Question #
What financial incentives might lead fund managers to prioritize deal-making over generating stable returns?
Answer #
Their immediate need is moving money into storage.
So they built, and they built.
They built as large as they could.
Now, we are overbuilt in many markets.
Another problem I have seen with many of these funds is that the managers are personally incentivized financially to do deals with how their compensation comes.
Primarily in the form of acquisition fees, or fees to get deals in service.
Many funds make a large percentage of their profits upfront.
But investors benefit from the profits generated from the cash flow of a stabilized operating facility, which is often years after the fund managers have made their profits.
These facts are, in my opinion, a big reason for the extraordinary amount of storage inventory that hit the market over the last fifteen years.
Now I raise capital for deals, so I am not a socialist or communist, as is being bandied about today by many from the far right.
But I do try to make each deal stand on its own and generate an above-market return for my investors and/or partners.
That is the main reason I decided not to be a fund manager, because I didn’t want the responsibility of having to deploy large amounts of capital into storage.
I realized I couldn’t generate the same returns we are getting consistently if I have to deploy that much money.
But I have looked closely at the practices many funds use to raise capital.
For many, they just need to have a Proforma that generates an above-market return.
