Outdoor Industrial Storage Fund with Hansel Rodriquez of COARE
If you’re looking for an alternative investment opportunity that’s well outside the usual suspects, this one is worth a look.
Industrial Outside Storage, think equipment or supply storage for companies that have large items to store or operate.
There are a few reasons this might be a good fit:
Fragmented Market: Over 80% of industrial outdoor storage assets are owned by non-institutional (mom and pop) operators. This creates tremendous potential for portfolio consolidation and value creation, especially with a current estimated $166B of deals out there.
Attractive Returns with Less Competition: By focusing on deals in the $1-10M range, there’s far less competition from institutional investors, allowing for cap rates north of 10%—a rarity in the real estate world, especially without leveraging debt.
Strong Fundamentals, Limited Supply: IOS sites are often hard to replicate, thanks to strict zoning and city limitations. This acts as a natural barrier to new supply and helps secure long-term value for investors.
If you’re an accredited investor looking to diversify with something truly unconventional—and income-focused—this fund deserves your attention. Listen to the full episode for all the details, and reach out if you want to discuss how this could fit into your portfolio.
Links:
Contact COARE - https://www.coareindustrial.com/
Take the quiz - How Alternative Assets Can Fit in Your Portfolio
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Introduction to the Unconventional Investor Podcast
Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.
Let's head into today's episode so you can start taking control of your financial future. Hello everyone and thank you so much for tuning in today. I am very excited about talking about this one 'cause it's a fund that I have.
Guest Introduction: Hansel Rodriguez and COARE Companies Honestly, I've never heard of anyone doing anything like this and we have Hansel Rodriguez here again to talk to us.
We had him on the show, I think about a month ago to talk about his mobile home community fund. And today we are gonna be talking about industrial outside storage. You wanna say hi Hansel for a second. Yeah. Hey. Hey everybody. Thank you for having me, Michelle. Hansel is the CEO of COARE Companies and it's an alternative asset manager focused on niche investment strategies.
And this is definitely niche. And prior to COARE, Hansel worked as an associate at East Still Secure, which is a premier real estate investment banking and investment sales firm. So thank you so much for coming on again. Yeah. No. Thank you Michelle. Okay, so as I said I am excited to hear about this 'cause I've never seen a fund that is in this.
And I think your mobile home community fund is actually very niche 'cause there's not a whole lot that do what you do.
Exploring Industrial Outside Storage
And so what is industrial outside storage? Yeah, no. And to give a little history too, the reason we got into the industrial business is it's still land at the end of the day.
So part of kind of the history of our firm, we started in manufactured housing. We've acquired north of 200 million of that asset class. Which is really just a land play on affordable housing, right? And so incomes industrial outdoor storage, which is think of, whereas in, mobile home park, you own the land.
A resident owns the house above it. In this business, we're buying land where we're catering to industrial tenants. We. So think of the companies like a United Rentals that has construction material or construction equipment for rentals, right? Building material storage, landscaping, pavers.
Where does that get stored? So a lot of times the guys that own those businesses. They get an enormous, dollar per acre savings on rent by storing it outside. So it's not necessary to store it inside versus putting it in a traditional warehouse. So very much a niche strategy. The idea being we will provide cash to owners that own these operating companies, right?
If you're a landscaping company and you bought the real estate, plus the company, we will do a sell lease back with you, give you a bunch of cash. Now we rent from you as an operator and we get the benefit of the real estate cash list. So now. Whereas in mobile home parks, it's become a little more institutional.
There's financing and there's a lot of, competitive investors out there and industrial outdoor storage. You couldn't even get bank debt two years ago. And the first actual exit from a operator that bought a lot of these community bought a lot of these assets and sold, just happened in the fall of last year, like true arms length sale.
Market Opportunities and Challenges
It's an exciting industry 'cause it's so new. There aren't many guys that have done it. So we think there's a lot of opportunity to buy and consolidate that, that industry. And I also feel like it's very early. We, our estimates say that north of 80% of the real estate that's out there is classified as outdoor storage is owned by non-institutional owners.
So we estimate that at about $166 billion worth of deals that can be done. Yeah. Very different than what we're used to in our traditional real estate asset class, like multifamily and other things. Yeah. But it is a land play at the end of the day. Well, and that's what I was so excited about is that I had never seen this before and I do think that the mobile, not that the mobile home park, 'cause there's like an arch of.
Of investment timeline. And you don't wanna be the last one in. Whereas this, I've never heard of this before, but I think it's genius because I do know many people that have had outdoor storage facilities and have gone to sell them. And it's just a really fragmented, it seems like a really fragmented market.
Am I correct in saying that you're just hoping to find a buyer? Yeah, no, look, I'll say that if you had done this five years ago, there pretty much was nobody to sell to, right? Like you'd have to sell to another operator that has a business that wants to buy or a very limited set of buyers.
Now there's probably five that are super competitive. But that's it. That's a very small number. When you compare that to yes, what we're used to in other industries now. But I will say, I mean as of two years ago, you could finally start to get debt financing on real estate for these assets.
And we just had our first exit. So there's a lot of people that are interested. But the other thing that I love about it is the largest investors have the same challenge that they do in every asset class. They can't do deals under $10million. So when we were doing our research about the industry, the biggest rub is that guys wanna enter the space, but they can't do anything.
Like one of the conversations we had with an institutional partner. We needed $15 million worth of deals to be able to present it to their investment committee. Right. I think the opportunity is doing deals one to 10 million. 'cause there we're getting to very attractive cap rates. Like in our first two deals we're getting to north of 10% cap rates, which I've just never seen in real estate.
Now they're small, right? They're very small transactions and we bought them all cash. But that's the exciting part of it. Like you, you don't see that in real estate very often. But yeah, it's very much early days. I think when I did take. A stab at trying to estimate how much capital's been raised.
It's and if it was all deployed tomorrow, it's something like three to 4% of the industry would be bought up assuming they bought everything tomorrow with the money race. Wow. So we've got, that would take 83% down to 79%. So there's so much to do. In terms of fragmentation, it's like the beginning of.
Like you are at the very beginning of whatever this investment time horizon would be. So yeah, this is exciting.
Investment Strategies and Value Creation
So what exactly is outdoor? Is it anything, is it anything that has to do with a business that has a lot to store? So the way it's coined, like the term that we use is that heavy industrial usage, right?
So in industrial there's sub buckets, right? There's your a hundred thousand plus square foot of warehouse space, that's gonna be like your Amazon warehouses. We know famously, right? Really beautiful big boxes in the middle of whatever MSA they're in. Small bay is like under a hundred thousand square feet, like you're in between.
Might have a little bit of outdoor storage, but have some warehouse space. The warehouse is more than the land though, typically. And it's a smaller warehouse to print than like your Amazon type boxes. And then you have industrial outdoor storage, which literally like, to put it in simple terms, just means the majority of the sites, if it's five acres.
Call it no more than 30 to 40% of it has any building. And the building's gonna be a small warehouse, bathroom, facilities maybe a small office. But it's the majority of the value is land. So if I'm an operator that needs a. No, but like when I think what people could picture is like with the metal recycling type places or something like that, that's what you, that would bean example. Yeah. Like you've got the little building and then there's just like a lot of land there, basically. Exactly. Okay. No, the easier way to think about, it's yeah, where does United Rentals, like if you were gonna rent equipment from United Rentals, where's that gonna get stored?
Landscaping companies like pavers landscaping, outdoor materials like you'd see in a building material yard that. That would be outdoor storage. Okay. Truck, where do you park your trucks? Your Amazon Sprinter vans, that would be considered industrial outdoor storage. So any storage that's outdoors.
And again, we use the term heavy from an a zoning perspective. 'cause the other thing we like about it too is it's very difficult to get a city to entitle that kind of use. It's arguably ugly, right? So that means there's barriers to building new
ones. You're, you have, if it's truck usage, you've got heavy trucks, diesel trucks driving through town, getting there, so it's just not a pretty use.So cities are very deliberate about how much land they'll even allow to have this kind of usage. And we love that because it means there's not gonna be a lot of new supply that'll compete with us in the future. And so really what you're interested in, obviously is the land, right? And then what is your end goal with this?
Is your end goal to package all of this and then sell it to institutional investors? Is that kind of what you're thinking? Correct. There is. Yeah, there's really two paths, right? So I think all the value in this industry is basically doing these one to 10 million deals, building a portfolio, call it 25 to 50 to a hundred million dollars of real estate, and then now you open up the size of buyers that can buy it.
Because today at a million dollars, the only, there's only maybe five guys, six guys that can buy that. And pay a, a reasonably good value, right? But now when you get to $50 million or larger, now you can attract the larger institutional investors who have a much cheaper cost of capital than we would have, and they would be a buyer for it.
We saw an industrial REIT that had never owned industrial outdoor storage that. Buy of a five and a quarter cap rate against what we're seeing at like north of eight and a half cap rates as we're buying individual. So there's a lot of, they're the big universe of buyers who can get it that big.
So the goal is either sell to one of those groups or have their equity come in and recap. The initial investors, right? Because regardless, we're gonna get bumped up in value and still provide a really good return to the investors. Okay. And as your, as an exit strategy, are you thinking that the whole fund would be purchased or would be bought out, or are you thinking something like an up read or something like that?
Yeah it'll definitely be a fund. If. If we can do much larger than just a couple hundred million, then I think that's where something like a public market execution would be exciting. There are no publicly traded REITs today in industrial outdoor storage, which I think is an exciting opportunity though.
I don't know that today's the time to go public. Yeah. And there's some guys that are big enough where they could justify it, but as we all know, it's a pretty tough environment just globally right now. That is a future discussion. I think simply we will buy it, we will, we'll raise the fund, we'll put the money out.
There will be a very large group of buyers that will want exposure to that portfolio, so long as we do the right thing in terms of identifying the right assets, right? Whether that's an insurance company, pension fund, whether it's private equity to be seen but there's gonna be a lot of appetite just given the size if we can hit our size target.
Okay. And are you, what about geographically all the locations? What's your goals there? So very different than housing. So here we plan really focusing on industrial footprint and what do I mean by that? Our tenants. If you think about an industrial outdoor storage user, their most important features are where are you relative to an interstate?
Where are you relative to a port? Where are you in relative to larger MSAs? So the way we think about industrial outdoor storage is we want land and places where there's not a lot of land, right? So think of like at yeah, think of Miami or Inland Empire Kearney New Jersey or New York now.
I think those markets are pretty competitive. I don't know that we'd be the most competitive there, but even here, like here in Phoenix would be one too. 'cause a lot of this stuff is down by the airport where nobody wants to go and yeah. Exactly. I could see you be a lot of mom and pops. And that's the thing, right?
So coming from housing, it's funny how different it is. So you, for housing, you wouldn't wanna go by the airport for industrial, that's fantastic. Because that means your airport's there, your key hubs for industrial or there your warehouses where you might be putting it for storage is all within close proximity to the airport, which is probably the most expensive thing to replicate if you ever wanted to replicate it.
So the, as like the land in Phoenix by the airport is pretty scarce because what is the availables there? But then you've got a lot of land that's off limits owned by some larger groups that will probably never sell the, whether it's the tribes or or federal land, whatever the case might be.
So that's the ideal, right? But in my head, I always think of like urban dense areas like Miami, where if you had five acres of industrial outdoor storage zone to land, there's nothing but density around it. So you cannot replicate that land. It'd be impossible to convince the city to tear down the building to put out outdoor storage again.
That's a key feature though. I don't think we'd be as competitive in markets like, some parts of the Midwest where there's a lot of land available and you could argue that you could justify getting entitlement for it. Okay. And how did you decide you wanted to do this?
Were you like doing research for your other fund and then this kind of came across as you were looking at other mom and pop and lands and the different Yeah. Lots and things like that, or. Look, at the end of the day, I'm a bit of a nerd when it comes to the investment, strategy side of it.
That's the funnest part for me. I had been around this for two years, frankly ,and, but at the time, maybe longer than that now, but at the time interest rates were fairly low. There was a lot of competition that wanted to enter this space, and I felt the cap rates just didn't make. What we've seen now is that cap rates have normalized.
A lot of the guys that shouldn't have been in it aren't in it anymore, and now you're seeing cap rates on a sale lease back at an eight cap, which is exciting tome, right? Like I don't think we should be priced on multifamily cap rates, which is what was happening two and a half years ago. But we are now priced as true industrial net lease real estate with an understanding of if it's investment grade quality, you get a lower cap rate.
If you're not investment grade, you geta higher cap rate. That's exciting, right? Especially in an environment like now where we don't know the future of interest rates and we do have concerns around where debt might be. So for us to buy at cap rates, that we could buy all cash and make really good dividends to investors.
Is exciting. But no I'd studied it for two, two and a half years, roughly two to two and a half years. And there's a guy that we [00:13:00] brought on Steven Barry. He had focused he had worked at a company called Zenith. I think they're the second largest operator of outdoor storage. We had talked about, going out and doing this for some time, but valuations didn't make sense.
And now we sit today at a time where it does, and we were able to close in our first two early this year which have been exciting to work on. And so Steven who's, leading that. He's done over 52 deals in the iOS space. Wow. So he knows the space pretty well. Yeah. Yeah. Okay.
And those, so these first two deals, that is the beginning of this fund, correct? We actually did that before the launch of the fund. Oh, okay. Yeah, and there's, I think a third that we'll wrap up before we, we truly get our first dollars in. We just launched the fund last week. But the ultimate goal is to basically deploy out of the fund because to the same point, right?
When you're doing one to 5 million deals to raise money per deal is to exhausting. So the real value is can we construct a healthy portfolio that investors would be excited about? And the best way to do that from a mechanism perspective is a fund. Yeah. I've had really good success with funds that, like what you're talking about, even in multifamily [00:14:00] when it's 5million or even 7 million and under, if there's funds that can specialize in that ,just because there aren't a lot of players.
That are able to, deploy capital and that amount, which I know, some of the listeners you guys are thinking, okay, that's like a lot of money, but in the institutional space and then when you're talking about like a fund, it's just really not that much money. They wanna deploy very large amounts of money at onetime and so doing anything $5 million and under it just isn't worth their time.
'cause there's a lot of due diligence and there's just a lot that goes into. Review, reviewing all of the deals. So anyway, I've had a lot of great success with returns on funds like this, so I'm again, very excited about your fund here. I think this is a great idea. So thank you.
Fund Details and Terms
Can we talk about like some of the basics, like your minimum investment and the, what, everything that's on your PPM?
Yeah, sure. No. It'll mirror exactly what we did with. H basically. And I'll touch on too, like what are we doing when we buy these things too, because I know this is a little unique. But [00:15:00] Oh, terms of fun. Oh you, do you wanna go, do you wanna go into that first of what you do after you buy 'em?
Let's do that first and then we can go into the terms. Yeah. Yeah, for sure. So just the way I rank value that we'll create the biggest value at the end of the day is the fact that we are buying individual properties at one to 10 million in size. And as Michelle said, I mean it's even talking to me, but it is true under 10, even $15 million, the appetite from large investors who have arguably the cheapest.
Cost of capital or have the lowest return expectations, it's just not there. They cannot spend the time on it. We, and we've talked to groups like that, like one in particular that said, literally we would, we love this strategy, gave us a term sheet for 25million. It was excited about it, but they're like, before we do anything though, we need $15 million worth of real estate to even be able to bring this up.
And, but just to give you like a flavor of how real that is. By buying one to 10 million and putting it into a portfolio that's larger than 15 million, we think that alone increases and creates a lot of value. The second thing we do is we may buy vacant sites. Like for example, we bought a deal in Orlando.
It was vacant, but every iOS site adjacent to it was leased. So we did an assumption of what the market rents are. So we bought the site, vacant, had the old tenant move out, and we basically released that site to a new user. We're in the middle of releasing it now, and by doing that, we get a huge mark to market on rents, right in that case, close to 40% higher.
Than what was in place or what would've been in place with the existing user. So that is a big value add. And then of course just managing from, so there's a thing called wall, right? So weighted average lease term if you buy one site and it's under three years of term left, you're not gonna be able to get a bank to finance it 'cause it's not enough maturity.
Usually they want five years or longer, right? So we may take deals where we'll buy it. There's only two years left on the lease. We will reten it in the second year. Now we've got a five year lease, and, but because it's the part of a portfolio, the portfolio itself could be larger than five years. We've just created a ton of value because as in that lease, you may know.
The value is all in a lease. So if there's no lease, you get a huge value, step up or basically you buy at a much better price because you've gotta do the work of releasing, right? And so our job is to match that and construct a portfolio that when we take it to a bank, it's financable, take it to a buyer.
It's exciting because of the amount of rental revenue. Left. So those are the three biggest value adds. We're not doing any kind of heavy development. We're really not trying to do super substantial value add. These are outdoor yards, so there's not much to be done anyway. If you had to do it, it'd be road paving, graveling, securing the perimeter with a fence, that sort of thing.
So plays on the fact that we like to stick to kinda low CapEx businesses or pieces of real estate. Where the management side is much less intensive. Yeah. Yeah that's the key pieces on the value add side. Okay. And are there any 'cause in our last episode I totally skipped over all the tax advantages.
Are there any tax advantages or anything that we need to be aware of with this? Oh, so now this one is truly, yield driven. Okay. The exciting thing about this one is just you are like, we are able to buy real estate and arguably get investors eight to 10% cash on cash without any debt.
Which is unheard of in real. So like our first two deals were trending north of that and we will put on debt as part of a refinancing, as a broader refinancing, but at the individual site level, we don't put on debt. So to be able to do 10 plus cash on cash in some instances on real estate without debt is unheard of.
And we think also given the environment we're in. That's incredibly exciting, right? Because there's not gonna be a bunch of financial risks as you would otherwise have if we took on like bridge debt or floating rate debt. Which is what would be required at those deal size. Yeah.
But tax advantage is very limited. There's not the kind of depreciation we have on though. Yeah. On the mobile side. Yeah. But so it's a pure like income play basically. Yeah, correct. Yep. And very good one. Appreciation on the ex. Yeah. Very good one, everybody. Okay, so now let's go over, let's go over the terms of, and Sure.
Your minimum investment and what, if you've got a waterfall feature and all that kind of stuff. Yeah, so it's a hundred percent return of capital to investors first. And then a minimum 8% pref. And then our goal is to return capital, so you get all your money back, plus an eight pref. Then after that, it's a 70 30 split.
And then our management fees are 4% on rental revenue, which is our, kinda like our property management fee. And then we charge a 2% acquisition fee at the close of each transaction. And then no, no equity management fees or asset management fees. And that was one of my questions. Okay. 'cause when I was looking at your fees, I thought 4% was a lot.
But if you're not having any of the other fees then that would make sense. Exactly. Yeah. No, we're just it's off of revenue and it's we're not doing any equity management fees or asset management fees. Okay. There's a, our incentive is aligned with the LP in the sense that we want to be able to either do the best exit or recap that we can.
So that's why we structure our incentives that way. Okay. And then is the minimum 50 minimum, sorry, I should know that off the top of my head. That's all right. The minimum is a hundred. Okay. But we but all that is said, obviously if it's part of a group like in, which might be the case in yours, we can have a discussion about it.
Okay. But we are gearing towards a hundred. Okay. It's a hundred thousand dollars minimum. And then basically what everything that he says means you guys, in case. I know we're throwing around a lot of terms is that until that the fund cannot technically make money like as a profit until you get your return of equity plus an 8% return every single year.
Is it every year? That's that's right. 8%. If we can't pay it for any reason, it accrues. Yes. And it to, we have to catch it up when we sell. Yeah. And so then you have to catch it up. So then once you reach that point, then the split of the profits is 70 30. So the investor, you would get 70%. And then co r companies gets 30%.
Am I explaining that right? Okay. That's right. So just so that you get, I'm just a little bit slower on all of that, and when you're not around all these deals, sometimes we're throwing out all these things, but that's essentially how a lot of these work is that you get what they call a preferred return.
And until you reach that preferred return, they're not allowed to take the profits and win. And then when they do, it's usually split 70 30 or 80 20. And I do see a lot of 70 30 splits in self storage manufactured housing and, situations like this. Whereas when you're doing like multifamily or office buildings, a lot of times the split is 80 20.
So this is pretty much like in line with a lot of the other. Funds out there. It's just a function of, and that's just a function of deal sizes. Since the fund itself is fairly small, we're targeting 25, we might hit up to 50 million. But the, at those at those dollar amounts, it's yeah, as it's just much smaller than like multi office, right?
Yeah. So you have to charge a higher percent. Am I missing anything about your fund? I think this sounds pretty straightforward and like something that everyone would understand of how it works. Yeah, no, look, the only other thing I'll mention is it is an exciting time to be a buyer in this type of real estate, if you think about it, right?
A lot of companies right now are trying to find ways to get cash right? So especially asset intensive businesses like in, distribution freight guys that own trucking companies. So it's an ideal scenario for real estate buyers because we're coming into the owner and saying, Hey, you own your business, but here's a couple million dollars.
For the real estate and we're gonna let, we want you to rent it. So from a buyer landscape perspective it's actually a very exciting time. Which is why we're in a bit of a rush to, to fundraise. 'Cause we do see, we're seeing a lot of opportunities now that you normally, we were not seeing two and a half years ago when we were first talking about it.
Loved the strategy, but certainly wasn't the right time to buy Now. There's a lot of need for liquidity. And we're hoping to, that this would be a good way for them to be sale stacks. Yeah. No, I could see that this would help a lot of businesses especially in that price range, that they would have a hard time selling to the right person.
Yeah. I think this sounds wonderful. I'm excited to talk to people about this fund. Thank you. I'm glad to hear it's the first time you've heard of it. That's awesome. Yeah, I and I read a lot of deals and go to a lot of conferences and when I was reading about this one I was like, oh boy, this is a good niche right here.
Wait till you see the picture of what these sites look like. It is. Yeah. There it's definitely like industrial. Yeah. You have to, shit. I have been, my next door neighbor actually owned a lot like this and here in Phoenix and oh really? It took a year to sell it. And it was. He was renting it to, it was, I think, metal like recycling or, like storage.
And it took a lot to get it, it's not like you can zone it for different things and it was right up against railroad tracks. There's just a lot of complications with some of these pieces of land and not everybody's gonna wanna buy them. Yeah, that's true. I think this is a great niche and I'm really glad that you came on to tell us about it.
Awesome. Thank you for having Michelle. Seriously. Okay, thankyou so much. And you guys Hansel's information or COARE information will be in the show notes. I'm also gonna reference the mobile home community, or I know you guys you call it manufactured housing, but most people can mobile home communities.
Yeah. I'm gonna reference that also in the show notes so that you can hear about both of the funds that COARE does. And let us know if you have any questions. We would be happy to help. So thank you again for being on Hansel. Sorry. No, no problem. Thank you for having me.
Conclusion and Contact Information
Thank you for listening to the Unconventional Investor Podcast.
I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contactus to book a 15 minute consult call with me.
Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.