Key Considerations on Choosing Investment Theses

I am often asked how we pick our investment theses. Below are a few factors we consider when choosing investment theses. I’ll use industrial outdoor storage (IOS) for the purposes of illustrative example. Incidentally this is an asset class we are very excited about and have our first two investments under contract in San Diego and Denver.

1. Macro view: Real estate is a derivative of these macro trends. We see how transportation and logistics have evolved and this is what gets us excited about IOS. The increase in port volumes, growth in e-commerce (customers demand goods faster and faster), and population growth in certain infill markets have been major demand drivers for IOS. Additionally, construction demand is being fueled by major infrastructure projects funded by the Infrastructure Investment and Jobs Act. These mega projects are benefiting the construction industry and increasing the demand for IOS sites from contractors, equipment rental companies, and building materials suppliers and distributors.

2. Institutional ownership: We look to play in spaces where there is a lower percentage of institutional ownership. Lower institutional ownership means we will find more mismanaged properties with significantly below market rents. When we entered self-storage a few years ago institutional ownership was ~20% and right now institutional ownership of IOS is ~10%. IOS has garnered increased interest in recent years but the majority of sites are still owned by the company that uses them (owner users) or local landlords.

3. High barriers to entry: Vacant land is scarce / non-existent in infill markets and it’s hard to get cities to approve more land for industrial use. Furthermore, some of the existing stock ends up getting converted to higher density industrial. Basically we do not see a situation where there’s an influx in supply of IOS in the markets we are entering.

4. Partners: We have liked IOS as a thesis for a long time. We have met with sponsors all over the country and it took us a while to find a group that would be the right partner for us. Our team is good at asset management and adding institutional scrutiny on underwriting that makes our family and friends comfortable co-investing with us (we put 10-30% of equity into most of our deals, significantly higher than most GPs). We look for scrappy partners who are great at sourcing off market deal flow and executing business plans.

Happy to chat more about our various investment theses and other areas of niche industrial that we are researching and excited about. Hit the comments, would love to hear your thoughts on IOS and how you pick investment theses.\