The Middle Market Advantage

Westlake’s core portfolio is filled with properties of all asset classes and various sizes due to the portfolio being acquired decades ago. Over time, many of these assets have reached the end of their useful life and upgrading them to highest and best use has created institutionally sized deals. However, when we acquire new assets with our self storage platform at Frontera West, we specifically target what I would call the middle market ($7-15M deals). Below are a few reasons that this size makes the most sense for our platform:

1. Less competition: higher than what a high net worth individual would want to buy and lower than what would interest institutional investors. Furthermore, we can leverage our balance sheet to close all cash at this size and then put debt on the property after we have completed the initial parts of our business plan as we did with Abby’s Mini Storage in Bakersfield.

2. Focused off market acquisition strategy: at this size, we target mom and pop sellers. Our team has identified all mom and pop owned facilities in our target markets and is constantly in contact with them as major life events may motivate sales.

3. Value creation: this is two-fold. At the asset level, we can complete the deferred capital expenditures that a mom and pop operator may not have had the capital or know-how to complete. Usually we buy facilities that are not using revenue management systems so rates can be up to 40% less than market. On the portfolio level, we aggregate these individual properties to sell as a portfolio to institutional buyers. Historically this has resulted in a 25-50 bps compression in exit cap rate.

We think this middle market continues to be a very interesting space as we target new acquisitions in 2024. As always, please feel free to reach out if you would like to catch up and chat about the markets. Happy to share the deals we are underwriting and what we are seeing in the market on both the self-storage and multi-family side of things.