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05 Apr 2019

Private-Equity Firm Fairway America Launches Value-Add Self Storage Fund

Fairway America has announced the launch of its newest Small Balance Real Estate (SBRE) investment fund. The Fairway America Value-Add Self-Storage Fund (FAVS) is designed to take advantage of a unique market opportunity to acquire vacant "big-box" retail properties at significant discounts and repurpose them into Class-A self storage facilities.

Fairway believes that continuing pressures on the retail real estate market and the resulting vacancies create an historically unique opportunity to repurpose well-located properties into self storage facilities.

The demand for self storage space in urban in-fill locations continues to increase, as almost 10 percent of households rent a self storage unit and 50 percent of Americans have a "clutter" problem.

"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, and, as an asset class, self storage has historically out-performed many other real estate asset classes, including in recessionary periods."

-Matthew Burk, CEO, Fairway America

Fairway believes that self storage facilities, as compared to other asset classes such as office, retail, and multifamily, can offer lower ongoing maintenance and improvement costs. Fairway anticipates that the self storage market may be less management intensive, more stable with regard to cash flow and occupancy, and more predictable than multifamily. The conversion strategy that Fairway intends to pursue with FAVS may also deliver lower construction costs and construction risks than those of ground-up development coupled with a faster time to market.

This new fund intends to target locations that are supply-constrained, yet nearly 100 percent built-up with residential housing. Typically, these locations will have limited potential competitive properties and zoning restrictions that will deter (and may even prevent) future competitors from entering the immediate area.

"Self storage facilities are often in limited supply in the immediate surrounding areas of the vacant retail properties being targeted," said Burk. "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."

While FAVS includes material investment risks such as loss of capital and illiquidity, Fairway will attempt to create value for investors by leveraging its team of experienced professionals to identify and work with what Fairway believes to be high-quality, experienced sponsors who are targeting these self storage conversion projects. Fairway will underwrite and complete extensive due diligence on those sponsors and their projects, in addition to monitoring the progress and execution of the business plan for each.

"This adaptive reuse strategy is a perfect fit for Fairway. 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."

-Matthew Burk, CEO, Fairway America

Based in Portland, Oregon, Fairway America was founded in 1992 by its CEO and Chief Investment Officer, Matt Burk. Fairway coined the term “Small Balance Real Estate” (SBRE) in 2012 and with it defined the common thread of an industry. Fairway has been investing in SBRE deals since then and managing its own discretionary SBRE funds since 2001.

Since 2012, Fairway has helped to architect, structure and create more than 125 funds and syndications for other SBRE entrepreneurs and managers around the United States. Fairway’s core business strategy is to identify, create and engage in long-term relationships with high quality SBRE stakeholders, which includes both SBRE entrepreneurs and investors. As both SBRE entrepreneurs and investors ourselves, we have a visceral understanding of the space.