The AAA Storage Podcast

Welcome to the AAA storage podcast,
your integrated real estate and

development partner, exploring all
things, self storage investing to

bring you diversified success.

Let's dive in.

Brandon Giella: Welcome back to
the AAA Storage Podcast Today

again, I have Paul Bennett.

Thank you so much for joining me today
we are gonna be talking about the Growth

Fund two that you guys are launching
and, and, uh, marketing Very soon.

And I wanted to talk today about the
Growth Fund two, because you have had a

lot of success with Growth Fund one, and
we've been talking for, uh, you know,

several weeks now, several episodes.

This is episode 11 about some of the,
the more broad strokes of investing in

real estate, uh, particularly in the self
storage industry, particularly in, in

office flex and industrial properties.

And so what I wanted to talk about
today was to give listeners a view of.

What it looks like that you're actually
putting this fund together and what

properties, you're looking at the
details of how this fund is structured.

We talk about ground up development, we
talk about a growth oriented investment.

I wanna talk about some of those things.

And so this gives a really
realistic picture of what this looks

like from a fund model, uh, for
investors that might be listening.

Now, of course, uh, this is, you must
be an accredited investor and there's

lots of disclaimers and so on at the
end of the episode that do listen to.

Um, but to start, Paul, I wanted to
hear, tell me a little bit about the

story of you guys going to a fund model
and you've had Growth Fund one, and

now you're launching Growth Fund two.

Just gimme kind of an overview of,
of where you guys have landed and,

and what you're launching with
Growth Fund two now coming up.

Paul Bennett: super.

Brandon, that's a great place to start
and always fun to be here with you.

So.

Uh, I know, uh, I'm not sure.

I love the way you say I'm here again,
but, uh, but always fun to be here, man.

For

Brandon Giella: Well, I
have my expert here, Paul.

Thanks.

Paul Bennett: No, I, I think the
history's a good place to start.

And, um, if you've looked at any
of our information, you probably

already know this, but we've been, um.

We've been developing self storage
in office Industrial Flex for

more than 30 years, and we've had
investors that invested alongside us

in every deal we've done since 1993.

For most of those 30 years, we did single
property syndications where we would

find a property that we liked, prepare
it for development, raise capital from

a relatively small group of investors,
usually eight to 10, maybe 20 investors.

Alongside our own capital and then
develop that project and either

hold it or uh, or, or sell it.

Uh, once we had it stabilized,
we made the transition.

Um, Brandon, we, we started
talking about it internally in

22, 23 for a couple reasons.

We, we saw some shifts coming
in the market that we thought.

The timing would be great
to take advantage of.

Um, also from a pure business standpoint,
raising, uh, capital for multiple

properties at one time in a fun vehicle.

It's just a more efficient way to do it.

Um, and we made the decision
after having sort of.

Treaded water in place for 30 years
to really begin to scale and grow the

business and reach out further in terms
of the number of transactions that we

did and also the number of investors that
we, we dealt with, but the the underlying

reason that anybody should care about why
we transition to a fund model, why we're

doing eight to 12 properties at a time.

Versus one at a time is because
of what we saw in the market.

Um, and, and it's, it's part of the
whole thesis that was behind Fund one

and once again will be behind fund two.

And that is Covid caused a
real distortion in the market.

Occupancy rates were through the roof.

As you remember.

Interest rates were incredibly low.

Uh, average occupancy across
the United States was over 97.

Percent.

And what that spurred was
a ton of new development.

And so the number of properties that were
being developed in in markets across the

country went up substantially and as it
does in every real estate sector, resulted

in some oversupply about the same time.

Interest rates went back up 2223.

Uh, which further, um,
discouraged development.

And what we're seeing today is what
we predicted three years ago, which

is a steep decline in the amount of
new developments occurring in the

self storage market particularly.

Uh, and what that creates is
an opportunity because it takes

anywhere from two to five years
to start from ideation to actual.

I've got units to rent on the ground
because of all the land acquisition

process, the zoning, the permitting,
everything that has to occur.

Um, we think there's going to be
a time window in the market where.

Demand has come back up and
that's happening even as we speak.

We're seeing the markets solidify a
little bit as that new supply that

was built and and hit the market a
couple years ago is being absorbed.

And there'll be a lack of
new facilities coming online.

So we think that creates an
environment that's a seller's

market for good facilities.

And we also know there's a ton of
institutional capital on the sidelines

that only in the last six to eight
months have we seen start to come

off the sideline looking for deals.

So we think there's a time window here.

Maybe that's all too
much information, but.

Fund two is gonna look a lot like fund
one did because it is being driven by

the same thesis and the same strategy,
which is we think in the late 2020s into

the early 2030s there's a window of time
where delivering new facilities, you'll

see them lease up faster and you'll
see the value of those facilities in

the eyes of potential buyers be higher
because of the lack of new supply.

Brandon Giella: Interesting.

Okay.

So overall summary is it's much more
efficient to invest in this way from,

from your perspective as a sponsor,
but also it gives you, I guess, access

to more properties, um, to maybe
deliver more value to investors.

Is that kind of the, the hope of, uh,
what a growth fund could do as well?

Paul Bennett: I, I think the
efficiency benefits both investors and.

Um, sponsor.

So it's, it's really not
just a selfish issue.

If we save money, our
investors save money.

And, and if, you know, if, if, if the
point of the efficiency is to is to

be more efficient in terms of cost,
then everybody benefits from that.

Um, and, and yeah, it, it's really
about scale and volume, right?

It's, um, it, it's ultimately that.

Provides more opportunity.

The other thing from a fund standpoint
is it provides diversification.

Our, our legacy investors often
would invest in multiple transactions

over time, so they, they built
diversity by, by investing in

different projects one at a time.

The fund investor gets to
do that with one investment.

One commitment of a couple hundred
thousand dollars is then spread across in

fund two, at least eight, and potentially
as many as 12 different projects.

And so it gives you some diversification
geographically and by product type.

'cause fund two, like Fund one
will develop both self storage and

office industrial flex properties.

So, um, the diversification's the other
sort of rationale for the fund from an

investment standpoint that we think, you
know, benefits investors significantly.

Brandon Giella: Yeah.

Okay.

That makes total sense.

Okay, well let's, so let's
jump into growth fund two.

So tell me a little bit about
how this fund is, is structured.

I, I know there's, uh, you've got
some slides that are coming out, uh,

for different presentations, talking
about the, the strategy, so things

that we've talked about before.

There's ground up development and it's
also a growth oriented investment.

And then, um, with that
strategy paired to the different

property types that you have.

Uh, it's a really good mix for a fund.

So, so walk me through a little bit of
the strategy and then I wanna talk about

some of the, the properties as well.

Paul Bennett: Yeah.

Uh, uh, real quickly, you
mentioned the disclaimer.

Obviously this is, we're gonna
talk in concept about fund two.

It will not be available to
investors until the end of April.

And nothing in this podcast is intended
to be an offer to buy or sell securities.

It's, it's simply an overview.

You need to get the prospectus
and get all of the information to

ever make an investment decision.

So just to be clear and the disclaimer
will appear at the end, I know, but just

wanna make sure people are clear on that.

Um.

So our strategy is simply to be what we
term a merchant developer, and that is

to develop properties, stabilize them,
and by stabilize, I mean get them leased

up to somewhere around 80, 85% occupancy
where they create positive cash flow

above debt service and then sell them.

And the reason we choose to take that
approach, particularly in this market, is.

Our objective is to harvest the value
that's created in the development process.

Um, we've talked about yield on cost.

We've talked about all of
that in prior episodes.

I'll probably touch on it in a
minute, but there is a tremendous

amount of value that is created.

The difference between what it costs
to build a project and what that

project is worth in the marketplace
based on the cash flow that it creates.

Those are two completely
different universes.

Um.

And, and, and in the development of
self storage, there is a wider than

average gap between those two values.

Um, so we are focused on, um, not buying
properties with existing cash flow and

distributing that cash flow to investors.

We're focused on.

Developing from a ground up
standpoint, creating that value

difference between what it costs to
build it and what it's worth based

on the cash flow stream it produces.

And then realizing that
value for our investors we're

time valued, return driven.

I think I said this in an earlier
in, in an earlier conversation.

We, we've.

We absolutely rivet on internal
rates of return for our investors.

And that is driven by yield on cost
at the development level, which

is related to development spread.

Um, yield on cost and development
spread are what indicate and drive that

value creation and development process.

And, um, our track record, and
I don't wanna do a commercial

here, but our track record.

Over 30 years and 90 full cycle deals as
we've averaged just a hair under a 20%

internal rate of return for our investors.

And, and, and look, investing
in cash flowing, self-storage

assets or any type of commercial
real estate that's cash flowing.

I, I, I, I'm a firm believer in and
do personally, uh, is just a different

investment and it does not generally
offer the same types of overall

returns because to grow the value of
an existing facility, you have two.

Levers.

You can pull one, you
can pull one, you can't.

One is growing net operating income
and the other is cap rate compression.

It's the only way the value of
an existing property moves, so

there's no leap in value that occurs
when you buy cash flowing assets.

So, uh, our fund two will be appropriate
for investors whose investment objectives

are the growth of their equity capital.

If they're looking for.

Current income.

If they're looking at a quarterly
check in the mailbox, we're not

the right opportunity for you.

We talked about that I think
on an earlier episode as well,

Brandon Giella: Yeah.

Okay.

Fascinating.

Okay, so with that in mind, all of the.

Strategy, the story behind, uh,
switching to a fund model and

now launching this second fund.

Tell me what comprises this fund?

So you've got a mix of properties.

They're, they're all over what
I understand the southeast,

uh, the United States mostly.

Paul Bennett: Yeah.

Southwestern, Southwestern
orientation a little bit.

Yeah,

Brandon Giella: yeah.

Okay.

Okay.

Yeah.

Talk to me about that.

Paul Bennett: A, a couple of places
in, in our conversations, we tried to

give people a look behind the scenes.

So I'll give you a quick
look behind the scenes,

Brandon Giella: Yeah, please.

Paul Bennett: we're actively, um, drafting
documents and working with our attorneys

and doing all the things you have to do
in the final stages to launch a fund.

The work for Fund two actually started
more than two years ago, um, because it

starts with the acquisition of the land.

If you.

Remember we land, bank land there.

There's a process land has to go through
before you can turn the first shovel

of dirt over, and that process can
take anywhere from one to two years.

To get it zoned per, to get the project
designed, to get all the permits that

you need to deal with the Department of
Transportation in whatever state that

you're developing in, because you have
to have driveway cuts and sometimes

they require turn lanes and other
improvements that you have to make as a

developer because of the traffic impact
of the project that you're building.

Um.

We don't want our investors to take
the raw land risk, the risk that you

buy a piece of land and that ultimately
can't get it entitled to develop.

Um, and we also don't want our
investors to be exposed to the

additional time that it takes.

Um, I.

To get land, it would, it would, it would
lower the time valued returns, right?

If you have to buy the land and sit on it
for two years before you could even start

development, um, it stretches out the
time frame for the capital that comes into

the deal and, and lowers overall return.

So what we do is we land bank that
land, and our development team has been

working on the 12 projects that are going
into fund two for more than two years.

Um, they're all approaching final permits.

Um, we have civil permits.

Everywhere.

So we could start site work on all
the sites tomorrow if we wanted to.

Um.

And, uh, and, and so that
process has been ongoing.

Um, today we're in the final stages
in the last few weeks of drafting the,

the private placement memorandum and
putting together marketing material

and, and all the things that, that
go with actually launching a fund.

But the work for Fund two has been
going on for, for quite some time.

Fund two will look very
much like fund one.

Um.

In the future, we will probably, based
on market conditions and and investor

appetite, we may take a different
approach, a different strategy, but

we think the strategy that we use
in fund one is still very viable,

like I've already said for fund two.

Um, and so what we plan to
do is raise $40 million.

We will have the right to go
up to $60 million in equity.

Um, our projects are typically
levered net, net net, somewhere in

the 60 to 65% loan to cost basis.

Um, so if you do the math backwards,
if we raise $40 million if's,

probably about a hundred and.

$10 million worth of real estate
development, which will be around

a million square feet of storage
and office industrial flex.

If, if the appetite is there and we go
to $60 million in total funding, um,

then that will be paired with another.

Um, I can't do the math in my head
quick enough, but, um, you know, it,

it, it'll, it'll take the total fund
to probably 130, $140 million in total

construction cost and probably 1,000,002,
1,000,003, uh, square feet total.

Um, I.

So, you know, we're setting out with
the objective of raising $40 million.

We have 12 identified properties
that will be in the fund.

They're spread between the Houston,
San Antonio and Austin Metros

and Texas areas where we have
developed extensively for 30 years.

Um, and then the last area
that will, that'll be in fund.

Two, and it'll probably be the
first property we develop in

Fund two is in North Carolina.

In the Charlotte Gastonia market.

We have a fantastic project, 17 acres.

It will be a combination of
an office, industrial flex

business park, and self storage.

There'll be separated, but there'll
be both products on that site.

A corridor where the market is evolving
and directly across the street is a

brand new development that's just getting
ready to break ground that has 800 new

homes and about a hundred thousand square
feet of retail and commercial space.

Brandon Giella: Wow.

Paul Bennett: and it will not only will
that project feed our project, but it

will also be the trigger we believe
that begins to transform that corridor.

And I think you'll start to see it.

It's been a fringe area
with a little bit of a.

Industrial almost feel to it.

Um, I think this new sort of
high-end homes are gonna be

in the 350 to $650,000 range.

Um, it's a good price point and I think
that project will really flip this

corridor and in the next five years
you'll see it transform completely.

So maybe a little bit too much
detail on that one project,

but, um, total of 12 projects.

Um.

A little more weighted to
self-storage, um, than fund one was.

We try to strike a 60 40
allocation between self-storage

and office industrial flex.

This fund will be eight, um,
self-storage projects and four

office industrial flex projects.

If we go beyond those 12 projects,
we'll probably add a little bit

more industrial flex to try to
get closer to that 60 40 mix.

Um, but out of the gate, um, it'll,
it'll probably be a little shy of

that, probably a little bit more.

70 30, um, 70% storage and 30%.

Office, industrial Flex.

Um, and we're super excited.

We've got a great site
in the Houston area.

We, we've got, um, Ray Ellison a,
a site in the San Antonio market

is probably one of the best self
storage sites I've ever seen.

I.

Brandon Giella: Oh wow.

Okay.

Tell me about

Paul Bennett: it's surrounded by
apartments, um, in a, in a, in a

vibrant and, uh, good, not, I wouldn't
say affluent, but strong, middle

to upper class area of San Antonio.

Um, so we're super excited
about the portfolio.

In fact, we, our, our market analyst
just finished as we approach a fund.

Then it'll still be.

Six months before we start construction
on the first project and fund fund two,

because we have to launch the fund and
then there's a minimum amount we have to

have committed before we can break escrow
and actually start to make investments.

So we're still six months away from
any actual activity where the fund's

gonna actually acquire the land itself
and we'll start to development process.

Um, but at this stage, one of the things
that I just finished, um, yesterday.

Uh, going over with our market analytic
team, um, is we've gone back and looked

at each one of these properties and
done very deep dives on everything

from the demographics to the storage
demand in that market to the supply.

Um, that's, that's coming online.

We do things like that.

Data's out there.

I can tell you by looking at Radius data,
how many proposed new facilities there

are within a certain distance of our site.

But.

One of things that some people
don't do, but we do, is we then

call the local planning commission
and confirm that those sites are

actually permitted or in permitting.

And what you're seeing a lot of today
is where the radius data may tell you

there are six new sites within five
miles of you, and the supplies gonna go

through the roof when you do the check.

Four of those six have been canceled
and two of 'em are really early stage

and may never make it to development.

So you, you have to peel the onion
back a little bit today because

of sort of where the market is.

But we've just completed the final review
and started drafting internal feasibility

studies on each of the 12 properties.

Um, and that's documentation that
ultimately will be in our secure data room

and available to investors to look at as
they consider an investment in fund two.

So.

Brandon Giella: Man, that's amazing.

There's so much due diligence that goes
into this, but it hearkens back to the

last episode where we talked about a
hyper-local markets of supply and demand.

And so that kind of due diligence on the
actual, you know, five mile radius getting

to, I think you said, what was it, 10
uh, square feet per capita or something

like that of, of a storage space.

I mean, that kind of threshold,
the detail of that is so cool.

So knowing that you've done that for
these properties is, is really great.

Paul Bennett: Yeah.

Well, Brandon and I, I've
said this before, again,

sort of miniature commercial.

Um, we do that first because
it's the right thing to do.

Brandon Giella: Yeah, of course.

Paul Bennett: and secondly,
because our investors expect it.

But thirdly, in Fund one, we were the
largest single investor in the fund,

and that's likely to be the case.

Uh.

I hope we won't be, because I hope
somebody writes a really huge check

because they love what we're doing,
but, but reality is we'll probably be

the largest investor in the fund with
somewhere around four or $5 million of

our own capital committed as a limited
partner alongside our investors.

And so the last reason
we do it is because we.

It's, our money's gonna be at risk
right along beside our investors.

And we are the guarantors on
all the construction debt.

So we have more financial risk
than any of our investors will

have at any moment in time.

And so it's not only prudent for
our investors, but prudent for us.

So, and I don't mean that to sound
like we would only do it 'cause it's

our money, and if it wasn't, if our
money wasn't in it, we wouldn't do it.

No, it's the right thing to do.

But, um, obviously we're.

A little more motivated because we
have such a significant commitment.

I, our history, if you look back at
every deal self that we've done for

30 years, I would dare say there
is not one where we have not been

the largest investor in that deal.

And it's because the, the foundation
of this business was John Muic,

who was an IBM engineer designing.

Computer chips and was doing
real estate on the side.

Decided to leave the technology
industry and, and really focus on

self storage development, and it
was initially his own investment.

Activity, he just brought in investors
to expand what he could do a little bit.

And the reality is we kind of
still think about it that way.

Um, we, we don't consider
ourselves a sponsor.

We're investors and we could just
do more investments if we have

people that wanna partner with us.

And that's sort of how we

Brandon Giella: right.

What I love about that is it,
it is, it creates, uh, aligned

incentives that if you do well,
the investors do well and vice.

Versa.

And, and that's I think is a really
beautiful thing and, and definitely more

needed in any kind of investment vehicle.

Like this is great.

Paul Bennett: can assure you.

That the fees that we earn, which really
only cover actual real cost, um, but there

is no monetary benefit that we get from
the fund that would offset or overshadow.

The financial risk that we take as
an investor, if the fund doesn't go

well, it is not a win-lose situation
where the investors didn't do so

good, but AAA storage came out okay.

Um, it doesn't, that's not the case.

Um, we are absolutely aligned with our
investors and have the same objectives,

and doesn't mean we can't make a mistake
or a project doesn't go, you know,

the way we thought it would, that.

Can happen to anybody, but, um,
certainly it's not because of a lack of

aligned objectives with our investors.

Brandon Giella: Yeah, I love, I love
the structure and the stories that you

guys have around that kind of thing
because you guys have an amazing team,

been doing this for decades, but it, it
speaks really to the integrity and the

character of what you have as a team.

That you are aligned with your
investors as much as possible

because if you, they win, you win.

Uh, yeah, it's, it's really powerful.

Paul Bennett: I, I, I would say the
biggest reason we were successful in fund

one and had people that chose to partner
with us, some of whom had known us for

years, and some of whom had known us for
a week when they made the decision to

invest, um, is our track record and the
alignment that we have because of the

way we approach it, that we're taking
risks right alongside our investors.

Um, and, uh.

I think that makes for a
good partnership and I,

Brandon Giella: Yeah.

Paul Bennett: you know, I think, I
think it's the right way to do it.

Brandon Giella: I love that.

I love that.

So Paul, I know you're gonna have,
uh, some information about the

fund coming out on your website,
aaa storage investments.com,

but how else, uh, should somebody
reach out to you or reach out

to the team to find out more if,
uh, if they're interested in, in

kind of exploring the, the fund?

Paul Bennett: Yeah, the, the new website
with all the fund two information

should be up really, really shortly.

And there is a contact link in there,
so you can shoot us an email that'll

go directly to Andrew Frowine our
Director of Investor Relations, and

we'll get back to you immediately.

Um, we are partnering with PassivePockets
um, which is a platform an online.

Platform and community that is all
about educating people who want to

make passive investments and maybe
haven't done that in the past.

Um, and, uh, and also about
making opportunities available

to invest on that platform.

In fact, we'll be participating,
we'll be a speaker at an

investor conference in Columbus.

Ohio the weekend of May 1st, that's
sponsored by PassivePockets and that

will actually be where fund two launches.

Um, the documents will be ready by
the end of April and they may be up

on the website or may be available
to somebody, but the official launch.

Of, of fund two will occur at the
PassivePockets Investor conference.

There'll be 150, uh, active limited
partner investors there, uh, who

are coming to learn and get some
information about new opportunities.

I think there's still
some tickets available.

So, um, if you're listening to this
and you're interested, um, I would

suggest go to passive pockets.com

and take a look at the information.

And it's a great platform.

Uh, but also the, the conference
is a great opportunity, but

that'll be where we launch fun too.

Brandon Giella: Perfect.

Okay.

So fun.

Uh, after party, uh, uh, of
course everybody's gotta go.

No, I'm just kidding.

Uh, no, this is

Paul Bennett: we're hosting a dinner.

One of, part of

Brandon Giella: Oh, okay.

Okay.

I was just joking.

Okay.

Paul Bennett: yeah, no, part of the,
part of the conference is the 150

investors each get to choose a sponsor
that they want to have dinner with.

So on Friday night of the conference, we
actually have a reservation at probably

the nicest steakhouse in Columbus in a
private room, and we'll have 15 or 18 of

the investors that'll join us for dinner.

And we, no presentation, no selling.

It'll just be a time to get to know
each other and hang out a little bit.

So,

Brandon Giella: Cool.

I love that.

That community element.

That's cool.

Well, Paul, thank you
so much for this time.

I'm so excited for, uh, growth Fund two
to launch in a couple of weeks, and, uh,

yeah, I'm excited to see you next time
on the show and we'll talk some more.

Paul Bennett: super.

Brandon, it's always
good to talk with you.

Brandon Giella: All right,
man, we'll see you soon.

Paul Bennett: Take care.

Alex: This update for Triple A
Storage Growth Fund 2 (the "Fund")

contains "forward-looking statements"
as that term is defined in the U.S.

Private Securities Litigation
Reform Act of 1995.

Words such as "anticipate," "estimate,"
"expects," "projects," "intends,"

"plans," "believes," "will" and words
and terms of similar substance typically

indicate forward-looking statements.

All forward-looking statements are the
Fund Manager's present expectations

of future events and are subject to
a number of factors and uncertainties

that could cause actual results to
differ materially from those described

in the forward-looking statements.

You are cautioned not to rely on such
forward-looking statements, which speak

only as of the date they were made.

The Fund manager, Triple A Storage and its
affiliates are not under any obligation,

and expressly disclaim any obligation
to update or alter any forward-looking

statements, whether as a result of new
information, future events or otherwise.

All subsequent forward-looking statements
attributable to Triple A Storage, its

affiliates or any person acting on
their behalf are expressly qualified

in their entirety by the cautionary
statements referred to in this section.

The Fund invests in the
development of self-storage and

office/industrial flex properties in

competitive markets and is
dependent upon local and state

regulations and economic, and social

conditions in the US markets
in which it operates.

Changes in local zoning and permitting

regulations and requirements, the cost
of construction and other materials, the

availability of qualified contractors
and sub-contractors, new facilities

constructed by competitors, tenant
demand for its self-storage and

office/Industrial Flex properties,
and other factors within or beyond

Triple A's control can adversely
affect the Fund's results.

Triple A Storage Growth
Fund 2's actual results

could differ materially from
management's expectations because

of changes in such factors.

Some

of the other factors that also
could cause actual results to

differ from those described in, or

otherwise projected or implied
by, the forward-looking statements

include, but are limited to, the

risks related to interest rates and
the availability of financing for

the Fund's development projects,

as well as the risks described
in the Fund's Private Placement

Memorandum that was provided to

each investor in the Fund and which
will be made available upon request.