Small-Bay Industrial: The Asset Class Institutions Just Discovered

Small bay industrial flex space has held under 3% vacancy nationwide for three consecutive years. Some major markets have no available inventory at all. One of AAA's Texas projects delivered a 1,300% IRR. And most commercial real estate investors have never even heard of this asset class.

If you are an accredited investor looking for where serious capital is moving in 2026, this episode is for you.

Paul Bennett, who has been developing small bay industrial since 2011, answers the nine questions investors are asking right now: what this asset class actually is, why supply is structurally constrained, how AAA underwrites to a 10.5% yield on cost, why a $12M project can stabilize at $21M in value, how triple net leases protect investors from rising property taxes and insurance, and how small bay pairs with self-storage inside Growth Fund 2 to give investors diversification across two product types and four markets in a single investment.

Next episode: AAA's Shawn Beichler walks through design, construction, and lease-up on a live project.

Ready to talk about your investment strategy? Reach out at aaastorageinvestments.com

New episodes every two weeks. Subscribe on Apple Podcasts, Spotify, or wherever you listen to podcasts, and send this to an investor in your network who needs to hear it.
 
Chapters
(00:00) Why Small Bay Industrial Is Outperforming Every Asset Class Right Now
(01:00) What Industrial Flex Actually Is and Who Leases It
(03:10) Sub-3% Vacancy and Critically Low Inventory in Major Markets
(06:30) Why a $12M Project Is Worth $21M at Stabilization
(09:00) How Triple Net Leases Protect Investors From Rising Costs
(12:00) Why This Tenant Base Is More Recession-Resilient Than You Think
(18:57) AAA's Turnkey Build-Out Model and Why It Fills Space Faster
(25:04) How Self-Storage and Small Bay Work Together in Fund 2

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Creators and Guests

Host

Paul Bennett

Managing Director at AAA Storage

What is The AAA Storage Podcast?

Investing in self storage gives you the fundamentals and growth you need to grow your portfolio. But skip the opportunities from golf buddies and gurus—invest in a real track record. Started by John Muhich in 1993, AAA Storage has delivered 19% IRR across 90 deals, totaling $450M in exits. Listen to our expert insights on investing from the AAA Storage team. See more at aaastorageinvestments.com.

Welcome to the AAA storage podcast,
your integrated real estate and

development partner, exploring all
things, self storage investing to

bring you diversified success.

Let's dive in.

Paul Bennett: Tight supply, durable
demand, constrained development vacancy

actually sitting under 3% nationwide.

And I'm not talking about self-storage
I'm talking about small-bay industrial

or office industrial flex real estate.

And most of you listening to the podcast
today, don't even know what that is today.

I'm gonna change that.

Brandon and I are gonna walk through
9 questions that serious commercial

real estate investors are asking
about this asset class right now with

the data behind every answer, by the
end of the episode, you should know

exactly what small-bay Industrial is,
why it's performing the way it is,

and what it means for your portfolio.

Brandon Giella: All
right, so let's jump in.

Let's talk about the
industrial side of this.

So in this asset class, most
people think about, uh, you know,

within commercial real estate.

Uh, a they have a picture in their mind,
but what you're talking about within this

category is actually kind of a subset.

Talk about this, like, define
industrial flex for us.

Paul Bennett: Yeah, in in the industrial
category, most people picture a

million square foot data center or a
750,000 square foot Amazon warehouse.

Uh, you know, a, a big box with a
bunch of bays and, uh, and, and, and

elevated docks for tractor trailers.

Um, this is a whole different product and
it is a subset of the industrial category.

In commercial real estate.

This is basically 20,000
square foot buildings.

It can be 10 to 20 to 30,000
square foot buildings that

are divided into small bays.

Um, typically with some office space
built in the front and warehouse

space in the back with a roll up door.

Um, and the reason why, um, development
is very limited, uh, or constrained

in this sector is that the industrial
developers would much prefer to

build a million square foot box.

It's a lot more efficient.

Um, what we are building is a
hundred to 150,000 square foot

office parks that are comprised of.

Of, you know, anywhere from, you
know, six to 10, 10 to 20,000 square

foot buildings divided into bays.

Um, and it's the home for, and we'll
talk about this more, I'm sure, Brandon,

but it's a home for people like HVAC
contractors, plumbing contractors,

pest control companies, landscape
companies, last mile logistics

companies, uh, internet based businesses.

Uh, we have a tenant that
sells coffee on the internet.

They have a thousand square feet
of office in the front where they

receive and process orders, their
inventory stored in the back.

They got a roll up door where UPS
come, comes every, you know, couple

times a day and picks up all the
packages they're shipping to customers.

That's.

The difference between what most
people think about as industrial

and what we're talking about today,
which is quite frankly, the hottest

category in all of real estate,
not just commercial real estate.

Small Bay industrial is
outperforming every other sector

in the real estate industry today.

Brandon Giella: Okay.

I love that.

Okay.

Well, okay.

Zoom out a bit and tell us a a
about this market in general.

So, I mean, there's lots of questions
that we can dive into about maybe tariffs,

how that's affecting the market, the
vacancy rates like oversupply through

COVID and different sectors of industrial.

Like walk us through like what
are the dynamics that we're

looking at in this market?

It.

Paul Bennett: Yeah.

So if, if you think about the, the
economy today in America, the number of.

Privately owned businesses and
regional companies that, that, um,

or regional offices for publicly
traded companies, uh, is growing.

It, it, we've become a very hyperlocal
society, a global community.

And at the same time, particularly
with all the online commerce, the

need for last mile logistics in
proximity, uh, to, to the end customer

has become more and more important.

Um, and.

Today, literally, um, it depends
on whose numbers you look at.

Um, I haven't seen a number above 3%.

I've seen some as low as 2% in terms of
the average vacancy across the country.

But there are major markets in
the US today where if you needed

a 5,000 square foot small bay
facility, you cannot find it.

I, I'll give you an example.

Las Vegas, Nevada, there is
zero inventory available.

In Las Vegas for small Bay real estate.

Um, and and I would
challenge anybody listening.

Podcast today, call a local commercial
real estate broker and tell 'em you

need a 4,000 square foot bay with a
thousand square feet of office in the

front and a warehouse in the back.

Um, and what they'll tell you is good
luck, because it's really hard to find

in most markets part of it's zoning.

Um, there there are some zoning
challenges in certain markets, um,

but a lot of it is the fact that
the big industrial developers simply

don't wanna build this product.

Um, and, uh, and, and so it's been under.

Uh, under supplied and demand just
continues to grow because of all

the unique, um, uses for this type
of real estate, the flexibility

that it offers, um, and, uh, it's
driven extraordinary performance.

I mean, right now on a consistent
basis for the last three years.

Small bay industrial occupancy has been
equivalent to what self-storage occupancy

was at his, at its historic peak.

During COVID where there were, it was
not a real environment people, there

was extraordinary demand for storage
that was solely related to COVID.

And once COVID began to sort of abate,
uh, occupancy return to what the

norms are, which is around 91, 90 2%.

So, um, it's an extraordinary.

Um, extraordinary sector, uh, and we
have a very unique approach to it.

We do not build a fancy class a,
um, office industrial flex product.

Our buildings are, are slab
on grade metal buildings with

a 25 foot clear span ceiling.

Um, and, uh, they're inexpensive,
uh, to, to build, uh, but highly

valuable and sought after by tenants.

And that's a great combination.

Brandon Giella: Mm.

So it sounds like for, for an investor's
perspective, this is, this is the

place to be, meaning you've got a
lot of demand, but a constrained

supply, which means price goes up.

So why is it then that you can't
build more of them to balance

out that supply demand imbalance?

Like what's going on there?

Paul Bennett: Um, I, I think it's
really, it is a, I will say it's

a, a sector in real estate that
is being discovered as we talk.

There's probably more conversation around
it, uh, than there has been over the

last, you know, five to seven years.

Uh, and there will come a day when that.

That supply begins to elevate and
balance a little bit better with demand.

Um, but it's only at the
beginning of that process.

So I think there's a window here
where there's a real opportunity.

We've been building this product since
2011, um, and some of the most, some

of the highest returns we've been able
to deliver to investors have been.

Um, through the development of Small
Bay Industrial Storage has continued

to be a steady Eddy, consistently
producing returns in the, you know,

in the, in the 20 to 25% range.

Um, this is an outlier.

I always hate to, uh, to, to
get set people's expectations.

Um, we did a small bay project,
um, in Texas that produced a

1300% IRR for its investors.

Brandon Giella: Yeah, you
shouldn't say that too loudly.

'cause then it's like,

Paul Bennett: Yeah, that,
that, that won't happen again.

Brandon Giella: yeah.

Paul Bennett: that's a one of a kind.

Um, and, and it was a combination
of the fact that we sold it for an

extraordinary price, but we also did
it in, in, in extraordinarily short

period of time, which is what drove
the time valued returns, uh, so high.

But uh, but yeah, our small bay projects.

We underwrite, we talk about yield
on cost a lot on the podcast.

Um, in storage we underwrite to
a nine and a 5% yield on cost.

In small bay, it's actually 10.5%

yield on cost.

So we're our, our proforma net income,
um, in a small bay project will provide a

yield, um, if we hit our numbers of 10.5%

cash on cash on the cost of building.

It.

Um, and that creates an extraordinary
gap between what it costs to build

it and how the cash flows are
valued in the capital markets, which

is where the return comes from.

It's that spread costs us
$12 million to build it.

Uh, and when we get it
stabilized, it's worth 21 million.

Um, and when you lever that, you
know, 70, 60, 70% loan to cost,

you're talking about three plus equity
multiples, um, over a three and a

half to four and a half year period.

So that's where you get
the outsize returns.

Brandon Giella: Yeah.

Incredible.

I love hearing that.

That's, that's, I mean, that's
what you want as an investor, but

you know, every market changes.

Things are always happening.

One of the things that I
know you're getting a lot of

questions about is, is tariffs.

You know, so this is, you know, spring
of 2026, uh, and we've had some kind of

discussion about maybe costs are going
up, or like, how are you seeing maybe

your, your costs changing the investor.

Outlay changing over 2026.

Nobody can predict the future,
but you know, what are some things

you guys are thinking about?

Paul Bennett: Um, first of all,
yeah, we have seen, we have seen,

I mean, the inflation is real.

And we have seen increases in costs,
particularly in the steel, uh, that

are required to build these buildings.

Um, and, and those impacts are real, but
they have not been significant enough

to really change the return profile.

Um.

I, I guess you could look
at it from two sides.

Number one, how do tariffs and
inflation and what's going on in

the world today affect our ability
and cost to build a facility?

And then on the other side, what
impact does it have on the tenants who

might lease space in that facility?

I.

Um, I, we probably do, but I don't know
that we have an international business

in any of our facilities, and I, I
don't think a plumbing contractor is

necessarily impacted by tariffs on goods
coming from other parts of the world, um,

unless they're buying toilets from China.

You know, I, I, I just don't
think there's a, we have not seen.

A real slow down in terms of economic
activity, um, from on the tenant side

related to inflation or, or tariffs.

We have seen some cost increases,
uh, on the, uh, on the building side.

Uh, one of the things that's a
very positive, um, aspect of,

of small-bay is that all of our
leases are triple net leases.

Uh, which means the property tax, property
insurance and common area maintenance

are passed on to the tenants on a pro
rata basis, which means our investors

are insulated from those cost increases.

And I would tell you probably the most
dramatic shift in real estate, uh,

commercial real estate across the board
is the increase in property taxes and the

increases in property insurance premiums.

And in the small base sector, those
costs become, you know, a burden

on the tenant, but not on us as
building owners and our investors.

Uh, and that's, that ability to
pass through those cost increases,

protects NOI and keeps those,
those, those factors, insurance

and taxes from eating away at NOI.

Um, and so it really does help
protect the value of the facility.

Brandon Giella: Hmm.

Uh, okay.

That's interesting.

Yeah, I know here in Texas we have
very high property taxes, I think 1.7%

or whatever it is.

So, um, okay.

So one of the things, so we
talked a little bit about, um.

Uh, kind of like uncertainty in the
world, which is bad for, um, investors.

And so, um, typically speaking, you
know, but sometimes it can be a great

thing if you catch things right.

But do you sense any kind of like
recession risk or how you're feeling

about the economy in general?

Um, uh, I, I know there's, you
know, people say it's very stable.

Like job losses are not crazy at all.

Um, uh, but there's a lot of,
uh, fear and uncertainty about

how things are shaking out.

Do you feel any of that or do
you sense of that in, in the

real estate market in this way?

Paul Bennett: Well, um, in the general
real estate market, perhaps not in this

particular product type, certainly a
dramatic, um, downturn in the economy

where consumers, um, had less money to
spend and therefore were less likely

to hire a plumber, uh, or an HVAC
contractor or a home pest control company.

Uh, that could certainly over time
have a real impact if those companies.

Lost customers and lost revenue, uh,
then you would see some degree of,

of business failure in those sectors.

Uh, and that would affect, ultimately
affect, you know, our tenant base.

Um, I think it would take a pretty
extreme cycle for that to occur.

Um, again, it's, it's, um.

So interesting.

Our tenant base is very,
very low to the ground.

Again, there it is.

Plumbing contractors.

It's HVAC contractors.

It's the pest control
company that you use.

It's the landscapers, uh, commercial
and residential landscapers that, you

know, are, are, are taking care of.

So if those folks begin to
be impacted, our facilities,

you know, very well could be.

Um, but today as we sit
here, I don't sense any.

Near term threat related to
that kind of economic downturn.

Brandon Giella: Hmm.

It's more higher up in the economy,
if you will, the, the, the waterfall

as money moves through the system.

Paul Bennett: Yeah, and, and I, I guess
this is a discussion for another day,

but, uh, if I'm not mistaken, the
s and p and Dow are both sitting

in very near record territory.

So although there may be, uh.

People may perceive some degree of,
of uncertainty and depending on which

media outlets you listen to, um,
you may have, you know, different

views on where the economy is.

I think it's doing pretty well.

Um, the only part of the economy that,

Brandon Giella: recently about that.

Yeah.

Paul Bennett: yeah.

Um, I think the home building industry.

Um, the housing industry is probably,
um, you know, struggling at some,

uh, some level for two reasons.

Number one, uh, was talking to
our director of marketing today.

Just we had a moment, personal
conversation in the midst of a business

conversation and, and she was saying
they'd really like to, to build

a house, but they borrowed money.

Her husband happens to be a veteran.

They borrowed money at like 2.5%

and they don't want to
give up that mortgage.

So.

On, on one hand, you've got people
that aren't moving that otherwise might

move to a different neighborhood, a
different school district, but they

don't want to give up that, you know,
that low interest mortgage that they

got, you know, coming outta COVID.

Um, and then the other thing,
um, that's happened is interest

rates and it's related, right?

If you own a home today and
you're, you've got a two and a

half percent mortgage, you're not
really excited about selling it.

And buying a new home and
borrowed money at 6.5%.

Um, and so until rates
come down a little bit.

I think the home building
industry has just kind of gone up.

It's not, it's not in distress,
but it's certainly not thriving.

Um, and when that industry kicks back in,
imagine our economy today, uh, with what's

going on and, and, and the large public
companies doing as well as they are.

What if all of a sudden interest rates
came down, the housing market unlocked

and people were buying more refrigerators,
washer dryers, all the durable goods.

Um, that that would, you know, that would
add a significant component of activity

that today is, is really not there.

And we feel it in storage, uh, because
moving's 25 to 30% of the demand in

self storage and the depressed housing
market has definitely had an impact, um,

on the overall demand in self storage.

Brandon Giella: Mm, interesting.

Okay.

Well this, so this leads me to
somewhat of a related question.

I think, correct me if I'm wrong, um, so
we, we've talked a bit about these folks

and the tenants that you have are low to
the ground, HVAC companies, et cetera.

You've talked about there's a pickleball.

Tenant that you have,
there's a gymnastics tenant.

Talk to me a little bit about that, but
related to where I think what you were

just describing is, uh, there's, um, some
interest from institutional investors

that are homing in on this market.

And it seems that, you know, you've
had private investment for a long time.

Is it the case that, uh, institutional
investors are not finding other

places to put their money and they're
seeming seeing this is a great asset

class to invest in because of this
stable tenant base that you have.

Are, are these kind of things
related or am I, am I off base there?

Does that, does that

track

Paul Bennett: no, I think I,
I, I think these are, it's an

interesting question, Brandon.

Um, I think it's less, I think
there is a growing interest

from institutional investors.

Um.

It's a highly fragmented product.

We're not talking about a million
square feet of real estate.

The average office industrial Flex
Park that we build is between a

hundred and 150,000 square feet.

Um, costs somewhere between
12 and $20 million to build.

Um, not unlike self
storage, quite frankly.

I mean, self storage is fragmented.

Um, it, it's, it's, it's.

The, the current dynamic in the
market is really about more about

the underdevelopment of this product.

I mean, there, there were only 23 million
square feet of small bay space delivered

in the entire United States in 2025.

Um, and I, I would bet you that demand
for that space actually outpaced

the new supply that was generated,
which is why the market continues to

tighten in terms of its, its occupancy.

Um.

There are markets where you, you might
get a local player or a regional player

who's gone in and ha have, have built,
you know, several different projects.

We've seen some rare instances
where market has kind of swung

the other way, not violently, but
there's a little bit more supply.

And therefore, vacancy
may be in a 7% range.

You know, six, seven, 8% range.

But on the whole, most markets hover
in that two to 3% vacancy range.

Brandon Giella: Mm.

Okay.

Okay.

Okay.

So, um, this leaves private investors
still have a lot of opportunity here, so

I, I want to kind of drive the, the end
of this conversation in that direction.

But, but first, before we get there,
getting a little bit more practical

about you guys and the way aaa.

Finances these deals, builds these deals.

Um, and then how you guys pair
that with small, uh, with, uh,

self storage in your funds.

Can you describe a little
bit about that as an asset

class?

Paul Bennett: we, uh,

Brandon Giella: do it?

Paul Bennett: I think we do a
couple things that are unique.

First of all, um,

there is a certain degree,
one of the inhibitors for

development has been zoning.

Um, jurisdictions sometimes don't
know what to do with this product.

Um, and, and it can create issues
in certain ju jurisdictions.

So, um, the, the zoning challenge.

Is very real, which means you just
can't go out and piece, buy a piece

of land that's not zoned I two or
industrial and, and assume that you're

gonna be able to get it rezoned to
build the project you wanna build.

We eliminate that risk at AAA because
we go through that process, buy the

land, get it entitled, get it zoned,
and get it ready for construction

before our investors are ever involved.

Um, and, and so we take that piece
off the table at the front end.

The other things that we do in
small Bay that are different, um,

is that we don't finish out spaces.

As we build them, we
build a cold, dark shell.

So we'll build a 20,000 square foot
building slab on grade metal building

with a 25 foot clear span ceiling
and wait until we have a tenant.

Um, and, and then we can.

Carve that space up to
match that tenant's need.

In one example, we have a pickleball
facility that took an entire

20,000 square foot building.

In another example, we might have an
HVAC contractor that wants 3000 square

feet, wants a thousand square feet of
office in the front and 2000 square

feet of office for of warehouse in the
back with racks for all his, you know,

plumbing, accessories and equipment.

Um.

And because, because we, we
make it very easy for the tenant

from a flexibility standpoint.

We simply say, how much space do you need?

And then we can carve buildings up to
provide them with exactly what they need,

versus trying to shoehorn them into a
space that we've already defined without

considering what the tenant might need.

Uh, the second thing that we do, third
thing that we do that is truly unique.

And if you're not in commercial
real estate, you wouldn't know this.

But the way most tenant spaces work,
um, is that when I, I'll give, I'll use

a shopping center as an example, but
the same thing applies in Small Bay.

Um, if, if we've got a, a 3000 square
foot bay next to the grocery store

in a shopping center, and you come
along Brandon and you wanna lease it.

Part of the negotiation is we provide
a tenant upfit allowance as a part

built into the cost of your lease.

Um, and so we, we provide an allowance.

Let's say it's a hundred thousand
dollars in this case, but your space

is gonna cost $250,000 to build out.

What that means is you're
gonna go hire an architect.

You're gonna design the space with
your architect, you're gonna hire a gc.

We have nothing to do with it.

As a landlord, you're gonna hire a gc.

You're gonna have that space built
out, and you're gonna pay for it all.

And once you get a certificate of
occupancy and move in, then we'll give you

your a hundred thousand dollars allowance.

So it means, in most cases, that State
Farm office in your local grocery

Anchorage shopping center, or the
jewelry store, or the nail salon.

I had to go to the bank and borrow
a quarter of a million dollars

to get their space finished out.

And they had to manage a contractor,
manage an architect, and do all of that.

Uh, and then once they're finished,
the, the landlord will give them the,

whatever allowance was, was negotiated
as a contribution towards the overall

cost to finish, finish that space.

And, and PS by the way, when you move out.

Um, you don't get to take any
of it with you, um, unless

it's not bolted to the floor.

Um, and uh, and, and what we do
that's fundamentally different is

that we sit down with a client, we
figure we, we, we go through what

they need, we design their upfit for
them internally with our architects,

um, and then we work the entire
cost of that upfit into the tenant's

lease and we build it out ourselves.

So.

I, I'll give you an example.

We have a business park in Cillo, Texas.

It is called Green Valley
Business Park, adjacent to the

Green Valley Storage Facility.

We have a local church.

Uh, that is looking for a space and
they need about 15,000 square feet.

Um, I don't know this, but I
would bet you they couldn't write

a $250,000 check if they had to.

Um, but because of the way we approach it,
we've recently signed a lease with them.

Um, and we'll help them
design the build out.

We'll execute the build out.

We'll pay for the build out, and we'll
finance it through, uh, some additional

dollars in their lease on a monthly basis.

So what that, the two things that we do
that are fundamentally different that

broaden the funnel for potential tenants
is one, we don't predefine the spaces.

So if you need 6,000 square feet,
we can give you 6,000 square feet.

If you need 20, we can give you 20.

If you need two, we can give you two.

And then we don't require you to finance
to, to, to pay for the build out.

We, we take care of that.

We add it to the lease value and we
amortize it over the life of the lease.

Um, and so it makes it a lot easier
for tenants to move into our spaces

than it does many of our competitors.

And I think.

That's probably one of our
biggest competitive advantages

in the market that we're in.

We make it easy for tenants, um, and
tenants are what drive revenue and

revenue's, what drives in oi and value.

So, um, it's a, it's, it's
a formula that's worked very

well for us for a long time.

Brandon Giella: Hmm.

I love hearing that.

I love turnkey stuff like that.

It just, it creates a good relationship.

It creates buy-in from everybody.

They're, they're all in,
you know, I, I, I love that.

Even if you, you gotta bake that
into your, your cost long term.

But, uh, uh, but I love that it
makes it easy on the customer,

and that's the, that's the point.

Um, so, okay.

Last question here is, is talk
to me a little bit about how you.

Put small bay or you know, this
Flex industrial product with self

storage in the fund and what that
means for investors long term.

Paul Bennett: We, we do a
couple things in that regard.

Number one.

Uh, the, the funds are allocated fund two.

Our current offering is
allocated 60% to self storage

and 40% to small bay industrial.

The first thing that that does is it
gives our investors diversification

across two different product
types in the same investment.

So for a $200,000 investment in our
fund, uh, you're, you're not only

investing in four different markets.

Yeah.

Austin, San Antonio, Houston
and Charlotte, North Carolina.

You're also invested in two
different property types.

That's pretty extraordinary
diversification for a single a

hundred or $200,000 investment.

Um, the, the, the, the second
thing that, that in most cases,

and in fund two, in all cases.

We will find a larger track of
land than we need to just to

build a self-storage facility.

Maybe it's a 10 acre
track or a 12 acre track.

In the case of Gastonia, uh, just outside
Charlotte, it's a 17 acre track and

we'll actually subdivide it and build
a self-storage facility on one part

and the office Industrial Flex or small
Bay Industrial Park on the other park.

Those types of products are often
found in the same part of town.

Our small bay customers are
accessing residential areas.

They're providing services to
residents in the market as often

as not, and storage needs to be
convenient to those residential areas.

So.

You often find those two property
types in the same part of town.

And when we can buy a larger track
of land, subdivide it and develop it,

there's some cost efficiencies that we
get in the infrastructure, um, and the

civil engineering side of the equation.

Um, so, you know, we're,
we're, we're, we're, we're.

Building two products on one site,
but we can leverage the water sewer,

uh, if we need a septic system
because sewer's not available, um,

it, it can serve both properties.

Um, and so it really does
provide some cost synergy.

And then lastly, believe it or
not, there's actually customer

synergy between the two.

It.

Most people aren't in the industry,
would not realize that a significant

portion of the customers in a self
storage facility are businesses.

We have landscapers that run their
landscaping business out of their

self, out of a self storage bag.

They store their fertilizer,
their lawnmowers.

Uh, in a lot of our facilities, we
also have parking, paid parking,

so you can rent a unit and you can
park your truck and your trailer.

Um, uh, we, we have retail businesses
that store excess inventory

in a self storage facility.

We have distribution companies that
have sales reps that are constantly

getting shipments of promotional
material, um, product samples, whatever.

Those sales rep who might be.

Hundreds, if not thousands of miles
away from a regional office, need a

place to store those things so they can
pick 'em up and take 'em to customers.

Um, so there are a lot of business
customers in a self-storage facility,

and as those businesses grow, they
need more space, really easy for them

to migrate to the other side of the
fence and rent a small-bay industrial

bay Um, and the reverse is true.

We have small-bay customers that have
3000 square feet of office, uh, excuse

me, 3000 square feet of warehouse and
have 4,000 square feet of stuff to store.

How convenient it is for them when,
when they filled up their warehouse

space to rent a 20 by 20 self-storage
bay next door, where it's really

close, really convenient, they can get
to that inventory when they need it.

So, um, there actually is synergy.

It's probably not a game changer,
but there's real synergy between.

Uh, between the, the two product types
and, uh, we do build each product type

separately in some cases, but when we
can, when the market will support it,

the market and underwriting data is
there for both product types and we

can find the right size piece of land.

We'll often build both on the same parcel.

Brandon Giella: Hmm.

I love that.

I love that the way that you guys are
thinking about this, obviously, like focus

really, uh, closely on the tenant and
the market and the hyperlocal, you know,

geographics that, that you guys look at.

But um, yeah, thinking about how
those play together, I've never

considered that, but that's so true.

I know tons.

People.

My brother in fact has a, a small bay
industrial for that exact reason for

picking up different inventory for
his business and things like that.

So yeah.

I love that.

That's smart.

Paul Bennett: And, and the, the
sources of the underwriting DA

data are fundamentally different.

Obviously, your primary user in a self
storage facility is, is a, a, a consumer.

And so we're looking at the square footage
of storage available in a hyperlocal

market, uh, versus, uh, the, the.

You know the actual square footage per
capita that's available in a market.

We're looking at new facilities that are
coming online, and what's that's gonna do?

The metric we're looking at traffic count
because visibility's key for self storage.

Um, and we're grabbing data from all
the big data, aga aggregators, uh,

on population growth, demographics,
all those types of things to

underwrite a self storage facility.

On the small base side, it's a
completely different data set.

Visibility really isn't critical.

Uh, it really is about the, we use
a, a couple of different services,

the predominant one's, CoStar, which
tracks every industrial property.

On the planet.

Um, I'm being a little facetious
there, but, but really certainly

everything in the US and we could
look at supply and demand data.

We can look at, um, what rents are.

That's always a big indicator
of where the market is.

Are the rents in the area that we know
we need to make our projects work?

Um, and so even though they may be on the
same parcel, they're underwritten very

differently in terms of the requirements
and the expectations and the, the

dynamics that have to be in place to
provide a successful, you know, project.

Um, and there are two separate
underwriting projects, uh,

processes that go along parallel
to each other, um, before it

gets to our investment committee.

And if, if, if we look at a
site that's a 10 acre site.

And the storage numbers look great.

The small bay numbers look horrible.

Um, or, or not.

Good.

Um, we'll, we'll take a second
look and see if we think the market

could sustain a 10 acre self storage
facility built in phases over time.

And if it can't, then that
project's not gonna get approved.

We're not gonna buy the land
and it'll never see the light

of day with our investors.

So.

Brandon Giella: Hmm.

Hmm.

Well, I am so glad you guys, uh,
think through this in this way and I'm

glad that you put some time aside to
address a lot of investor questions

that you've been getting about this,
this offering with Growth Fund two and

the way that you guys think through
self-storage and the small bay products.

Within the same fund on the next episode.

Uh, after, you know, looking like we
did today at kind of the market and

the, the way these things are financed
and thought through at the beginning,

it gets into design and construction
and lease up, which we'll have special

guest, Sean Beagler, part of the AAA
team, uh, going through that process.

And so stay tuned.

If you have a lot more questions on
this, um, you will find all of these

[e-mail].

A AA investments, uh, dot com.

And so, uh, look forward to that.

And, uh, Paul, as always, thanks so
much for your time and, uh, we'll see

Paul Bennett: Yeah, it's been fun.

Brandon enjoyed it.

Brandon Giella: See you then.