The AAA Storage Podcast

Eight months after breaking escrow, Paul Bennett gives a project-by-project update on Growth Fund 2 — AAA Storage's $40 million ground-up development fund across Texas and North Carolina.

Paul walks through where each of the fund's six active projects stands, why the national self-storage development pipeline keeps shrinking, and why he thinks that sets up a seller's market later this decade. He also shares an early read on Growth Fund 1's performance and explains how AAA Storage manufactures value through development rather than relying on appreciation.

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Chapters
[00:00] Introduction
[00:16] Growth Fund 2 overview: $40 million across seven storage and four small-bay projects
[01:00] Why the self-storage development pipeline is shrinking
[03:45] Eight months in
[04:00] Huffmeister and Buda: the first two projects near initial lease-up
[06:00] Elgin and Hutto: the fund's best financing yet, and a Samsung-driven pivot to small-bay
[10:00] Six projects, eleven planned
[12:00] Cap rates, cycles, and the return of institutional buyers
[13:57] Growth Fund 1's track record, and why Fund 2 is still raising capital
[16:00] How AAA Storage manufactures value and the target return for investors

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.

Paul: So you put that together, decreasing
supply, increasing demand over time, and

it's a recipe for a seller's market in
that 2027 through 2031, maybe 2032 window.

And we started Fund 1 and then immediately
followed with Fund 2 because we want

to deploy as much capital into that
window as we possibly can, 'cause

we think it's a unique opportunity.

And if you look at the time frames in
our funds, we start exiting properties

about year 3 or 4 after the launch,
and we exit everything in a 6, 7 year

period because the strategy behind the
thesis is to develop, stabilize, and sell

these assets, not hold them long term.

So Growth Fund 2 is positioned to
manufacture value, through the development

process, exit those assets, and create
above average returns for our investors.

And that's the whole story
behind Growth Fund 2.

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.

Brandon Giella: All right, today
Paul is gonna give us an update on

Growth Fund Two, which is of course
the product that we've been talking

about a long time, and give us an
update on how things are shaping up.

And it is currently late
August twenty twenty-six.

So Paul, what's the
update on Growth Fund Two?

How are things going?

Paul: Yeah, Brandon.

Thanks.

Always good to be here.

Uh, give people a, a little background
in case you're, you're, you're a new

listener and aren't familiar with it.

Growth Fund 2, uh, is a $40 million
private equity real estate fund that has

been launched to invest in the ground-up
development of seven self-storage

facilities and four small-bay industrial
facilities located in three Texas cities,

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

Um, the, the thesis behind Fund 2 is
the same thesis that drove us to launch

our first fund after 30 years of doing
single property, sing- syndications or

investment opportunities, and that's a
unique timing and dynamic in the market.

During COVID, the usage
of storage exploded.

Occupancy went to 98%, uh, across the
country on average, and rates were, as we

all remember, at all-time lows, 3%, 2.5%.

that created a tremendous amount of new
development in '21, '22, '23 put most

markets in an oversupplied condition.

So we've been battling that for the
last three and a half or four years,

um, with slower lease-ups and, and
depressed advertised and, and actual

rental rates But that same dynamic
has also caused a dramatic slowdown

in the development of self-storage.

When interest rates went back up
and rates are depressed, it's an

environment where it's harder to make
a deal pencil, uh, and make sense.

And so development new-- the new
development pipeline has gone from four

percent of current inventory at its peak
in '22, '23 to about two point three

percent today, um, and is projected to
continue to decline and is continuing

to decline with a target of about one
and a half percent of current inventory

by twenty twenty-nine, twenty thirty.

means fewer new facilities coming
online an industry where demand is

very consistent and growing modestly.

It'll grow faster when the housing
market unlocks, but still growing.

And there's not a data point out there
that would tell you that there'll be

less demand for self-storage in five,
six, seven years than there is today.

So you put that together, decreasing
supply, increasing demand over time,

and it's a recipe for a seller's market
in that 2027 through 2031 maybe 2032

window And we started Fund 1 and then
immediately followed with Fund 2 because

we want to deploy as much capital into
that window as we possibly can, 'cause

we think it's a unique opportunity.

Um, And if you look at the, the time
frames in our funds, we start exiting

properties about year 3 or 4 after
the launch, and we exit everything

in a 6 7 year period because the
strategy behind the thesis is to

develop, stabilize, and sell these
assets, not hold them long term.

So Growth Fund 2 is positioned
to manufacture value, uh, through

the development process, exit
those assets, and create above

average returns for our investors.

And that's the whole story
behind Growth Fund 2 I love that.

So I, I love the thesis, by the way.

Brandon Giella: But j- give us, give us
an up- update on how things are going

with each individual property, if you will

Paul: So Growth Fund II launched, um,
we started the capital raise a little

bit earlier in 2025, but we actually
broke escrow and started making

investments, uh, in late November of 2025.

Um, so eight months ago.

Um, the first project was, uh,
land was acquired in December.

First two projects actually,
and started construction.

December's always a funny
month with the holidays.

It w- Once you get to the back
half of December, it's really

hard to g- you know, to get things
moving, uh, at the right pace.

So it's really January of this year,
uh, when, when we started construction

on the first three projects.

The first project was the
Huffmeister Self Storage facility.

It's about a 70,000 square foot
facility in Northwest Houston, uh, in

what we think is an excellent market.

Um, I wish I had the ability to
show you some pictures, um, some

aerial shots because it sits…

It is surrounded by a sea
of ro- of rooftops, um, and,

and a commercial corridor.

It's a great location.

That project, uh, will, um, complete
construction and CO, get its

certificate of occupancy, uh, in the
late September, October timeframe.

So really seven, eight months after we,
we got, you know, going with construction.

Um, and we'll start initial
lease up at that point.

Obviously, uh, Fund II is young enough,
you know, only seven, eight months in,

that we're not in lease up anywhere,
but we'll be in lease up, uh, on the

Huffmeister site, as well as a couple
of others before the end of this year.

But Huffmeister, Northwest Houston's
a great market, great location there.

Construction's going well.

We're on budget.

We're on target in terms of
time, and we'll, we'll be leasing

units at that facility here.

And our property management group's
already preparing and starting

some of the early marketing and,
um, and, and that type of thing

for the Huffmeister facility.

The, the second site that we activated
is in Buda, Texas, which is south of

the Austin Airport by a few miles,
right on an interstate corridor.

And it is both a self-storage and
business park or small-bay industrial.

Uh, two different projects on that
one site, which is typical for us.

When we can find a site that's a little
bit larger in the right market, we'll

actually split that site in two and do
a small-bay industrial park on one part

and a self-storage facility on the other.

Uh, the Buda Self Storage
and Business Park, we started

construction simultaneously.

Um, they are scheduled to CO also in
the October, early November timeframe,

about a month behind Huffmeister.

Uh, and they'll go into
initial phase one lease up.

Uh, we'll start the pre-marketing
probably in September, early October.

Uh, but it…

They'll, they'll be available to,
to rent, um, before the end of

Q4, about middle Q4 this year.

So, um, you know, from a, a standing start
at the beginning of the year, we'll have

three facilities in lease up, uh, before
the end of this year, and we're getting

ready to start, um, two additional fa-
Facilities, uh, in Elgin, Texas, which

is in Bastrop County, uh, east of Austin.

Um, a- and the Elgin market, we
think, is an excellent market.

The, the numbers all line up very well.

We have one of the best loans for the
Elgin project that I've seen since

the COVID era when rates were so low.

We've got an 80% loan to cost loan
with 36 months of interest-only

payments, a 25-year amortization
once the interest-only period is

over, a 10-year amortization…

I mean, excuse me, a 25-year amortization
on a 10-year term, so we've got 7

years beyond the interest-only period.

Um, everything about the loan is…

a- and including the rate,
which is, um, actually lower.

We, we typically are borrowed in this
environment at Wall Street Journal,

uh, plus 0, so today 6 and 3/4 percent

Brandon Giella: Hmm.

Paul: this loan's a tick
below that in terms of rate.

So, um, we're, we're really pleased
with the financing on that project,

and it will, uh, it will break ground

Uh, it'll definitely
break ground in September.

It's on the schedule.

It's, it's actually ready to start
now, but I think, uh, our guys are

just trying to mobilize, um, and,
and get ready to start the site work.

So we're progressing really well.

Uh, we're also getting ready to buy a, uh,
a second piece of land in Hutto, Texas.

Or excuse me, a, a fourth project,
a, fourth site, sixth project

in Hutto, Texas, um, which is
a really interesting story.

I think we were talking
about it earlier, Brandon.

It's a site that we originally,
uh, saw as being a combination of

self-storage and a small-bay industrial
park, just like Elgin is and Buda is.

Um, again, which is typical for us.

But as we watch that market
evolve, we, we've owned that

land for a couple of years.

We've been going through the deve-
pre-development and entitlement process.

Samsung built a, a massive chip plant,
uh, about a mile and a half from our site.

And so while we've been doing the
pre-development work, we watched

the evolution of that market.

And what's happened is there are of
vendors that are, that need space

that is convenient to the Samsung
chip plant because they're gonna

be serving that Samsung chip plant.

Um, whether it's HVAC contractor,
plumbing contractor, you know.

Um, even you mentioned your friend who
was in the, uh, plumbing supply business.

Our small-bay buildings would be
perfect for a plumbing supply business.

Little bit of office with a counter in the
front and, you know, 4,000, 5,000, 6,000,

8,000 square feet of warehouse and racks
in the back with all the plumbing parts.

Um, and so we flipped that
site to all small bay.

We actually are reserving a small
part of that parcel in the event…

We'll, we'll do one of two…

We'll, we'll do one of three
things with it down the road.

the market for storage is there and
we decide we don't want to build any

more small bay, we'll do a 60,000
square foot storage facility, uh,

like we originally planned More likely
than not, if the small bay goes as

well as we think it is, that will
become a third phase of the small bay.

We'll just expand the small
bay if the demand is there.

lastly, if we don't decide to do either
of those two things, um, we'll sell

that project with the excess land as
a value add that the new owner can

expand the facility down the road,
you know, when the market's ready.

So, um, I think either way, our investors
win, uh, and we think it's a great site.

So that is the six projects.

So we'll have six active projects
in year one, uh, of a fund that is

e-e-expected to have a total of eleven.

So we'll be ha- more than halfway
through the, the, uh, portfolio by the

end of this year, um, with a plan to
get five new starts next year so that

the fund's portfolio is, you know,
totally in lease-up mode or construction

lo- mode by the end of next year.

Uh, I won't go through
all the other sites.

Um, it'll, it'll take a little
bit of time, but I will talk

about the next site up after Hutto
is Blake Manor in Manor, Texas.

And Blake Manor, that site has the best
numbers from a market supply and demand

standpoint of anything in the portfolio.

It's, it's a site we have really
high expectations for, um, because

it's, it's the, the, the…

One of the, the data points we
look at is square foot per capita.

How much-- How many square feet of
storage per capita in the defined market,

remembering it's a hyper-local market.

So we're looking at a five-mile
radius of that site in this

case, not the entire market.

Um, but the numbers there are, uh, uh, I
won't be able to recall, and I don't think

I have them with me, but the, the per
capita, per square foot, foot per capita

numbers there are in the, between the four
and six range, uh, be- between climate

control and non-climate control units.

So that's a storage only, There's
no small bay project in addition to

that on that site, but we think it's
a project that's gonna come fast out

of the gate and, and do really well.

Um, so that gives you a rundown
of the six active projects in Fund

two and project number seven, which
will be early mid first quarter

of, uh, of twenty twenty-seven.

And, um, you know, our objective will
be, because Huffmeister was the first

project to complete and go into phase
one lease-up, you know, we're looking

at a, a sale of that project, um,
basically four years from January.

So you're talking about, you know, late
twenty twenty-nine, early twenty thirty,

right in that window where we think our
thesis is that it'll be a market with the

institutional, you know, buyers that are
out there and a supply and demand, um,

dynamic in the market that will be in our
favor as an owner/operator, that where we

can get, you know, above average value.

We've already seen cap rates.

Maybe that's the other thing to
talk about for a minute Storage

has been in a correction.

It bottomed probably, um, last year,
but it has bounced along the bottom.

But there's no s- you know, steep curve
back up in terms of rates and occupancy.

Occupancy's been consistent
across the industry at about

ninety, ninety-one percent.

Um, uh, but, but we, we're seeing
it kind of bounce along the bottom.

But what we are seeing is all
of a sudden the institutional

buyers are back in the market.

They've been really quiet
for the last several years.

Uh, but that's a signal to me that
we are in fact bouncing along the

bottom and getting ready to start
climbing up the other side because

they're, uh, aggressively deployed.

We, we had not sold a single project
out of our legacy portfolio since

2022 We We sold everything we could
sell in 2020 2021 one when the market

was hot as a two dollar pistol.

Um, but, uh, but we hadn't sold
a property since 2022 We've had

five closings since last fall,

Brandon Giella: Gosh, yeah

Paul: uh, uh, on properties that all,
all sold to institutional buyers.

So, um, it's a real interesting
market right now, and we think we're

positioned timing-wise just right, and
Growth Fund 2 is positioned just right

Brandon Giella: Sounds
like a lot of good news.

I know for somebody like you,
some of the best words you

can say is, "It's on budget.

It's on plan."

It's gotta feel so good
to say that, you know?

Paul: Yeah, and, and
we actually reviewed…

Now, these are Fund I projects because the
Fund II projects are not in lease-up yet.

Brandon Giella: Yeah

Paul: actually, uh, we had a board meeting
earlier today, and we were reviewing

the performance of the Fund I projects.

And without every one of the
Fund I projects, based on gross

revenue, is tracking ahead of
our models and our projections.

Um, some of them a little more
significantly than others, but all

of them are, are, are, are performing
above our modeled expectations.

So that's where we wanna be.

Um,

Brandon Giella: Love it

Paul: sell assets faster than we expect.

We're gonna get an exit, I think,
in Fund I three years in, and

typically we tell people four.

Brandon Giella: Mm-hmm.

Paul: Because we've got a business
park project in, uh, uh, in Georgetown,

Texas, um, that is today 82% leased.

All built out, 104,000 square feet, 82%
leased eight months after we CO'd it.

Brandon Giella: Amazing

Paul: uh, and we'll be,
I think, 100% leased.

We got a lot of interest leasing
activity there right now.

I think it'll be 100% leased before,
uh, by the time we get to the end of the

year, which means we'll be able to put
it on the market and sell it in Q1 2027.

So

Brandon Giella: Incredible.

Incredible.

Well

Paul: we, we, we, we really like
where we sit and, um, we're still

raising capital for Growth Fund II.

Uh, so there's…

the opportunity to invest with
us is not, uh, has not passed you

by if you're listening to this.

Um, and, uh, I would encourage you, uh,
you, you participate in all the projects.

Even though three of them are almost
complete, you'll have your pro rata

interest in those projects, so it's not
like you don't get to participate in

those because you came in l- a little bit
later than some of the other investors.

Um, so if you're, if you're looking for
an opportunity in self-storage and small

bay, particularly in the development,
which is fundamentally different.

I, I, I'm jumping around now,
but, you know, uh, uh, I can't

get into the whole explanation,
but understand that we manufacture

value in the development process.

We're not dependent on appreciation.

We are underwriting, um, to the returns
that we want based on the s- the, the

untrended yield these properties develop
versus their cost to construct, and

that's a whole different conversation.

Brandon Giella: Well, we have a lot of,
uh, great episodes on the website to

check out for yield on cost and talking
about development spreads and so on.

So if you want all the, m- m- you
know, dirty details on all that

kind of stuff, feel free to jump
in at aaastorageinvestments.com.

Go to the insights tab, and
you, you'll have your heyday

with enough resources there

Paul: Yeah, there,
there are a number of…

We've done a lot of discussions, and we
do a whole webinar on, on development

and how it's fundamentally different
than acquiring existing assets.

And driven by yield on cost and the
spread between the yields that we can

create as a developer based on the
cost of a project and the, the, the

way the market values those cash flow
streams from a cap rate standpoint.

Um, and it creates
basically built-in value.

Uh, we're, we're, we're
building a project for 16…

I mean, for $10 million that when we
stabilize it, is worth 16, um, be-

because the spread in the yields,
the yield on cost and, and, uh,

and what the market will value at.

But yeah, didn't mean
to get into that today.

You know me, I, I sort of always go there.

Brandon Giella: I love it.

Paul: focused on it.

Brandon Giella: I love it

Paul: Do go, do, do go to the website
and, and, and download the podcast or

go to YouTube or, or, uh, Spotify or,
or Apple and search for yield on cost.

And I'm not sure that we'll come up, but
I bet, I'd have a pretty decent bet that

we'll be in the top two or three results

Brandon Giella: Yeah, yeah.

There's a couple of good searches, uh,
where we're number one on Google, so yeah.

Um, yeah, so, uh, any other kind of
closing thoughts or things you wanna

leave investors with on the, the growth
fund too, and how things are going?

Paul: We're, we're super excited about
Growth Fund II and, and its potential.

We're targeting, uh, a, uh,
an internal rate of return.

We, we tend to measure time value rates of
return, not just annual rates of return.

But the projected, um, IRR on,
for Fund II is north of 20%.

Brandon Giella: Incredible

Paul: and so that's a, a, a
pretty attractive return, and it's

consistent with our track record.

Um, you know, across 92 full-cycle
deals, that's been our average return.

And I, uh, I think, like

Fund I, I'm sure Fund II will have a
project underperforms our expectation.

But the reason investing in a
multi-property vehicle, is so important

I can almost, with the same certainty,
promise you we'll have one or more

projects that exceed our expectation.

And what we're after is that blended
overall result that gives our

investors that IRR north of 20%.

So do visit the website.

Check out, uh, the podcast on yield
on cost or develop the spread or,

or get some other information.

And if you have an interest in
learning more about Growth Fund

II, there's a contact form there.

Fill it out and Andrew Frowine, our
director of investor relations, will…

Within 24 hours, we'll get you some in-
initial information on Growth Fund II and

then hopefully schedule a time to talk, so

Brandon Giella: Well,
Paul, thanks so much.

Thanks to your team doing all
this great research and analysts.

I know you guys are looking at all these
numbers all the time, so appreciate you

looking into those and sharing with us

Paul: Yep.

Always a fun, my friend

Brandon Giella: And we'll
see you all in the next one

Paul: Okay, take care