“The reward you seek should be totally commensurate with the risk you are willing to take, and to reduce your risk you should diversify.”

rates spiked, and homeowners with adjustable-rate mortgages (ARMs) were jammed as their mortgage payments shot higher. The recession began as unemployment peaked above 10 percent due to restrictive Fed policy. Thankfully, it worked. From 1980-1983, inflation dropped from above 13 percent to under four. It seems plausible, we are entering a secular trend of rising interest rates and governmental protectionism. Whatever your investment philoso- phy, it should accommodate a much higher cost of capital. As an inves- tor looking at various syndications, make sure the sponsor is running a multi – scenario analysis and ask to see the results of those analyses. Second scenario: 401(k) plans become fascinated with Real-Estate that can increase its Net Oper- ating Income. Last summer the Department of Labor (DOL) made a change to how retirement plan administrators (think 401(k) and 403(b) plans) can invest the assets they manage in their target-date retirement funds. To affirm this, take a moment to do an internet search for “US Department of Labor Information Letter On Private Equi- ty Investments”. Retirement plan administrators are now permitted to invest a reasonable amount of the assets in their target-date funds in private investments such as syn- dicated Self-Storage. These are fantastic options due to the cumu- lative preferred returns, as well as the increase in the assets value due to the building of additional net rentable square feet at the property thereby increasing the Net Operat- ing Income. NOI / Cap Rate = the increase of market value. Frequent- ly, when syndicating small mar- ket (below 50mm purchase price)

self-storage the Value-Add deals could have equity multiples is north of 1.75 x in 4-5 years. Investors with 401k plans that are interested in real estate investments should ask their advisors about options they may have. Investors in traditional 401ks that don’t offer the opportuni- ty to invest in self-storage syndica- tions could opt to move their funds to a self-directed IRA with addition- al control by the individual investor. Third scenario: tax rates on stock dividends go up causing common stockholders to look elsewhere for yield. This scenario is subjective based on a specific household’s income and filing status, but it is plausible that legislation is rolled out which will bring a higher tax rate on dividends paid by common stocks. An advantage that all real estate investments can provide is depreciation and particularly self-storage is well placed to offer significant depreciation benefits. In addition, there is the bonus depre- ciation received by LP members in a syndicated self-storage asset may neutralizes the passive income earned by the investment. Overall, comparing apples to apples this may cause syndicated self-storage to become incrementally more attrac- tive to investors. That is not to say it is the end all be all answer, as there are a variety of issues to weigh such as liquidity, position sizing, credit quality etc. Investors, inquiry with your sponsors about whether they

do cost segmentations. If they don’t, you’re missing out. As investors weigh risk and reward, remember a few core ten- ants of investing. The reward you seek should be totally commensu- rate with the risk you are willing to take, and to reduce your risk you should diversify. Secondly, don’t assume the environment that you are in will continue forever. Trends change, interest rate environments change and everything cycles. Best to you as you evaluate the opportuni- ties that lie ahead. Thirdly, always do your due diligence on both the deal and the sponsor. •

Ted Greene is a third-generation Seattleite who married his high school sweetheart. Ted and Melissa have two children attending the same High School

where they first met. After graduating from Seattle Pacific University with a BA in Finance Ted spent 24 years in the financial services industry as an investment advisor and Fiduciary.

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.


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