worth pursuing based on the macro fundamentals of the market. In the self-storage industry, the primary metrics that drive decision making are 1) how much competitive supply there is in the market, and 2) what rental rates are being achieved. The objective is to identify deals where there is the ability to take advantage of less competitive supply, below market rental rates, or both. Infor- mation provided by the third-party data providers for a desktop study and internally derived metrics, should drive the decision-making process. Here, if the initial metrics meet or exceed the internally derived metrics, you should proceed forward. If not, pass on the deal. Now that you have all this data, you need to verify its veracity. While the data providers do a fantastic job aggregating great sums of data, the datasets can be incomplete and using outside information as com- plete truth is a recipe for disaster. Successful real estate investing requires operators to personal- ly verify the accuracy of the initial assumptions. Not all information can be found from a desktop study. Taking the extra step is what can uncover a great deal, and potentially stop investors from doing a detri- mental deal. It is imperative to take on a more proactive approach and immerse yourself in the respective market. Using a combination of GIS mapping software, Google, and an in-person market visit, we catalogue and record every single facility within our established subject area. This always leads to discovering more information than what was initially assumed. Your team should person- ally tour the market while verifying every facility in the area to assess the entire competitive landscape, identifying competitive property’s rental rates, and bifurcating them even further by defining charac -
teristics. Verifying the data allows investors to fully comprehend the market’s unique macro and micro fundamentals. By doing the extra research, over time you will build an internal data set to aid in your deci- sion-making process. The final step is validating the business plan can be achieved based on the data that has been researched and verifying by wargaming a couple of scenarios on how a deal could play out. No two deals are the same, so proper qualitative analysis, i.e., war- gaming is important. In the self-stor- age business, demand is everything. If a facility can’t stay occupied, the deal will be in trouble. The various data providers can provide national and even submarket level heuristics on demand usage, which is approx- imately eight sq. ft. per capita. Now that you have the national level demand, it is important to assess your market because fundamen- tals and the unique characteristics vary widely by market. Boise, ID may have a drastically higher supply of self-storage than downtown Denver, CO, but that does not mean Boise is an oversupplied or weaker market. Specific markets possess varying demands regarding customers’ stor- age needs. Instead of comparing to the national average, it is important to compare against markets that are similar in nature. Using the mar- ket data collected and by manually recalculating what the supply and demand equilibrium numbers look like, “oversupplied” markets may be appropriately supplied, or even undersupplied, when compared against similar markets. Once you have all your numbers, this is where scenario analysis and wargaming come in. You need to run your numbers a bunch of different ways and determine the outcome based not only on the data, but what you’ve qualitatively identified through
your own market research. If you were to simply take the national heuristic of what is considered equi- librium, the potential to miss out on fantastic investment opportunities is huge. By intimately understanding every market you do business in, you can see potential where others may not. Ideally you want to have a firm understanding of the market, how the subject deal compares, and compile this research into a strong business plan to best position the asset. Taking a data-driven approach to commercial real estate investing is a must. However, just looking at numbers on paper is not enough in today’s competitive environment. It is crucial to combine the data provided by third-party firms with an internal qualitative analysis. By first trusting the data available to begin the pro- cess, then personally verifying it, and finally validating the research to prop - erly execute the business plan, inves- tors can increase the odds of identify- ing a successful long-term deal.
Tyler Burke is the Senior Investment Associate at Spartan Investment Group where he focuses primarily on acquisitions and business development. He is responsible for leading the acquisition process across multiple markets. He graduated from Colorado State University with a bachelor’s degree in Economics.
Scott Lewis is the co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG). To date SIG operates over 5500 storage units, 200 RV pads,
has completed $11M in development projects, has $115M more underway, and has raised over $42M in private equity. As the CEO, Scott is responsible for the strategic direction of the company and ensuring it aligns with SIG’s mission to Improve Lives Through Real Estate. In addition to Spartan, Scott is also in the US Army Reserves and a combat Vet. Scott graduated from Michigan State University with degrees in Chemistry and Marketing, from Catholic University with a MS in Management, and from Georgetown University with a Certificate in Project Management.
COMMERC IAL REV I EW : : 11
Made with FlippingBook Online newsletter