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Reliant Real Estate Management - Self Storage
Reliant Real Estate Management
- A commercial Self-Storage operator with offices in Roswell, GA founded in 2009
- Top 30 largest Self-Storage operator in U.S. in 2020
- Current portfolio of 50 properties, 31,000+ units, and a portfolio valuation of over $350,000,000+
- Experienced leadership team with over $650,000,000 in Self-Storage transactions in past 5 years
- Average project level returns on 38 properties sold are:
- 33.8% IRR
- 2.57x equity multiple
- Average hold time on 38 properties sold is 3.62 years
- Average project level annual return on 38 properties sold is 48.4%
- Average NOI growth over holding period is 34.3%
- Average Exit Cap Rate is 5.16%
The Reliant Story (in their own words)
"At Reliant we believe a great performance starts with a great team. Our senior leadership team at Reliant has over 100 years of combined experience in the self-storage industry.
"From acquisitions to operations we are focused on driving results. We believe our best partnerships are ones where we all win together.
Our conservative approach to underwriting and long term approach to wealth creation allow us to generate outsized returns for our investors."
Adam Gower: Kris. Fabulous to see you. Thanks so much for being on the podcast. Why don't you start, if you would, please, with a brief self introduction. What's your name, company name and position?
Kris Benson: Sure, Adam. Thanks for having me. My name is Kris Benson. I'm the Chief Investment Officer for Reliant Real Estate Management.
Adam Gower: Right. And so tell me about the company, because Reliant Real Estate doesn't tell me what business you're in. Tell me about the company. When was it formed? Brief background.
Kris Benson: For sure. So, Reliant Real Estate Management is a vertically integrated self-storage operator. So that means, we are buying and managing the self-storage properties we buy. We're located in Roswell, Georgia, which is just north of Atlanta. We're about 20 miles north of Atlanta. And Adam, Reliant was originally formed back in 2009 but we actually bought our first self-storage property in 2007 under a different entity and we've been buying and selling ever since. So today, we have 50 properties in the portfolio. Just over 4 million net rentable square feet. That equates itself to about 31,000 units and they are primarily spread across the southeastern part of the US. So, Florida, Georgia, North and South Carolina, Tennessee, Alabama. We have a little portfolio out in Colorado, but primarily the bulk of our portfolio is right there in the southeast.
Adam Gower: And what is the dollar value currently, of your portfolio and historically, how much have you transacted?
Kris Benson: Yeah, I would say, in the last five years, we've probably done in excess of $750 million dollars of transactions, both buying and selling. The value of our current portfolio, I think, would be a topic of great debate, depending on which cap rates we would apply to the current NOI in our portfolio. I would say it's somewhere in the neighborhood of four to seven hundred million dollars, again, depending on who you ask and at what time of the day you ask them.
Adam Gower: And what is the average, historically, what has been the average hold time, for your deals?
Kris Benson: You're saying that for the ones that we've sold?
Adam Gower: The full cycle ones, yeah
Kris Benson: Yeah, so we've sold 38 properties and on 38 properties our average hold time is just over three and a half years.
Adam Gower: And, you've taken private investors or individual investors throughout the course of your history. What's the typical return profile look like, for those investors?
Kris Benson: Yeah, you're correct. So, most of our offerings, Adam, are for accredited investors and the majority of the equity we raise comes from those investors. It depends a little bit on the deal, for sure, when we think about a return profile. But generally, I would say, in our current fund for example, that return profile is going to be in that mid teens, the annual return. So, let's use a $100,000 investment. If you were to invest $100,000 into a Reliant project, our hold period projected is usually 6 years and we're going to return somewhere in the neighborhood of one hundred and seventy two to one hundred and ninety thousand to you over that six year period. So that equates to about a 12 to 15 percent a year return.
Adam Gower: Right. And that includes regular dividends and capital gains.
Kris Benson: You're 100% correct. We make distributions on a quarterly basis, so you would be earning distributions every quarter assuming the properties perform well. And then that would also include the profit from sale at the disposition of the property.
Adam Gower: Right. Let's talk about investment strategy. What do you invest in? Specifically, what types of self-storage?
Kris Benson: Yeah, it's a great question. So, we've done all there is to do in storage, right? You could do a ground-up development where you're buying a piece of dirt, building a facility. We've done a little of that, but we're certainly not a developer. We've done, what we would call, retrofits of retail self-storage or retail dark boxes, meaning you take an old Kmart or Toys R US and it's empty and you build out a self storage facility in there. We've done that as well. But our sweet spot really has been value-add deals in smaller markets and we refer to those as secondary and tertiary markets. And value-add Adam, for many people, they think about apartments where they go in and put in hardwood floors and granite countertops and stainless steel appliances and then just charge more rent. Well, we rent garages, so we can't really do that. So that value-add strategy is really specific to each property that we do. Sometimes that value- add strategy is, we'll build out some additional square footage and then the growth is coming from getting those units leased up. Sometimes the value add is more of a management play where the current operator is not doing a good job maximizing revenues around some ancillary income items, things like, maybe they don't do U-Haul truck rental or tenant insurance or retail sales, boxes, locks, moving supplies. And many times, we'll plug that in from our operational platform to the facility and be able to grow revenue that way. So, I would say that generally, we do a little of everything, but our our sweet spot really is value-add deals in tertiary markets.
Adam Gower: Yeah, and it's a highly fragmented industry, isn't it? Tell me something about what the, kind of, the general landscape looks like and where you see opportunity in that.
Kris Benson: Yeah. You're a 100% correct. Storage is interesting in that, there are 6 publicly traded companies. Five of those are REITs and those are brands that your listeners, Adam, are probably seeing as they're driving down the highway right now. Cube Smart, Extra Space, Public Storage, U-Haul - which is not a REIT but a publicly traded company, has their own storage storage portfolio. So, those 6 companies make up about 30% of the net rentable square footage in the US and sell storage. So, 30% is attributed to those 6 big players. The rest of the market is very fragmented. So, meaning the ownership of the remaining 70% of square footage, it can be groups like Reliant - regional operators. It can be small mom and pop owners. So maybe, my dad built a facility 30 years ago and we own one. But what that allows for us, from an opportunity standpoint, is really a consolidation or a roll-up strategy. The opportunity to take all these little mom and pops and roll them up into one portfolio. And really, that's what we see is the long-term play in the asset class.
Adam Gower: And that's an economies of scale play, is it, from a management perspective and standardization across these disparate locations.
Kris Benson: Yeah, it's two things. It's that, right? So, we can plug in - we can get cheaper digital marketing because we have other assets in that area. We can share employees, so we can reduce payroll. Some of the operational efficiencies like you're describing but the second piece of this is, in the environment we live in today, there is very much a premium for larger transactions within self-storage. So, institutional capital is trying to get into the asset class but it's very challenging because the deal size is small. So, and I say small for many of our listeners. I say 5 million dollars of equity and they say, that's a lot of money. It is. But if I run one hundred and fifty billion dollar fund, five million dollars doesn't move the needle. 50 million dollars doesn't move the needle. A billion moves the needle. And it's really hard to take that billion dollars and deploy it into five million dollar checks each. So, what's really created value in the marketplace Adam, is being able to take a large portfolio out, where big groups like a Blackstone or KKR or Apollo, the groups that people have heard of, can deploy a big check, they're interested in and so, it really pushed the prices up on those larger transactions.
Adam Gower: So is that part of the Reliant strategy is to build a portfolio that could be sold to a major REIT or one of the major players?
Kris Benson: Yeah, so out of those 38 properties we've sold, 80% of those have been sold to REITs or institutional capital, right? Those are, kind of, the buckets that are buying. I would say that larger roll-up strategy, you know, maybe we take 100 one properties out. That's in the back of our minds for sure. Not to say we wouldn't sell properties individually along the way, but there's value in this portfolio-level transaction. So, we're certainly evaluating that as we build out the business.
Adam Gower: Kris, I have a personal question for you, about self-storage. You come from a very, very sexy industry. Right? The Da Vinci robot. I mean, just the name conjures up incredible images. It's like brain surgery, seriously. And now, here you are, in one of the least sexy real estate asset classes. Why do you like self-storage?
Kris Benson: Yeah. So, well, not to get too much into the background side of it, but for me, I've always loved real estate. I love tangible assets. I love things that I can touch and feel. Real estate is very black and white in how they get valued. So, I've always invested in real estate and that's been my, kind of, side hustle. When I did work for Intuitive Surgical, but specific to self-storage, Adam, what's so interesting about it, you're right. It's a garage, right?. In its basic form, it's a heated garage or it's not. That's it. There's no magic, right? It's a cement pad with corrugated metal and some steel beams. But, when you think about the industry, what's so fascinating is, historically it's outperformed all the major asset classes in the last 25 years, apartments, office, retail, the sexy real estate plays. But, not only has it outperformed from a historical level, it's also got downside protection and we're recording this in the middle of COVID, right, in April of 2021. Last year, 2020, self-storage has absolutely crushed it, right? And, that also happened in 2007, 2008, 2009 where some of the other industries: office, retail hospitality got crushed, in 2007, 2008, 2009 storage did very well. And through COVID, the same thing is happening and I think that's rooted in the idea of, when people are in transition of their lives, we talk about the four D's of self-storage: death, dislocation, downsizing and divorce. When those things are happening in your life, you generally need the asset class. And fortunately for us, unfortunately for the general population, the pandemic has created more of all of that. So, back to the "me" question, I love opportunities where you have upside and then you have this downside protection. And then the third thing, we talked about it already is, there's that consolidation opportunity and some real runway in the asset class to grow. So, that was the reason I originally made the switch to self-storage.
Adam Gower: So, this podcast is a corporate overview however, I do want to know a little bit about some of the key drivers of the self-storage business and I wrote some down. One is - just talk to me about... I'll go through them quickly, but one is traffic count. I noticed that in all of your stuff is traffic count. Why is traffic count important to self-storage business.
Kris Benson: Yeah. It's a great question so, look, eyeballs matter, right? Especially in self-storage because it's a very micro market game. When you think about what we just said, it's a garage. So, it has to be convenient for either work or home. If it's not convenient, you're not going to travel for self-storage. You're just going to go to the one that's closest to your house. So, what's really important is that, you're getting eyeballs every day. And when someone needs self-storage, they think, oh yeah, I pass that one on the way to work every day. Midgard self storage is right there. I'm going to Google it, and then they Google it, and then they can rent a unit or they come in the office. And so, generally we're looking for a traffic count of at least 10,000 cars a day. Sometimes that number, you know, if you're on a major highway, you're talking about 40-50,000 cars on a major interstate. That might be a 6-digit type of number, but we're just looking for eyeballs. About 30% of our traffic usually comes from drive-by or is initiated by a drive-by. They see it, then they get on the phones and Google - Midgard Self Storage and they look up pricing, set an appointment, maybe they book their lease.
Kris Benson: So, it's a critical piece that we want to make sure we're in the eyes of our consumers every day.
Adam Gower: That's very interesting. So, traffic count trumps population within a certain area, does it, within a radius of a property.
Kris Benson: I don't know if it's trumping them but it's certainly a relevant factor, right? If you're in a great population center, that's usually going to win, even if your exposure to the traffic count may be a little bit less. If you're tucked away, maybe in an industrial center or something along those lines. If the market is growing like a weed, that's always going to be a great indicator. But, when we look at a market, Adam, think of it this way, it's very market- specific. So, the only thing that matters is the 1, 3 and 5 mile radius around the facility. And sometimes in a rural market, maybe we look at 7 to 10. But, the idea is, people aren't going to travel. So, your bucket of consumers lives in that world. And so, you want to understand what's happening in that world and how you fit in. And so, our acquisitions team always talks about the story in the market, right? It's not just one metric. It's not just population or income or traffic count or supply of competitors. It's all of those things come together. What is the story? What's happening? And I'll give you an example. In self-storage storage, people talk about this self, the supply numbers. So, there's a metric that determines over or undersupply in self-storage, allegedly. So, in the southeast, we use a number of 7 square feet per person. So what that means Adam, if you look at a 5-mile radius, right? And there's 100,000 people in that 5-mile, you multiply that by 7. There should be 700,000 square feet of storage to service that people. That's equilibrium. And if you look at the market and let's say there's a million square feet of self storage, well, then it's oversupplied. Or, if there's 500,000 square feet of self-storage, it's undersupplied. But, it doesn't tell the whole story, right? It's one metric. So, you know, you look at that metric and then overlay- OK, well, let's say there's a million square feet of supply, so you're oversupplied but every facility in the 5-mile radius is 95% full. Well, then there's more demand than that 7 square feet per person. So, again, our acquisitions team does a really good job of saying, look, it's not one metric, it's, you layer metrics on top of each other to come in with a story on the market.
Adam Gower: That's absolutely fascinating and actually, it reminds me of when I built movie theaters in Japan, like everybody does. And we looked at, number of people per screen in a market. It was like picking up money in the street. I think it was 10,000 per screen and in Japan it was 100,000. So we could build anywhere. So, what are Reliant's - let's just go through a few, kind of a, quick SWOT analysis. What are Reliant's strengths?
Kris Benson: Track record. It's two things. I mean, if we're thinking of this from an investor side of things, I've done a lot of passive investing over the years and you're really investing in two things. Track record and team, right? It's the people who make the investment work and I would say, close behind one, 1a) is our team. We've got a great team of people who have an extraordinary knowledge of the asset class and an intimate understanding of what makes this work. So, number 1 and 1a) are pretty closely related but we've had a fantastic historical track record and we got a great team that we think will continue that moving forward.
Adam Gower: Ok. So, what are the weaknesses of the company? What are your challenges?
Kris Benson: Yeah I mean, I think it's two-fold. We are still small, relatively to those 6 publicly traded companies. To give you a sense of scale - the number 1 self-storage REIT, in the country is, Public Storage. They have 2,300 properties across the world. We have 50, right? So, it's a pretty diverse set. And, with those operational efficiencies, there are some things that we can't do that they can, right? They can outspend us in digital advertising, always. We will never have the digital advertising budget that they will. So, those are things that, just in pure scale. But, we can be much more nimble than they can and that's where we can create some wins in those markets. But it's also the reason Adam, we're really interested in the tertiary markets, is because we're not competing against the Public Storage, the Extra Space and CubeSmarts, right? We're competing against Bob's Self-Storage. I apologize, Bob, if you're on the podcast. But, we're competing against mom and pop operators where our professional management prowess allows us to perform at a much higher level.
Adam Gower: What is your secret sauce that makes you different than all the other self-storage operators of your scale?
Kris Benson: I mean, again, I would go back to team. We got a great team. But I think the execution of what our strategy is, which is really built around this value-add play in tertiary markets. That's where we've been able to outperform over the years and we think that's where the outperformance will come in the future as well. There are a lot of people going into Midland, North Carolina, to build out an additional 20,000 square feet at a facility, right? Because it's a smaller market. It's 60 miles east of Charlotte. Nobody knows where it is. It doesn't look good on paper. But when you dig into that market, they become really interesting. So, I would say our ability to be opportunistic and look at everything with the lens of where is the value-add play here, is really what gives us that competitive advantage.
Adam Gower: And what puts you on the back foot, if you like, on the defense? What are the threats to your expansion strategy?
Kris Benson: Yeah, I think as an asset class, Adam, the biggest is new supply being delivered. So, any time in real estate, an asset class performs well. We talked about it, right. Historically, it's done well. It's got downside protection. Well, when people see that, other people are going to get in the game. And so, there's been, if you look at construction spending since 2013 to 2020, the chart looks like a hockey stick, right? Because there's been a lot of groups entering the space trying to take advantage of what we just described. And so, new supply was really the biggest risk pre-COVID and then COVID hit and everyone's like, oh my God, what is going to happen? But then post-COVID, as it sort of settled out and said, OK, people are still going to consume self-storage. Then secondarily, it's back to the same issue. Is new supply coming to market? It's basic economics, right? If supply is really high, prices drop. So, we've been fortunate that, even in markets where we've gotten impacted, with new supply. Once everybody gets stabilized on the occupancy side, prices come back. But, during that lease-up period for people, there's some pain there because prices are much lower than you would have expected them to be. So, that's what kind of, keeps us up at night when we look at new markets is, how can this get impacted by a new development?
Adam Gower: Let's wrap up with 2 questions, specifically about you. What has been the hardest lesson you've learned in real estate?
Kris Benson: Patience. Patience. Look, someone - and I wish I could give credit to who said it, but time is the best investment vehicle. Right, and Warren Buffett talks about this, right? I mean, arguably, if you subscribe to his thought processes is, compounding and time, are the most powerful vehicle ever. And me personally, I'm not necessarily a very patient human being and real estate has really given me a longer view of the horizon, for us as an investment, but me, when issues happen, it's very hard to get enveloped or very hard not to get enveloped in that one specific issue and over time, it starts to flatten out. So, I think patience is one thing that - it took me, and I'm still working on it, but it took me plenty of time to get comfortable with being patient.
Adam Gower: Yes, that's a fascinating insight. So let me ask you the last question. What gets you up in the morning and I don't mean coffee. What makes you excited about starting the day?
Kris Benson: Yeah, I mean, look, besides the personal things that I have, my own personal motivations. I think that from the business side of things, it's the opportunity that we see every day in Reliant from a growth standpoint. There's really a unique opportunity in the asset class that doesn't come along very often and that's what we're excited about. To partner, you know, not only with our investors, but internally with the team here, to continue to grow it.
Adam Gower: Kris Benson, enormous pleasure. Thank you so much for being on my podcast today.
Kris Benson: My pleasure. Happy to do it.
Kris Benson, is the Chief Investment Officer for Reliant Real Estate Management, one of the top 30 commercial self-storage operators in the U.S. in 2020. As Chief Investment Officer, Kris is a member of the company’s investment committee that is responsible for overseeing the company’s new acquisitions. Kris also is responsible for investor relations and working with accredited investors to raise the capital needed for Reliant’s acquisition of new self-storage properties.
In the last 12 months the Reliant team has invested over $100MM in self-storage projects and raised over $50MM from accredited investors. Self-Storage provides a unique opportunity to invest in one of the most successful asset classes in the past 5 years and take advantage of the institutional interest moving forward. Reliant is currently raising equity for a $50MM equity fund focusing on value add and stabilized self-storage assets.
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