Ramser Development Company 2023 Annual Letter
Welcome to Ramser Development Company's first Annual Letter. For those unfamiliar with our platform, we are a developer, owner and operator of RV and Boat Storage, Self Storage and Industrial Outdoor Storage properties with a nationwide footprint. As chief investment officer, I am pleased to provide this overview of the company's activity over the last 12 months.
When visiting their grandparents’ lake house in the summer, my kids love to walk down to the dock early in the morning and feed a family of ducks. On calm days when the water is flat, the ducks appear to float effortlessly through the glassy water to grab a piece of bread. However, a closer look reveals that, below the surface, the mallards are hard at work, quickly pedaling their webbed feet to position themselves for an opportunity.
As we look back on the year 2022, Ramser Development Company's investment side of the house somewhat resembled one of the ducks... On the surface, our firm's activity appeared quiet without any new property acquisition announcements. However, a closer look “below the surface” revealed a team working feverishly to aggressively position RDC for future growth in 2023.
While RDC did not deploy capital in 2022, our team underwrote approximately $850 million of RV & Boat Storage, Self-Storage and Industrial Outdoor Storage properties. Market conditions were not favorable for purchasing, as debt constants rose substantially above projected stabilized yields in 2022, and lofty seller expectations were taking some time to adjust.
Despite the challenging buying conditions, RDC continued to successfully execute the business plans for its existing properties.
In 2020 and 2021, RDC’s Chief Executive Officer, Scott Ramser, chose to refinance the vast majority of the company’s portfolio into long-term, fixed-rate debt. This decision paid off as borrowing costs increased dramatically this past year. While some other industry operators aggressively utilized high leverage to grow their portfolio in recent years, RDC took the opposite approach. We instead focused on optimizing the capital structure of well-performing legacy assets, resulting in a low-leverage, low-basis portfolio that is fortified against economic turbulence.
As interest rates have soared, our property management team, led by Chief Operating Officer Ally Young, has been able to focus on executing at a high level, and remain relatively unaffected by floating rate debt, upcoming maturities or tight DSCR covenants.
WORK IN PROGRESS
RDC continues to outperform on both revenue and net operating income (NOI) on our RV Storage Depot Altamonte Springs asset, the largest RV & Boat storage facility in the United States, and the only property on which RDC currently has floating rate (albeit low leverage) debt. We are nearing construction completion on the property’s 14-acre expansion land parcel.
Our leasing team at CBRE has also sourced some large industrial outdoor tenant opportunities for the site that would help us diversify revenue across the 55-acre property. Once stabilized, RDC plans to refinance later in 2023 for a long-term hold.
RDC’s 1,200-space facility at Orange County's Great Park in Irvine opened in April of 2022 and has been leasing at an impressive clip of 76 move-ins per month. It is now 50% occupied and we anticipate stabilization in 2023.
While 2022 was quiet – in terms of acquiring new assets – RDC made several key operational upgrades over the course of the year.
- RDC added new team members to both our accounting and investment and underwriting teams, including yours truly joining as Chief Investment Officer in August.
- RDC created “RDC Asset Management” for the purpose of providing the highest level of service and reporting to our partners, as RDC continues to evolve from a closely held, multi-generational owner-operator, to a best-in-class manager of outside capital in the RV & Boat Storage, Self-Storage and Industrial Outdoor Storage market segments.
- RDC invested in upgrading company technology, which will enhance our overall capabilities. We have adopted Oracle’s Netsuite for accounting and Appfolio as the investment management portal. We also selected Crexi Intelligence as our market comp service, after testing a variety of competitive options.
- RDC engaged Gallagher & Mohan as an outsourced underwriting acquisition analyst to streamline its investment process.
- Our team also spent considerable time upgrading and standardizing our underwriting models and investor deliverables, and reporting templates to institutional investment-level quality.
- Honing our core business strategy, RDC sold the only non-storage asset in its portfolio, a NNN-leased retail property in Long Beach. The proceeds from the disposition will be redeployed into RV & Boat storage facilities. In short, we are "all in" on the storage space in general and RV & Boat storage and Industrial Outdoor, in particular.
Looking to 2023, RDC will pursue a barbell acquisition strategy. On one end of the spectrum, we target well-located sites that are in the path of growth and will likely experience a change to a higher and better use over the next 10 years. On the other end, we look to monetize impacted, "unmonetizable" properties—think former landfills and sites with environmental issues, that are under power lines or feature other characteristics that make them unsuitable for more traditional uses—that have strong yield profiles at stabilization as they will permanently be utilized for storage.
It is no secret that the real estate market is currently facing a challenging transactional environment with high bond yields and aggressively stubborn seller expectations anchored to past market values. As a result, deals need a good “story” to merit our consideration. We found no compelling reasons to buy marketed deals in 2022. However, we are beginning to see some light at the end of the tunnel in 2023 as sentiment continues its downward shift and opportunities with an appropriate amount of “hair” hit the market.
At RDC, we believe opportunities to transact on marketed deals are getting close, but our preference has been to conserve capital until we can see the proverbial “whites of their eyes.” This is one of the advantages of being a vertically integrated platform with in-house property management. We can seize an opportunity when the timing is right and the deal aligns with our investment criteria—and not because we have capital that needs to be placed, or because RDC needs to generate fees to keep the lights on. In the meantime, our team continues to look for opportunities with one or more of the following characteristics:
- Properties with motivated sellers and value-add upside that less experienced operators can’t extract. This includes valet facilities, poorly designed sites, sites with excess developable land, or sites in close proximity to one of RDC's ten existing properties.
- Sites in areas with expensive land that have the ability to “manufacture a basis” by selling parcels off for a higher and better use while retaining 6-20 acres for storage.
- Co-GP and joint venture opportunities with operating partners who bring something valuable to the table. This includes entitlement specialists, partners with vertically integrated construction capabilities, and operators with boots-on-the-ground experience and expertise in our target markets.
For better or worse, the interest rate environment since 2020 forced us all to become macroeconomists. Yield volatility (especially starting from historically low levels) created an environment where buying became almost more of a bet on macroeconomics and rate fluctuations than on property and market factors. This is changing as rates normalize at higher (reasonable) levels.
We look forward to getting back to what we do best: executing our business plan and creating value for our investors through hands-on management. Looking to 2023, we are reminded of the words of legendary Baupost Group founder Seth Klarman:
“In investing, nothing is certain. The best investments we have ever made, that in retrospect seem like free money, seemed not at all that way when we made them. When the markets are dropping hard and an investment you believe is attractive, even compelling, keeps falling in price, you aren’t human if you aren’t scared that you have made a gigantic mistake.
The challenge is to perform the fundamental analysis, understand the downside as well as the upside, remain rational when others become emotional, and don’t take advice from Mr. Market, who again and again is a wonderful creator of opportunities but whose advice should never, ever be followed."
Of course, executing this in practice is far easier said than done. However, if we believe that stabilized yields on a potential acquisition are high enough to make sense on a 10-year basis, it's time to buy—even if we believe that values could fall further in the short to intermediate term.
2022 was a fascinating and somewhat chaotic year on several levels, but it also provided a great opportunity for RDC to position itself for growth in 2023 and beyond. As market conditions continue to shift, we will be ready to take advantage of the opportunities that arise.
If you would like to be added to our distribution list for future investment opportunities, please visit RDC's Investor Portal.
Chief Investment Officer
Ramser Development Company