Atlanta-based Boardwalk Development Group launched its new Boardwalk II investment strategy in mid-August that will target stable, cash-flowing self-storage assets in secondary and tertiary markets throughout the southeastern U.S.
SpareFoot recently talked with CEO Rajen Sheth to learn more about what’s driving that strategy and the opportunities he expects to find in the current market.
How is Boardwalk II structured? Is this a strategy or a new investment fund?
Rajen Sheth: It is very different from our Boardwalk I fund. Boardwalk II is not a fund. It is individually owned assets that fit a particular strategy. That strategy is defined as properties that are in secondary or tertiary markets that are high-income, over $70,000 in household income and also with a growth rate that is equal to or higher than the national average.
Do you have a size target for this strategy?
The goal is to acquire 60 to 80 properties in the Southeast region. We are looking at seven states, all surrounding Georgia. In total, we are looking at roughly $90 million in assets.
Do you have any examples of the markets you are looking at?
We actually have our first two properties under contract. Those two properties are situated in North Georgia. One is in Cummings, right on Georgia Highway 400. The other one is in Dawsonville, which also is on Georgia 400. One of those properties has a household income of $106,000 in the surrounding 5-mile radius, and the growth rate is at 4.5%. So, those are the types of assets that we would love to acquire for the entire portfolio.
How does this strategy differ from Boardwalk I?
Boardwalk I is very much of a niche strategy focused on acquiring near-REIT quality properties, meaning that all of the properties fit the parameters of what REITs look for, except that they are all too small. They are generally 20,000-40,000 square feet. So, with fund one, we are looking for that needle in the haystack property that we can acquire at a reasonable price that cash flows from day one and has expansion room so that we can grow it and bring it up to institutional size.
In the Boardwalk II strategy, we do not expect to expand or grow the footprint of the existing storage property that we are acquiring. A cornerstone of that strategy also is to automate each of these properties. So, we will add websites, kiosks, call centers and give them 24-hour, 7-day a week customer service.
What are some of the drivers behind that new strategy?
We believe there is significant growth opportunity in the marketplace. When you look across the country at the top 25 MSAs, like Dallas, Denver, Chicago and Miami, you are seeing rental rates dropping because of overbuilding. There are too many developers developing in the in-fill markets already, and it is going to continue to get worse. So, where we see opportunity to consolidate the market is in in these secondary and tertiary markets and stabilized, income-oriented properties where we can distribute a current 8% dividend, and by building a large base of properties, bring some efficiency to managing them.
Why the Southeast?
Two reasons. Certainly, it is our backyard. So, it is easier for us to build a management team with a cohesive portfolio of properties. In addition, when you look at growth in the U.S. you are seeing growth happening in the Southeast and the Southwest region, and a lot of the migration within the country is coming from the Midwest to the southern states.
You have two deals already under contract, what are you finding – or what do you expect to find – for acquisition opportunities?
We have developed a large pipeline of opportunities and deals that fit our criteria. We believe that we will be able to attract and acquire 60 to 80 properties over the next two to three years, because of the work that we have done already to identify the properties, identify the owners and identify the geographies. We have reached out and spoken with hundreds of owners across these geographies. So, we are looking forward to being able to close multiple deals in a short period of time.