for fun to

Mike Stohler Do you leverage?

Kris Benson
We do? Yeah. So generally, you know, our leverage is between 65 and 70%. loan to value depends on the project and the lender, but we endeavor to not have the fund portfolio be above 70% loan to value fund one. We ended up at the 11 properties. I think it was 68%. LTV. So we're generally in that ballpark.

Mike Stohler
Good. And we're getting close on time before I go to another one. Most importantly, how can all of our listeners get a hold of you get more information? Where can they find you?

Kris Benson Yeah, sure, I would say our websites a good place to start relying investments calm. I'm also on LinkedIn, Mike, Kris Benson is Kris with a K. If you Google me with reliant, you'll find us on LinkedIn, we're fairly active post some stuff there. But but on our website, there's a bunch of information, there's some free education on just real estate investing on a whole, you can sign up and get all the videos, it's free, you just have to engineer email address. And then certainly if you're interested in more on our investing platform, there's an our investments page that that will walk you through and specific right now give you more information on fun too.

Mike Stohler And, you know, for all of our listeners, and you can hit on this, Kris, the to wrap up the tax deferred strategies also are good Some people think what has to be multifamily there has to be you know, single family, but you can get some nice tax deferment also with self storage to same right.

Kris Benson Are you saying from a depreciation Stan? Yeah, it depends 31 type of structure? Well,

Mike Stohler you know, with the K ones with the the with depreciation all that it's not just on. People think oh, yeah, they were always surprised that I get depreciation on hotels, you also get depreciation on yourself storage?

Kris Benson Yeah, that's correct. So you participate as an investor at the LLC level. So you'll get a K one at the end of the year. And just like you share in your pro rata share of the revenue of the fund, you also share your pro rata share of the depreciation. So in many cases, that that offsets the income, in like you said, can create a loss from from the IRS perspective on that k one income.

Mike Stohler And as far as your fun credit investors only is there a minimum? Talk to me a little bit about what they can expect when they go to the website?

Kris Benson
Yep, for sure. So it's a 506 c offering meaning that all the investors do have to be accredited and the investment minimum is $50,000. For a Class C share of the fun we have three classes of share. So, yeah, generally if you're accredited and interested, by all means reach out to half of us to get you some more information.

Mike Stohler Sounds great. Well, Kris, I appreciate you. coming on today and telling us a little bit more, I should say a lot more about self-storage. And for all of our listeners out there, please check out their website and connect with Kris on LinkedIn. Thanks, everybody.

Thanks for tuning in to the Richer Geek podcast, where we're helping others find creative ways to build wealth, and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www.Richergeek.com slash podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. share with others who could benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you. Thanks for listening.

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ABOUT KRIS BENSON

Kris Benson is the chief investment officer for Reliant Investments, a subsidiary of Reliant Real Estate management and one of the top 25 commercial self-storage operators in the U.S. in 2019. Reliant has completed over $650,000,000 in self-storage acquisitions and dispositions in the past 5 years and recently completed Reliant Self-Storage Fund I, a $50,000,000 equity fund focused on self-storage acquisitions in the southeastern U.S. Kris is part of the investment committee at Reliant and helps to develop institutional quality self-storage investment opportunities for accredited investors.

Kris graduated from the State University of Binghamton and currently lives in Roswell, GA just outside of Atlanta, with his wife Jenn and two sons, Noah and Luke. He is an outdoor enthusiast with a passion for the ski mountain, the lake, and his mountain bike.

Passive InvestmentsNichole StohlerApril 21, 2021podcast, season 1