Self Storage Equity Ramping through Multiple Funds: Excel Financial Model
Originally published: 15/07/2021 13:26
Last version published: 09/08/2023 08:26
Publication number: ELQ-72567-5
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Self Storage Equity Ramping through Multiple Funds: Excel Financial Model

Self storage investment analysis for up to 6 separate joint ventures displayed individually and in aggregate for LP/GP.

Recently updated with debt financing logic and a sensitivity table.

The self storage real estate class has done well over time in general. It is a popular asset allocation for many investors in the space. This financial model was put together in order to show a ramp up of self storage development / acquisition, exit, and repeat for up to 6 times over the course of up to 15 years.

Each tranche has the ability to model in a joint venture for how equity is contributed as well as distributed. Distributions run through an IRR hurdle structure with 3 hurdle rates and a thereafter split. The hurdle rates and cash splits at each tier can be different for each of the 6 joint venture deals.

The purpose of the model is to get a relatively accurate view of the minimum amount of equity needed to build through each deal. For example, you may start off with a $250k contribution as a sponsor, hold it for 24 months, and then exit for a larger cash distribution. Then, the model will show if that is enough to get into the next deal and so on. Each deal can be modified in a way where you can see the closest value to $0 bank balance over time (meaning fully reinvesting all proceeds into bigger and bigger deals). The user may also want to leave some as a reserve. Either way, the cash position over time is displayed through all the deals.

The logic for when each new deal starts is relative to when the previous deal is closed. If you would like to model out deals happening in parallel and not one after the other, you can accomplish this by setting a negative value in the 'months until next deal starts'. Additionally, if the first few deals are with the same partner, then you can just keep the hurdle rates and distribution rates the same in order to see the cash flows for that section.

Assumptions for the specific details around each self storage development / acquisition are broken down into the cost to develop / purchase land and/or the cost to acquire. The user can fill in assumptions for one or both sections depending on what makes the most sense for the initial investment on each tranche.

Revenues and expenses can grow at a defined annual percentage rate and the general revenue structure is based on total units per deal, average monthly revenue per unit, occupancy / occupancy improvement, and maximum occupancy at stabilization. Operating expenses are based on an annual $ cost per square foot with a separate section for % of revenue spent on sales and marketing.

All of the assumptions and timing of each deal automatically flow into their own monthly pro forma and monthly cash distribution waterfalls. They are then aggregated back onto the same timeline so the user can see what the entire 6 tranche forecast looks like (for both the sponsor side and investor side) on a monthly and annual basis.

A DCF Analysis is done on a per deal basis and an aggregate basis as well as an annual basis and monthly basis. The dashboard allows for easier deal control as far as equity contributions per deal between sponsor and investor as well as the discount rate for the sponsor/investor of each deal. Resulting IRR, NPV, total equity contributions / distributions, and ROI are displayed on a per deal basis all in one spot.Visualizations show the resulting cash flow over time (very interesting to see how the initial equity grows as each new deal is exited) as well as all the key return metrics and cash flow per deal in a stacked bar chart.

The user inputs were designed to be simple and hard to mess up. As long as you are just adjusting cells in light yellow, there should be no issues.

There is an instructions tab to help the user get started and understand the flow of the model at a high level.

This Best Practice includes
1 Excel model and 1 Tutorial Video

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Further information

Plan out equity requirements as an investor or sponsor through multiple self storage real estate deals.

For self storage and 1-6 joint ventures held over the course of 15 years in total.

Greater than 15 year timeline in total.

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