Vancouver Commercial Real Estate Podcast

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September 29, 2021
VCREP #21: How to Buy Self Storage Properties for Only $10,000 with Hugh Cartwright

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Don’t have the millions and millions of dollars needed to enter the self storage asset class in BC? Don’t worry! This week, Adam and Cory welcome Hugh Cartwright, Co-founder and Chairman of NationWide Self Storage Trust, whose company offers investment opportunities into their self storage developments for as little as $10,000. Our listeners spoke and we have listened. After Patrick Wood from William Wright Commercial Victoria joined a previous episode, outlining the self storage asset class and how profitable the business model can be, VCREP was inundated with requests on how listeners can invest in the booming self storage industry.

Fast forward a few months, Hugh Cartwright breaks down the investment opportunity and when the next NationWide opportunity will be upon us. If you have always wanted to take part in self storage, but don’t have $20 million in the bank, make sure you sit back and take notes!

Please tell us about yourself and Nationwide Self Storage Trust.

I’ve been in the financial industry for over 35 years and have raised over $1 billion for various projects. Storage is our current focus. We’ve done five projects in self storage and they’re all going very well. We’re very happy with the self storage industry.

Where are the projects located?

Four are in the Lower Mainland: one in Downtown Vancouver, one in Burnaby, one in Surrey and one in Coquitlam. And then we have one in Kamloops. The Kamloops one is actually outperforming the others almost 2:1.

The project in Kamloops is a self storage/car wash facility. We love to put car washes beside our self storage facilities because of the zoning and the price per square foot. The car wash takes up 4% of the square footage but produces 50% of the revenue and 40% of the profit. So we like to max out the square footage with storage and then save some space for the car wash. The car wash also brings some visibility to the site.

How did you get into real estate and self storage?

I did well in mining and oil and gas when those industries were doing well, but they are cyclical commodities. The volatility of those industries that I was in for 25 years made me a hero some years and a villain other years. As a firm, we wanted to find a more stable asset class for our investors. We looked all over North America and settled on self storage.

Having 600-1200 self storage lockers in a building is no different than having that many doors in an apartment building – you’re collecting rent from a diverse group of people. But the difference is people put stuff in storage and then don’t come back for months or even years. So we only need one person at the front desk managing the facility. Unlike a multi-family high rise tower with running water, animals, carpets, etc. we only have our four walls and a roll up door. And we’re collecting about the same rent per square foot. So the profitability of self storage is incredible.

People need storage. All the new homes and condos are so small that people need self storage. We built a 60,000 square foot facility on East Pender near Downtown Vancouver and within a year it was 65% full. There are 800 lockers in that facility. We didn’t advertise; people just started walking in. If you build it, they will come. It was the same in Kamloops.

What are the average sizes and prices in self storage?

The average locker is 68 square feet. It rents for about $3.70/square foot, which is higher than residential in many places. People want a nice, clean, well-lit facility that is convenient for them to put their stuff. We have small businesses who keep their inventory in a locker and a few months later need to buy another locker, then another, and another, as their business grows.

How can people invest in self storage? What’s the Nationwide model?

Self storage is a difficult business to enter. Land is very expensive – minimum $65/square foot in BC and more than $200/square foot in the Lower Mainland. So for investors who don’t have $20 million, it’s tough to get in. So the options are 1) buying into Storage Vault on the stock exchange with a 1.5% yield, which is low, but their stock performs well or 2) investing with us and getting an annualized return of 12-18%.

When we first started in self storage, we raised $10 million and tried to buy a self storage facility but couldn’t find anything. No one was selling. So we decided to build our own from scratch. We try to buy land for $120-180/square foot (or north of $200/square foot for an AAA site), building costs are $180-200/square foot, and market value is $600-650/square foot. So there’s a 30-40% lift in returns if you have the patience to buy the dirt and build it yourself.

The Canadian average is 30% lease up per year but we’re experiencing 60% for our assets. So the market demand is strong. And our investors are seeing a 12-18% annualized return once the facility starts making cash. That is a substantially better return compared to other sectors of the market.

It’s an 11 year horizon; self storage is a get rich slow model. From the time we raise the money to the time we open is 4-5 years. Then it takes a few years to fill them up, and we manage them for a few years before we sell. We look for an institutional buyer who will pay cap rates as low as 3.5% to get into this space. That tells us how stable self storage is.

How does an investor get involved with Nationwide? What does the investment look like?

We accept investment subscriptions as low as $10,000. Typically an investor’s advisor will tell them about a private equity opportunity in self storage that is a growth and income play. The advisor will then walk them through our business model. The average investment is $100,000 but we’ve had investments as high as $3.5 million from managers of pension plans. And we’ve had a lot of investors at the $10,000 mark. So it’s a vast range.

How do you target locations and analyze a deal?

Choosing locations is not that difficult. We’re looking for densely populated areas on a highly visible intersection. We want people to see our facility so we don’t have to spend time and money marketing. We would rather pay more for a visible and high profile location. Our Vancouver location is at Hastings and Clark, which is very highly visible. Sites like that cost more, but the land is only 35% of the overall development cost. Building costs are the same. You will save on marketing costs and your building will lease up much faster in these high visibility sites.

We hunt for AAA locations. When we find one with the right zoning, we buy that site. You need light industrial zoning for self storage. We never buy sites that have to be rezoned because cities/municipalities typically won’t rezone for self storage. They want job creation and revenue but a self storage facility only creates one job, maybe a job and a half. So that limits the market for sites as there is very little light industrial space available anywhere. Finding the dirt is the hardest part.

Can you tell us more about the success at your Kamloops site?

That site came to market because the city of Kamloops rejected an application for a hotel/restaurant on that site because the intersection had too much traffic. It was already a very congested area so the city loved our idea for self storage because for 100 lockers, you might get two visits per day. So we got the approval very quickly. We got lucky there.

It’s a very high volume area, which helped. There’s only one other AAA self storage facility in Kamloops on the other side of town, and they’re leasing up quickly too. So our success in Kamloops is a combination of a great location and a growing city that has a huge demand for self storage.

What’s next for Nationwide?

Our top priority areas are Langley, Abbotsford, Mission, Coquitlam and Surrey. Those are high growth areas. There are regions in Victoria that are attractive to us but land is hard to get there. Plus the land there is sold at Vancouver pricing but you don’t get Vancouver rental rates.

We love the Nanaimo South area. In the next few years, we hope to move into that market. We love the Okanagan too. It’s a high growth area but there is some competition up there, so location is key.

The downtown core of Vancouver is probably priced out of the self storage market. It would mean only a 6-8% annualized return, which isn’t the benefit investors want from a private equity investment.

Are there risks people should consider?

There’s always risk, particularly when you’re in a development model. Costs might go up, timelines might extend, inflation may affect interest rates, a competitor may move in across the street, etc. Anytime you get into real estate development, there is risk in that.

Self storage facilities take 4-5 years to build and a couple of years to lease up. Kamloops will probably return 18-20% annualized and our Vancouver location will probably return 12-15%. Each facility performs a bit differently. They’re not without risk but at the end of the day, if all else fails, the land alone is still worth $15 million. So the risk profile is substantially different with a hard asset real estate investment versus a commodity investment, like oil and gas.

Commodities are very volatile. Storage is very steady. It’s probably the most steady real estate asset. That’s why we got into it and have a pretty large group of investors who want to get in with us.

What advice do you have for our listeners?

It’s hard to earn and save money. Once you have some money, you need to invest it wisely. Be careful with how you invest it. There is always some risk, so be careful and diversify.

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Vancouver Commercial Real Estate Podcast

For all the curious minds interested in commercial real estate investing, grab a coffee and pull up a chair because we have exclusive stories and tips from commercial real estate brokers, investors, developers, economists, urban planners, and everyone in-between. From the successes and failures to the motivations and lessons learned, the Vancouver Commercial Real Estate Podcast is your insight into commercial real estate in Vancouver, Victoria, Kelowna, and beyond.

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.