How Advisors Thrive and Navigate Through Uncertainty with Leitbox Storage Partners
March 3, 2021 | Margaret Armour | Blue Vault
Blue Vault recently hosted Curtis Shoch, Managing Director of National Sales at Leitbox Storage Partners, Wayne Hast, Financial Advisor, and Robert Omohundro, Certified Financial Planner. This was the first wealth advisor panel webinar hosted by Blue Vault and the discussion covered many interesting and informative topics. Subscribers may watch the entire recording on-demand here.
Current Client Concerns
Clients over 50 years old are often focused on income and wealth creation, according to Hast. His clients are looking for growth and diversification to create options for a blend of investments. Of course, some investment options are not currently appealing due to the pandemic, such as hospitality and multifamily housing opportunities. However, self storage has maintained steady growth over the past year. “If clients don’t understand something, they aren’t going to invest,” Hast explains. In short, clients are looking for diversity, opportunity, and an investment they understand. Clients get the Leitbox Storage Partners story.
Shoch added that this is an ideal time to lock in market gains and protect assets from future market risk without leaving potential returns on the table. He explained that the Leitbox investment thesis is: How fast can we build a repeatable prototype of a self-storage unit for 8.5% to 9% development yield and sell it at a 5% to 5.5% capital rate.
Omohundro expounded on the concept of income significance for clients. “It’s not what you make; it’s what you keep.” Wealth advisors must be aware of the tax implications on long-term capital gains. Income management is critical for clients who are diversified, need to keep as much income as possible, and must establish a budget they can handle. He strongly suggested that advisors research alternative investments, as they provide clients with reliable income streams from a variety of sources, reducing overall risk.
Alternative Investments in Practice
Blue Vault’s Stacy Chitty asked Omohundro what percentage is allocated for alternative investments and if it varies year to year. Omohundro explained that this often depends on the client, how aggressive they want to be, and the depth of their understanding of the investment vehicle. Generally, no more than 30% of the portfolio would be made up of Alts. “At the end of the day … you want to be offering alternatives. And I don’t mean alternatives as in Alts; I mean alternatives in the spectrum of investments you provide a client. That’s true professional guidance.” To summarize, you must understand the areas and products you sell, be aware of your clients’ needs, and help them set up a plan.
COVID and Wealth Management
The lasting effects of the pandemic have undeniably changed how most people operate in their daily professional and personal roles. Wealth management is certainly no exception. Advisors are adjusting how they build new relationships and strengthen existing ones. Wayne Hast has shifted from organizing large events for clients to smaller, more intimate gatherings and arranging educational conference calls with funds. He also stresses the importance of consistent phone calls, as he aims for one touch per month per client.
Robert Omohundro has embraced technologies that enable him to stay connected to clients. He values tools such as video conferencing that convey his commitment to his clients. He also uses his practice as a resource, meaning he educates his clientele as often as possible. Monthly touches with clients are critical in his business model as well.
The Self Storage Story
Several distinct shifts took place during 2020 to shore up the self storage industry. In the spring, colleges and universities across the nation closed their doors and sent students home, along with all of their belongings. As the pandemic bore on, many Americans began to accept that their new home offices were not so temporary. Living spaces had to shift to accommodate these changes.
Hast and Omohundro both noted that the Boomer generation is beginning to downsize, and they are looking to storage units to help with that transition. This personal need also helps them understand the self storage story. Hast’s example of the thought process is simple: “I use it. Everyone else uses it.” It makes sense as a sound investment. Omohundro identified an often left-out group: millennials who are beginning to invest in single-family homes, growing families, and accumulating stuff. The cycle continues.
In conclusion, Curtis Shoch provided details about Leitbox Storage Partners’ ability to grow into urban areas that are often not zoned for self storage buildings. Leitbox created a mixed-use model that includes retail spaces with self storage space. Omohundro said this integrated building development is a huge advantage for investors, one he specifically looks for when he researches self storage companies. Shoch also explained Leitbox’s three milestones for exiting an investment:
- Certificate of Occupancy: With ground-up development for roughly 60% of fund, Leitbox looks to sell upon completion of project. No other known real estate asset class is currently able to do that, according to Shoch. With a successful sale, investors get their money back.
- Break even: shop the market again until a successful sale is made
- Stabilization: hold on to the property and stabilize at 85-90% occupancy
“If you’re going to start looking at Alternatives, Blue Vault specifically … is an excellent way to get the data you need and help pinpoint areas you don’t know about,” Omohundro said.Go Back
Blue Vault is just what advisors need to size up the different offerings in the nontraded REIT market. Just as importantly, it’s what the industry needs to encourage best practices among REITs.