Fairway America Value-Add Self-Storage Fund LLC

Nationwide
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Preferred Return

8%

Targeted Hold Period

7 years
(subject to extension)

Minimum Investment

$1,000,000 – Class A
$100,000 – Class B

Investor Capital Managed

$23,175,000

Preferred Return

8%

Targeted Hold Period

7 years
(subject to extension)

Minimum Investment

$1,000,000 – Class A
$250,000 – Class B

Targeted Raise

$100,000,000

Additional

Information*

Asset Type:
Self-Storage

Strategy Type:
Value-add

Geographic Area:
Nationwide

Investment Period:
36 months from initial closing
(subject to extension)

Fund Term:
5 years after initial closing
(subject to extensions)

Management Fee:
1.5% on committed capital

Acquisition Fee:
1% on invested equity at asset level

GP-Carried Interest (above Pref):
20% for Class A Members
30% for Class B Members

Asset-Level Debt:
60-80% per asset

*Disclaimer: This offering is speculative and involves substantial risks. Consider the risks outlined in the formal offering documents, including the Private Placement Memorandum before investing. Risks include, but are not limited to illiquidity, lack of diversification, complete loss of capital, default risk, and capital call risk. Investments may not achieve their objective. 

Fairway America believes that recent and current pressures on the retail real estate market, combined with often constrained supply of self-storage space in certain in-fill locations, provides a unique opportunity in markets throughout the United States. The Fund strategy is to acquire quality, well-located properties at discounted prices and convert all or some portion of those properties to self-storage facilities.

Fairway America has underwritten and engaged with Sponsor Partners in this market segment over the past two years to acquire and re-develop more than 5,000 self-storage units and over $60,000,000 in total capitalization on similar projects on a one-off/syndicated basis. While this investment, like any private offering, includes material investment risks, Fairway will attempt to generate value for investors in the Value-Add Self-Storage Fund by using its team of experienced professionals to identify what Fairway believes to be high-quality Sponsor Partners who are targeting these self-storage conversion projects.

Fairway will underwrite and complete extensive due diligence on those sponsors and their projects and attempt to monitor and oversee each sponsor on the progress and execution of the business plan for each project.

Why Consider Investing in Self-Storage?

  • Self-Storage was the #1 performing asset class 1998-2018*1
  • Recent pressure, disruptions, dislocations in retail have resulted in availability of well-located properties for conversion at discounted prices
  • Big Box retail stores are under assault from online competition; 50% of former Sears and 75% of former Kmart locations vacated in 2006-2017 still sit empty2
  • 9.4% of U.S. households rent a self-storage unit. Population growth has led to shrinking living space, combined with other factors like geographic job shifts, high divorce rates, household downsizing (Millennials constitute 1/3rd of self-storage renters, and 32% of them have moved in the last 12 months)3
  • A well-managed (by experienced industry specialists) pool of such assets may provide an effective hedge by distributing investment risk within the asset class
* Past performance is not indicative of future results
1 Source: NAREIT – REIT Performance by Property Sector/Subsector as of 12.31.2018
2 Source: “Analyzing the Risks and Opportunities for Repositioning Former Sears and Kmart Stores” CoStar.com, Nov 5, 2018
3 Source: Self-Storage Outlook, Challenges & Opportunities Presentation by Christopher E. Lee of CEL & Associates, Inc., Jan 17, 2019

Operational Advantages*

  • Potential stable cash flow
  • Historically more recession-resistant than other property types
  • Lower overall expenses than many other real estate asset classes
  • Fewer ongoing capital expenditures
  • Third-party management by REITs readily available

Target Asset Characteristics

  • Limited entitlement risk – only invest with zoning approvals
  • Purchase prices that may approach value of underlying land only
  • Target cost of conversion of ~60-80% of group-up built facilities
  • Good visibility, access, and strong traffic counts
  • Limited self-storage competition in immediate location
*Sources:
NAREIT, Performance by Property Sector/Subsector as of 12.31.2018
“Comparing Investments” Trachte Building Systems, trachte.com
Thomas, Brad “Not Sexy, But Investor Should Consider the Simplicity of Self-Storage” Forbes.com, Nov 13, 2017

 

INVESTMENT THESIS*

The Fairway America Value-Add Self-Storage Fund attempts to invest in well-located ”big box” retail or industrial buildings that have gone vacant and which may be converted to self-storage. The fund targets low priced acquisitions in locations that may have historically not allowed self-storage use due to zoning restrictions. The fund’s goal is to acquire assets and re-purpose them at a lower cost with limited or reasonable levels of competition in the surrounding area and to produce an attractive return while attempting to mitigate downside risk.

*Please see the fund’s offering documents for a full description of terms, including a disclosure of relevant risks.

Disruption in Big-Box Real Estate

Due to this disruption, there is ample opportunity in markets throughout the United States to acquire quality, well-located properties at significantly discounted prices and then re-purpose those buildings to a variety of other uses, a process that is happening in various markets throughout the United States. Properties are often located in urban or suburban in-fill locations, and the general characteristics of the real estate (location, traffic count, population base, etc.) can be quite attractive for a variety of potential alternative uses. Adaptive re-uses currently being executed by developers and property owners include self-storage, multifamily, hospitality, office, restaurant, entertainment, and more.

Self-Storage Zoning

Generally, the locations of the real estate being acquired were and are not zoned to allow self-storage use.  As properties have gone vacant and sat unoccupied for extended periods, however, local municipalities are increasingly amenable to providing zoning variances, use changes, or other approvals to allow self-storage as adaptive re-use in order to fill these vacant properties. Working with local municipalities to obtain entitlements for redevelopment into historically disallowed uses is a laborious process that can be difficult and time-consuming.  This limit the number of potential buyers for the real estate and helps to keep the price of the real estate down.

Supply Constraint

Self-storage is a local, micro business. The majority of renters at any given facility are drawn from a one, three, or five-mile radius (the closer, the better).  Fairway America attempts to target locations that are supply-constrained, yet nearly 100% built-up with limited potential competitive properties and zoning restrictions that will deter (and may even prevent) future competitors from entering the immediate area. Self-storage facilities are often in limited supply in the immediate surrounding areas of the vacant retail properties being targeted. Yet, these in-fill locations often have a significant base of potential self-storage renters who would otherwise have to travel greater distances to access a facility, giving the property an intrinsic and often permanent operating advantage.

Value Add “Mom and Pop” Acquisitions

In addition to the conversion of vacant big-box locations, the Fund may pursue a secondary strategy of acquiring existing self-storage facilities with opportunities for value-add. The Manager also has and expects to develop additional relationships with Sponsor Partners who target existing self-storage facilities operated by “mom-and-pop” owners who may have quality, well-located facilities, but are not professional managers or property owners and therefore may be underperforming.

Self-storage is a highly fragmented industry with a significant percentage of “mom-and-pop” owner-operators. In certain instances, significant discounts to intrinsic value can be negotiated at the time of purchase from these types of owners for a variety of reasons. In such instances, the Manager, working with qualified and fully vetted Sponsor Partners, would expect to be able to acquire the property and immediately implement professional management, perform necessary improvements or rehabilitation to the facility, increase occupancy, rents, or both, and realize additional value in a reasonable time frame.

Risk Management and Due-Diligence

The Manager believes that risk management begins with the underwriting process and is effectuated through careful consideration of underlying assumptions and thorough analyses of macro and micro market trends. The Manager either already has or will assess, underwrite and perform due diligence on each Sponsor. Sponsor-level due diligence includes, but is not limited to, some or all of the following:

  • An evaluation of the Sponsor’s experience and track record in prior similar projects
  • An evaluation of the Sponsor’s overall team
  • Comprehensive background checks on all principals of Sponsor’s company
  • In-person meetings with each Sponsor and its team
  • Inspection of projects previously completed or under management by Sponsor
  • Review of underwriting criteria, materials, and performance on prior and current projects (actual and relative to projections whenever possible)
  • Interviews with references and counterparties of Sponsor, as well as independent research through Manager’s contacts in the industry

 

 

 

ASSET-LEVEL INFORMATION

The Fund expects to acquire Assets that meet the following general criteria as determined by the Manager in its sole discretion:

  • Vacant “big box” retail, single-use industrial, and commercial or similar properties acquired at prices expected to be below replacement cost, with sizes generally expected to range from 50,000 to 150,000 square feet
  • Properties where a portion (up to 100%) is intended to be converted to a self-storage facility, with the understanding that properties may include some portion with other mixed uses, typically retail, but potentially other uses
  • Properties which, in addition to the primary building(s) on the site, may contain excess land which may be parceled out to create pad sites which can be developed or sold
  • Existing self-storage facilities with the potential for strong cash flow or value-add opportunities
  • Properties generally with good visibility and access, strong traffic count, or other in-fill locations
  • Properties that meet reasonable baseline demographics and self-storage underwriting criteria for the market (e.g. population density and/or growth, median household income, market supply per capita, etc.)
  • Acquisition prices typically ranging from $2,000,000 to $15,000,000, with total capitalization (including debt and equity) typically ranging from $6,000,000 to $25,000,000 per individual transaction
  • Each Asset is expected to be financed initially, with a range of 60-80% bridge/construction debt and 20-40% equity
  • When possible, locations with high barriers to entry for self-storage competitors (e.g. lack of available land to build, zoning limitations, inability to obtain entitlements, etc.)
  • Properties located in primary, secondary, and sometimes tertiary metropolitan markets within the United States
  • In general, the Fund will invest in Assets where a Sponsor has experience and expertise with the location, size, property type, and other characteristics of the real estate

 

INTERNATIONAL INVESTORS

Fairway America has also created a feeder fund domiciled in the Cayman Islands which is available to qualified foreign investors. The Fairway America Self-Storage Cayman Fund, LP (“FASS”) sole investment strategy is to make indirect investments in FAVS through an intermediary entity, Fairway America Self-Storage, Inc., a Delaware corporation. For more information on FASS, please contact Miranda Stiver at miranda.stiver@fairwayamerica.com.

Securities offered through North Capital Private Securities, member FINRA/SIPC. North Capital has been appointed as a placement agent for the offering of these securities and will receive transaction fees based upon the successful placement of equity securities for the issuer. NCPS, collectively with its associated persons, shall receive a transaction fee of .20% of capital raised.

 
 

Investment Offering Documents

Offering-Related Documents

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Compliance Documents

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Investment Risks

This offering is speculative and involves substantial risks. In addition to the general risks of investing in a private real estate offering, which include illiquidity, lack of diversification, complete loss of capital, default risk, capital call risk, and the risk that the Fund’s investments may not achieve their objectives, some of the more significant risks associated with this investment include the following: 

Unproven Investment Strategy

The Fund’s investment strategy is unproven and speculative. The Manager has not previously operated or attempted to operate a fund that solely invests in value-add self-storage facilities. Although affiliates of the Manager have invested in and raised capital for similar projects involving conversion of vacant commercial properties into self-storage facilities, none of those projects has been fully completed. The financial projections and related assumptions upon which the Manager’s target returns for this Fund are based are just that: assumptions. Moreover, while the Manager believes that certain market dynamics make the conversion strategy attractive, other real estate investors are currently liquidating many of the Assets that the Fund intends to pursue, and there can be no guarantee that the Manager’s assessment of current market dynamics is accurate.

Risks in the Self-Storage Market Generally

Although self-storage facilities have traditionally performed well as an asset class, there is increasing competition for self-storage facilities, both by investors and operators. As more facilities are put into the market, it is impossible to determine what impact changing market dynamics may have on the performance of this asset class. Self-storage facilities also have other risks specific to that asset class, including pricing pressure from additional facilities being added to the market, changing consumer demands for self-storage, potential decreases in rental rates during down economic cycles, and weaknesses in the secondary market for self-storage facilities connected to general and specific market trends. Any of these factors and others may have a negative impact on the Fund’s financial performance.

Lack of Distributions During Early Stages of the Fund

Investors should understand that most new self-storage facilities take approximately three years to lease up to stabilization and approximately half that time to reach a breakeven point. Thus, the Fund will likely not make any distributions to Members during the first few years of the Fund.

Investments Longer Than the Term

The Fund may make investments that may not be advantageously disposed of prior to the date the Fund will be dissolved, either by expiration of the Term or otherwise. Although the Manager expects that Assets will be disposed of prior to dissolution, and the Manager has a limited ability to extend the Term of the Fund, the Fund may have to sell, distribute or otherwise dispose of Fund Assets at a disadvantageous time or on unfavorable prices or other terms to the Fund as a result of dissolution. There can be no assurance that the Fund will ultimately be able to sell such Fund Assets at the intended time or on favorable prices and other terms, or otherwise be able to affect a successful realization or exit strategy.

Reliance on Property Manager

The day-to-day operations of each Asset will be the responsibility of a property management firm selected by the Sponsor. Although the Manager will attempt to monitor the performance of each Asset, there can be no assurance that the existing management team, or any successor, will be able to operate the Asset successfully. The Manager and its personnel may not be able to devote sufficient time to effectively and actively work with the management of each Asset to maximize the Asset’s valuation. In addition, instances of fraud and other deceptive practices and mismanagement may be committed by the property management firm. Such illicit acts and mismanagement may undermine the Manager’s due diligence efforts with respect to Assets under the property management firm’s management. If such fraud or other illicit acts or mismanagement are discovered, it could adversely affect the valuation of the Fund’s investments and may contribute to overall market volatility that can negatively impact the Fund’s investment portfolio. Accordingly, the Manager will have to rely to a great degree on the property manager of each Asset.

This description of risks is not intended to be comprehensive.  Please consider the more complete description of risks outlined in the Fund’s formal offering documents, including the Private Placement Memorandum, before investing.