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Below is a running list of articles written by our team explaining our thinking on the management, investing, and the commercial real estate market as a whole. Please join our mailing list to receive these articles in your inbox, as well as select investment opportunities for accredited investors.

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what We've Learned in 25 Years of CRE Investing

Updated: July 20, 2023

Keywords: Self Storage Investing, Long-term Passive Income, Investment Strategies, Build-to-Core, Value-Add Conversion, LP Interests, Co-GP Interests.

commercial real estate investing strategy

We understand that you have numerous options for investing your money. What sets us apart is our unique investment strategies and partnership mindset. We focus on major metros, leveraging our extensive experience to navigate the regulatory and permitting hurdles that deter many competitors.

Why Major Metros?

Developing anything in core markets is a huge pain. Yet, we’ve built over 250mm in major cities since our firm’s inception. Here are the reasons why we focus on core markets for storage development:

  1. Restricted supply: Cities hate storage buildings and frequently pass regulations restricting their development. They have a reputation for being ugly, attracting seedy elements, and they pay little sales tax. This creates a barrier to entry for operators who know how to get buildings built despite the red tape, restricting competition and promoting rate growth.
  2. Lower cap rates: Storage cap rates tends to track with multifamily and industrial. Lower cap rates translate to higher sales prices for completed assets. The Core gateway markets we focus on, like LA, NYC, and SF, typically command lower cap rates for these product types than secondary or tertiary markets do. 
  3. Complexity as a competitive advantage: Knowing how to navigate the complexity inherent to permits and construction in core markets is a moat! Not everyone knows this, and this world is small. With experience, one can build the skills and relationships to win in these markets.
  4. Since we develop typically projects $40 million and larger, targeting IRRs in the low to mid-teens for LPs, and high-teens / mid-20s for co-GPs, our focus on core MSAs allows us to add value through land use approvals & density bonuses.
Our Approach
As a small and nimble team, we recognize the significant influence our leadership has on the firm’s reputation. We strive to treat our investors, customers, and vendors with the same empathy and integrity that we desire from others. We understand that commercial real estate is a team sport, requiring the effort and resources of many individuals to execute the wealth-building strategies we pursue daily.

Our Favored Strategies

After 25 years in the business, here are a few of our favored strategies for investing in commercial real estate:
  1. Build to Core: We favor core markets (LA, NYC, SF, etc.) due to their supply constraints and regulatory barriers to entry. We believe these markets are less prone to overbuilding and have more stable demand compared to boom/bust suburban and rural markets. We prefer to build rather than buy, as developments achieve higher yields, and we have the experience to navigate the added risks. We focus on projects where we can achieve a 30% or larger gross margins and aim to sell or refinance our projects upon completion or stabilization.
  2. Value Add Conversion: We see an increasing number of buildings defaulting on their loans and being given back to their lenders. These properties can generate more income if converted to a higher value use. We believe many of these properties are located in strong self-storage markets and are actively studying the feasibility of converting them to self-storage.
  3. Sub-institutional Existing Assets: We supplement our build to core program with acquisitions of existing cash-flowing assets located in secondary markets within a reasonable driving distance of our large-scale core developments. We add value by building additional square footage, streamlining operations, and raising rent. Acquiring secondary locations allows us to rapidly grow our brand while driving property management efficiencies across the portfolio.

Investment Opportunities

If you like what you read, we have two general types of offerings open to potential investors. Our typical minimum investment is $100k:
  1. Limited Partner Interests (low to mid-teens IRR): Invest in “shovel-ready” development projects and existing storage acquisitions. A development project becomes shovel ready when all permits and approvals are in hand and a general contractor is ready to start construction imminently. Developments offers higher returns, but take longer to turn profits and have more risk. LPs pay a fee (“promote”) to the General Partner that scales based on how well their investment performs – the more money the LPs make, the higher the promote the General Partner receives. LPs do not fund diligence costs, contract deposits, or early stage design and approval expenses. These are all paid for by the General Partner and Co-General Partners (“Co-GPs”)
  2. Co-General Partner Interests (high-teens to mid-20s): Invest alongside the general partner in early-stage development projects and existing storage acquisitions for higher returns. Co-GPs invest alongside the general partner to fund costs related to contract deposits, due diligence, design, and regulatory approvals. In return for incurring additional risk, Co-GPs can earn a share of the promote and other sponsor fees, resulting in returns that can be much higher than what LPs receive

Ready to Invest?

Whether you are an accredited investor or just getting started on your investment journey, we welcome you to subscribe to our newsletter for updates and opportunities to co-invest with us. We only send deals that have already been vetted and screened by our management team.

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Investing In Self-Storage?
An Introduction

Updated: December 6, 2022

A 10-minute read to reintroduce ourselves, the self-storage industry, and its investment opportunities.

self storage investing

Who we are and what we do:

Mason Equity Partners is a second-generation family-owned and operated commercial real estate investment firm with 30-years’ worth of experience in the industry. We purchase and develop assets in and around tier-1 cities across the US. We focus primarily on self-storage, but are open to other opportunities in tier-1 cities where we can leverage our development expertise.

Top 3 Reasons to invest in commercial real estate?

Our job as investment managers is to manage risk and invest capital at an attractive rate of return for our investors and ourselves. Here’s why we like to invest in big cities:

  1. Hard Assets: in a worst-case scenario where rents and sales prices decline, CRE investors still own buildings and land that have value and cost money to replace. Well-located urban sites tend to hold value over the long term, and provide some downside protection in the event things don’t go to plan. 
  2. Barriers to entry: It requires certain know-how to operate in major cities. These tier-1, tier-2, cities don’t feel like they need your business in a way fresh suburbs do, and the result is things take way longer than they reasonably should. This turns many developers away, creating a moat around those who are able to succeed in this environment.
  3. Stable cash flows: Rents tend to go up over time, and in down years they go down, but not by much. 

Why We Invest in Self-Storage (and think you should too!)

Sticky tenants on month-to-month leases: People don’t like to move.

Once their stuff is in storage, many customers don’t come back to look at it more than a couple of times per year, if that. Month-to-month leases mean we can mark rents to market in near real-time, and most tenants prefer to pay the increased rents over dealing with the hassle of moving.

Regulatory barriers to entry: Cities make it difficult to build new storage facilities.

Storage doesn’t pay the same occupancy taxes that retail and office do, and it doesn’t generate housing. Savvy operators who understand how to navigate these barriers can reap the benefits of decreased competition and higher long-term rent growth. 

Recession resistance: Storage demand is a function of population migration and population growth.

During good economic times, people migrate for new jobs and upgrade their living situation. During bad times people migrate to lower their cost of living or because they got laid off. In either case, people need a storage unit when they move, once the move is completed, it is often easier to just keep paying to leave stuff in storage rather than spend the day – many days – at the facility getting rid of junk and cleaning out the unit.

No TIs or Toilets: Once the storage facility is built, no major capital investments are needed for a long time.

When a unit turns over, we auction any abandoned belongings then sweep the unit clean and it’s ready to rent. Contrast this to apartments or offices, which need anything from a fresh coat of paint up to a full gut renovation after they turnover in order to get them occupant-ready again.

A fragmented industry with growing institutional interest: The majority of self-storage facilities are small one-off businesses.

Furthermore, there is a growing pool of professional investors managing hundreds of billions of dollars who are eager to buy multiple facility portfolios. We see a significant opportunity to amass multiple facilities, drive efficiency through economies of scale, and create a large enough portfolio to interest institutional buyers who are willing to pay a premium for scale.

  1. Hard Assets: in a worst-case scenario where rents and sales prices decline, CRE investors still own buildings and land that have value and cost money to replace. Well-located urban sites tend to hold value over the long term, and provide some downside protection in the event things don’t go to plan. 
  2. Barriers to entry: It requires certain know-how to operate in major cities. These tier-1, tier-2, cities don’t feel like they need your business in a way fresh suburbs do, and the result is things take way longer than they reasonably should. This turns many developers away, creating a moat around those who are able to succeed in this environment.
  3. Stable cash flows: Rents tend to go up over time, and in down years they go down, but not by much. 

Do Not Invest In Self-Storage If…

Self-storage is not for everyone. Commercial real estate investments differ from residential property investments in many ways (subscribe to our newsletter for more on this). It is operationally intensive, cash-hungry, and location sensitive. A self-storage facility has a lot more moving parts than a mutual fund investment or a single-family rental home. Please do not invest with us if you are: 

  • Looking to park all of your life savings in one investment – Commercial real estate investments are meant to be held for a certain amount of time until the business plan is completed. These investments cannot typically be bought or sold as easily as stocks or bonds. We ask that you only invest with money that you can afford to lose, and we highly recommend that our investors diversify their holdings amongst other types of investment. 
  • Interested in only a quick flip – Some of the best investments take time to mature. We are open to both quick flips and longer-term holds, depending on the deal. A flip can be a great strategy for an underpriced deal where we do not want to be exposed to the property for the long term – we just take our profit and get out. A hold is a preferred strategy for deals located in strong neighborhoods that are difficult for competitors to enter, where we expect above-average rent growth over the long term. In these types of deals, we refinance as quickly as possible to return investor capital and then distribute increasing amounts of money to our investors year over year. 

An overview of our investment strategy

Now that you have a better idea of why we choose to invest in an industry with a relatively longer investment period, here’s a brief overview of how we go about choosing where to invest:

  • Build to Core: New developments typically produce higher yields, so we strive to build well-located projects in core markets (San Francisco, Los Angeles, New York City…) so that we can survive whatever economic conditions there might be when we deliver.
  • Value-Add Conversion: We actively study the feasibility of converting big box retail stores and class B office buildings to self-storage. 
  • Sub-institutional Existing Assets: We supplement our build-to-core program by acquiring secondary locations that allow us to rapidly grow our brand while driving property management efficiencies across the portfolio.

You will see these strategies resurface and elaborated upon in posts to come.

Ready to Invest?

Whether you are an accredited investor or just getting started on your investment journey, we welcome you to subscribe to our newsletter for updates and opportunities to co-invest with us. Our investment opportunities are not frequent – so we don’t spam – but by the time they are presented to you, they will have already been through our extremely rigorous selection process. All investors are welcome to join our Investors’ Circle for a listing of past, current, and future offerings. 

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