Doug Steverson has spent the past five years handling self-storage acquisitions for Boardwalk Development Group, the Suwanee, GA.-based private equity company founded and headed by industry veteran Rajen Sheth.
But the market is the market – and the market, at least in Georgia and surrounding regions in the southeast, has been signaling new developments over new acquisitions.
So Steverson, who previously has worked at NAI Brannen Goddard Real Estate and other firms, was promoted last month from director of acquisitions to president of Boardwalk Development, which recently has embarked on the ground-up development of five new self-storage facilities in Georgia and Tennessee.
The additional storage properties will bring to 9 facilities within Boardwalk Development’s current portfolio. In other news, the firm earned a spot on Inc’s annual list of the country’s fastest growing private firms. Boardwalk was ranked in the 1,004th position based on three year revenue growth of 700%. This year, the company was also named a Best Place to Work by the Atlanta Business Chronicle.
Storable recently talked with Steverson about his company’s plans moving forward, the Georgia self-storage market, the challenges facing developers today, and his new responsibilities at Boardwalk Development.
What’s next for your company?
Doug Steverson: It depends on what the market does. Historically, we have done more acquisitions of existing products and grown through that avenue. But that’s gotten more challenging, as prices of facilities have gone up and cap rates have come down. We have seen less value in that. So, at least in the near term, I suspect we’ll do a lot more development than we will acquisitions of existing products. That seems to be where it makes sense to do deals these days.
You obviously like the Georgia market. Can you explain why that is?
The short answer is that it’s easier to keep an eye on things that are close to home. Since we’re based in Georgia, that makes a lot of sense. Also, it’s a market we know. Not for nothing, the demand for self-storage as a product is higher in the southeast than it is in other parts of the country. People are more used to (storage), more comfortable with it, and the penetration rates are higher. The growth is here, so it makes a lot of sense for us (to focus on Georgia). So much of self-storage demand depends on people moving—and people are moving to the metro Atlanta area. So we’re capitalizing on it.
Do you ever see doing more deals outside of the three-hour drive limit from Atlanta? Do you see yourself going to nearby Florida or maybe the Carolinas?
Absolutely. We’ve got a site under contract in South Carolina, outside Charleston, right now. We swung and missed a few deals in Florida over the years, some of which I really wish we had landed. So, yes, we would like to expand further, within reason. I don’t see in the near term going to Miami, but the northern panhandle of Florida? Absolutely. Same with the Carolinas. We’ve got a presence in Tennessee. We used to own a facility in Alabama. We liked that market. We just happen to sell that product.
What are the challenges in getting development deals done in the current market?
By far the biggest challenge we face is what the Fed has been doing, which has caused debt to become harder and equity to become harder. Those go hand in hand. One man’s equity is often another man’s debt. Those are tied together. We’re a private equity firm, so we use other people’s money to do deals. People’s appetite for risk has gone way down as rates have gone up. So that’s the challenge on the equity side. On the debt side, it wasn’t long ago that we could do deals around 4 percent. Now you’re closer to 9 percent — and that presents challenges. Also, lenders in general are less inclined to do new deals. So everybody’s spooked. But we can still find deals that pencil. There’s still a lot of opportunity out there. It’s just the ability to do those deals has diminished.
So you don’t think the market is tapped out with too many players, or do you?
That’s a tough question because it’s yes and no. It depends on what markets you’re in. Certainly some markets are overbuilt. Certainly some markets have less opportunity than others. In storage, we look at every three to five miles as its own market. One side of a town could be completely saturated, with way too much supply in the market. The other side of town can be a completely different story. People generally aren’t going to drive 20 miles for self-storage, not with as many competitors as there are. So rates adjust accordingly. We see in Atlanta – and Atlanta is a big city—that from one side of town to the other, rates can be anywhere from 12 bucks a foot or 15 bucks a foot maybe to the high 20s or low 30s. It varies so widely. It’s hard to answer that question with any specificity because the answer is: it all depends.
As a private equity company, where do you see the national market going?
We’re coming off the highs, the post COVID highs. As terrible as COVID was for so many people and so many businesses, self-storage thrived during that time. Occupancy rates went up to the mid to high 90s. Real rates in some markets doubled over a period of a year or two. It was a fantastic time to be in self-storage. We’re coming off those sugar highs. So we’re coming back down to reality. But we haven’t fallen off a cliff or anything. The facilities that were in the high 90s occupancy, you know, maybe they’re in the low 90s or high 80s at this point. We’ve seen year over year rates decline, but not to such a significant level that it’s putting people out of business or anything like that. Self-storage is a great place to be. It’s not recession proof. I hear that term thrown around sometimes. I would say it’s recession resistant, but not recession proof. Everybody’s watching the dollars they spend these days and looking to cut things and sometimes that means self-storage. But overall as an industry, we’re not in bad shape, especially if you compare us to the other (real estate) asset classes. I’d much rather be in self-storage than office.
What are your responsibilities as the new president of Boardwalk Development?
My previous role was director of acquisitions. As deals got harder, we found less value in buying existing facilities. So my role had to morph. I’m still involved in any transactions that we do. But my role has expanded. I’ve gone from more of a narrowly tailored role of being the acquisitions guy to now having a hand in the development side too. We have a director of developments here. We also have a director of operations. They’re phenomenal. They report to me. So my role has expanded to include overseeing what they do
