One of the great sayings credited to Yogi Berra, the great New York Yankee Hall of Fame catcher, is “if you come to a fork in the road, take it.” With the “Great Wait” coming to an end soon and the proverbial fork in the road approaches, what will you do? Post pandemic investors proceeded slowly and cautiously delaying the inevitable choice that must be made when facing the fork. Now that the fork is approaching, it’s incumbent to ask, “which way do I go?" Do I stay on the path with the product I have relied on, like office, retail, industrial, ect. or do I redirect? In that choice resides destiny and a future which may, or not, be filled with success and abundance.

There are many paths an investor can take in the commercial real estate space. If you want to be in the game, you must take one, or else you are not in the game. Many paths present great opportunities. Several are facing severe challenges right now. Yogi also said, “the future ain’t what it used to be”. I am not sure if Yogi’s prescience was meant to be directed at commercial real estate, but the near (if not long term) future of commercial real estate “ain’t what it used to be.” Nearly every major asset class is faced with significant headwinds. Commercial real estate used to be about places where things happened and stuff got done, be it at the office, a factory or warehouse, your home, a restaurant, a store, or a hotel . Now, almost all those things can be done from virtually anywhere. Office is faced with an unprecedented demand / supply imbalance and obsolescence challenges. Corion estimates that somewhere between 30% to 40% of all office will be gone over the next 5-10 years. The future of office is filled with pain and capital destruction for all but the best of the best. Retail is undergoing dramatic change in its service delivery model with ecommerce. Except for a few large warehouse formats, retail space is shrinking, and old large spaces are obsolete. Entertainment venues are experiencing significant labor shortages and inflationary costs and exigent risk from AR, technology and home theater and entertainment products. Restaurants are being hit with rising costs for both food and labor and a multitude of new regulations. Residential costs and expenses are soaring, and many of their capital structures are broken with business models that predicted continued rent growth and low interest rates, both of which have evaporated for the foreseeable future. Compounding the capital structure duress is a huge oversupply of in many markets right now. Owners are handing back the keys to new product where rents have remained flat or fallen and refinancing costs have evaporated equity. Hotel demand is very spotty and facing entirely new competitors (AirBNB, VRBO, etc.) that did not exist just 10 years ago.

What path should one take when the future “ain’t what is used to be?” Perhaps the answer lies in taking a deeper look into what the future of what WILL be for real space as the metaverse increasingly pervades every aspect of daily life exposing purpose and experience as the new omnipotent drivers of creating measurable value in commercial real estate. Future demand for space will focus on choices, not obligations. Every act one does, every choice one makes will be monitored, measured, and evaluated. Information will be ubiquitous, but discernment illusive as mathematical models takeover decision making. Corporations and institutions will use these models to guide human behavior as never before. There will be less “me” space and more “we” space. The quality of life will become more greatly controlled and homogenized for the masses. Technology has and will continue to profoundly change every aspect of commercial real estate from the workplace, housing, healthcare, information systems, purchasing goods and services, travel and entertainment, and the distribution and storage of products.

Although this future may appear bleak for investing in commercial real estate, it does not have to be so. To be sure, there will be a significant reset in values across all major asset classes. Carefully deploying capital into sectors with established demand and favorable supply dynamics should be a very profitable allocation strategy. That said, if value in real estate is fundamentally all about supply and demand, one would be wise to consider what will be in short supply and high demand in this technology driven future. If the major asset classes are being negatively impacted, perhaps it’s time to consider “alternative” assets, such as data centers and self-storage. Data centers are a very narrow niche the requires a high level of sophistication and industry knowledge not to mention a significant amount of capital investment to get started. Hence, it is more of an institutional capital play. Self-storage, on the other hand, does not and is therefore ideally suited to private capital investing. Like neighborhood retail, self-storage is a retail service product closely correlated to housing demand and transactions.

Americans love their stuff and do not want to part with it. As the national GDP grows (over 25 trillion), the world largest consumer economy has an insatiable appetite to buy things all the while homes and apartments are getting smaller and smaller to make them affordable. So, there is precious little space to store stuff that has accumulated over the years. From athletic equipment seldom used, to coolers and lamps and picture frames and old desks, skis, kids’ college stuff, Christmas decorations and more, we just do not want to part with our things, even though the value of those things is usually far exceeded by the cost to store them.

When I built my first self-storage facility over 50 years in the summer of 1972 for my father, I asked my brother as we were hand drilling and riveting the corrugated steel partitions, sweating profusely in 110-degree heat, why would anyone want to put their belongings in a storage facility? I recall that I was not the only one asking that question. My father had to build it for cash because he could not get a bank loan. Hence, he used the slave labor of me and my brother paying us $1.50 an hour. Flash forward to the future 50 years and there now are well over a hundred public self-storage companies in the US and countless private companies and investors that own almost 50,000 facilities.

People move on average every 5 years from the ages of 18-45. Apartment turnover is as much as 50% per year in many apartment communities. Americans no longer must live where they work. As noted above, the future is about choices and Americans are making the choice to live in smaller spaces and continue to be the world consumer leader in buying stuff. Moving and storing stuff will continue to be a big part of the future. Additionally, self-storage continues to be undersupplied due to high barriers to entry, particularly in high growth suburban and urban locations where the new supply of housing is costly and new homes are small with minimal closet space for storing infrequently used items. Self-storage also has high demand resiliency and solid supply / demand fundamentals with less than 10% vacancy as well as very low ongoing operational and capital costs. Once occupancy is stabilized, it remains stabilized while operating performance grows measurably and sustainably with inflation.

Our family has believed in self-storage for over 50 years. Corion is facing the fork by choosing to continue this legacy through our private investment platform Corion Capital Partners, as sponsor, of a brand new “no-key”, highly automated self-storage facility in the rapidly growing community of Beaumont / Cherry valley in Riverside County, CA. Cherry Vally Storage is a 98,000 sf (859 units) grade level facility on 5 acres with 151 RV Spaces on 3.38 acres. Proforma returns are over 9.5% return on cost, a 2.5 equity multiple and a leveraged IRR over 23.0%, based on a debt/equity capitalization ratio of 50%. We are very excited about this opportunity and look forward to speaking to you soon if there is interest. Please visit our website (https://www.corionenterprises.com/corion-capital-partners) to learn more about this very special fork in the road we have chosen.

Sincerely, Fred