Debt and equity for self storage acquisition,
construction and development
Equity for self storage acquisition & development
call 440-637-5646or EMAIL: equity@michaellewisgroup.com
Equity financing for self-storage real estate can take various forms, including preferred equity, mezzanine financing, co-general partnership (Co-GP), and other types. Here's an overview of these equity types, their uses, how to source equity for self-storage real estate JV partners, and the advantages and disadvantages of having an equity partner:
Types of Equity for Self-Storage Real Estate:
Preferred Equity:
Preferred equity is a type of ownership interest that gives investors priority over common equity holders in terms of distributions and liquidation proceeds.
Investors in preferred equity typically receive fixed dividends or a preferred return before common equity holders receive any profits.
Preferred equity investors have less control over the property compared to common equity holders but enjoy more security in terms of returns.
Mezzanine Financing:
Mezzanine financing involves providing debt-like capital to self-storage projects, often with equity warrants or conversion features.
Mezzanine lenders are subordinate to senior debt holders but have priority over common equity holders in case of default or liquidation.
Mezzanine financing can be structured with flexible repayment terms and may include an equity kicker, such as an ownership stake or profit-sharing arrangement.
Co-General Partnership (Co-GP):
In a Co-GP structure, two or more parties come together to form a partnership and jointly manage the self-storage investment.
Co-GP partners share responsibilities, risks, and rewards associated with the property, typically in proportion to their capital contributions or agreed-upon terms.
Co-GP arrangements allow partners to leverage each other's expertise, resources, and networks to maximize the success of the investment.
Uses of Equity for Self-Storage Real Estate:
Acquisition: Equity financing can be used to acquire existing self-storage facilities by providing the necessary funds for the purchase price or down payment.
Development: Equity capital can be deployed to finance the development of new self-storage projects, covering land acquisition, construction costs, permits, and other expenses.
Expansion and Renovation: Equity financing enables owners to expand or renovate existing self-storage facilities, improving occupancy rates, rental income, and overall property value.
Sourcing Equity for Self-Storage Real Estate JV Partners:
Networking: Build relationships with potential JV partners, including high-net-worth individuals, family offices, institutional investors, and real estate investment firms, through industry events, conferences, and networking platforms.
Real Estate Syndication: Partner with real estate syndicators or firms specializing in self-storage investments to access a network of accredited investors interested in equity opportunities.
Professional Advisors: Seek assistance from real estate attorneys, financial advisors, and consultants who can facilitate introductions and help structure equity partnerships tailored to the needs of both parties.
Online Platforms: Explore online crowdfunding platforms, investment marketplaces, and peer-to-peer lending platforms that connect self-storage developers and operators with equity investors seeking investment opportunities.
Advantages of an Equity Partner Contributing Equity for Self-Storage Real Estate:
Access to Capital: Equity partners provide the necessary funds to acquire, develop, or expand self-storage properties without relying solely on debt financing, allowing for greater leverage and scalability.
Risk Mitigation: Sharing ownership with equity partners spreads the financial risk associated with self-storage investments, providing a cushion against market fluctuations, vacancies, and other challenges.
Expertise and Resources: Equity partners may bring valuable industry expertise, operational knowledge, or financial resources to the table, enhancing the success and profitability of the self-storage project.
Diversification: Partnering with equity investors allows self-storage owners to diversify their investment portfolio, mitigate concentration risk, and access new markets or opportunities they may not have been able to pursue independently.
Disadvantages of an Equity Partner Contributing Equity for Self-Storage Real Estate:
Profit Sharing: Equity partners are entitled to a share of the self-storage property's profits, reducing the owner's overall return on investment compared to financing solely with debt or personal funds.
Loss of Control: Bringing in equity partners means relinquishing some control over decision-making and operational management, potentially leading to conflicts or disagreements over strategy, expenses, or distributions.
Complexity: Managing relationships with multiple equity partners can add complexity to the project, requiring clear communication, alignment of goals, and formalized agreements to avoid misunderstandings or disputes.
Exit Strategy: Exiting an equity partnership in self-storage real estate can be challenging, especially if there are disagreements among partners or if market conditions make it difficult to sell or refinance the property at an acceptable valuation.
When considering equity financing for self-storage real estate, it's crucial to carefully evaluate the advantages and disadvantages and select the appropriate equity structure and partners based on your investment objectives, risk tolerance, and long-term strategy.
Debt and equity for self storage deals.
Equity for self storage acquisition & development
call 440-637-5646or EMAIL: equity@michaellewisgroup.com