Fairway America LLC, a real estate private-equity firm, has launched an investment fund dedicated to self-storage acquisition and development, particularly conversion opportunities. The Fairway America Value-Add Self-Storage Fund (FAVS) will seek to acquire “vacant big-box retail properties at significant discounts and repurpose them into class-A self-storage facilities,” according to a press release.
“The market is prime for adaptive re-use of vacant big-box retail property into a variety of uses, and we think self-storage makes the most sense. There is often an undersupply of self-storage in areas that have historically not allowed this type of use," said CEO Matthew Burk. "And, as an asset class, self-storage has historically outperformed many other real estate asset classes, including in recessionary periods.”
FAVS will target self-storage markets “that are supply-constrained, yet nearly 100 percent built-up with residential housing,” the release stated. Fairway believes these types of locations tend to have limited potential competitive properties along with zoning restrictions that present a high barrier to entry for future competition.
"Self-storage facilities are often in limited supply in the immediate surrounding areas of the vacant retail properties being targeted," Burk said. "Yet, these in-fill locations often also have a significant base of potential self-storage renters who would otherwise have to travel much greater distances to access a facility, giving the property an intrinsic and often permanent operating advantage."
Other reasons Fairway cited for targeting self-storage are low operational costs and managerial ease compared to other retail sectors. The company is also bullish on the sector’s predictability and stability in regard to cash flow and tenant occupancy. The advantages of the conversion strategy include lower construction costs and risks as well as speed to market, according to the release.
FAVS also fits within Fairway’s niche investment strategy of pursuing opportunities within the small-balance real estate (SBRE) space. The company will work with “experienced sponsors” targeting self-storage conversion projects.
“This adaptive reuse strategy is a perfect fit for Fairway," Burk said. "We have helped our SBRE sponsor clients acquire and develop or redevelop more than 6,000 self-storage units with a total capitalization of nearly $70 million. We are excited to do more of it as the retail real estate market continues to try to reinvent itself."
The company’s self-storage investments have included GreenSpace Holdings LLC, a development firm specializing in multi-story facilities. The company uses a patent-pending building design that incorporates surplus shipping containers.
Fairway works exclusively within the SBRE space. It provides accredited investors access to SBRE deals, raises capital for entrepreneurs and provides advisory and consulting services to those interested in setting up 506 Regulation D-pooled investment funds.