Reflecting on 2022
At Spartan Investment Group, our values are defined by our GRITT: Growth, Respect, Integrity, Tenacity and Transparency. Having GRITT has never been more critical than ever during 2022. As inflation and interest rates soared, we faced unique challenges and made tough decisions.
Looking back over the past year, we're reflecting on how we continued to move the needle for our investors, while building a rock solid foundation for 2023.
Let’s look at some 2022 highlights, lessons learned and a sneak peek ahead.
Strengthening FreeUp Storage
This year, we've continued to build the FreeUp brand through facility improvements, enhanced marketing efforts and strategic hires.
We delivered a new 54,000-square-foot facility in November as part of our FreeUp Storage DFW Portfolio, with these units delivering investor value. We also continued to decrease delinquency portfolio-wide, reduced our discount rate and renovated commercial spaces — all of which will lead to higher rentability.
While our Southeast Portfolio took some time to gain momentum, now we’re cooking with gas. In October, we completed our Fortson, GA expansion, adding 18,000 square feet of climate-controlled storage units in this high-demand market. We recently sold the improved property in Centerville, TN for an 89% project level return within 18 months of acquisition.
Spartan Construction Management (SCM) has managed the construction process across our portfolio ahead of schedule despite supply chain issues that disrupted the entire industry. Our vertically integrated approach has positioned our investors for success, as our control of the value chain has benefited the FreeUp properties.
In total, SCM delivered 188,500 square feet of construction (well over 1,000 new units) across three states and six projects. Delivering in demand units added tremendous value to our inventors. Specifically, construction deliveries benefited the Boardwalk, Tyler Longview, Southeast, and DFW Portfolios. Additionally, our Sandy and Huntsville investments benefit from SCM construction deliveries.
Recruiting & Retaining Top Talent
This year has emphasized the importance of investing in solid corporate infrastructure. It’s no secret that finding and retaining top talent at the facility-level has been a challenge — for FreeUp and the entire industry. Spartan’s Director of People Whitney Hamm has supercharged our recruiting efforts, building her people team, expediting hiring and ensuring effective training of high-quality people at key FreeUp properties. As Field Operations Manager, David Welsh brings REIT expertise to the team, and Stephen Jeffers, our latest strategic hire, is laser focused on the DFW Portfolio as Western Regional Manager.
Adjusting Our Underwriting
We have faced recessions before, but today's global economy is unique. Geopolitical upheaval continues to wreak havoc in energy markets. The war in Ukraine has led to a worldwide food crisis. And climate change is causing water channels for shipping lines to dry up and forcing farmers to cut their production.
At Spartan, we've adapted our underwriting model to reflect the realities of today's economic landscape — including a looming cap rate expansion and rising insurance prices. Rather than attempting to lure investors in with flashy projections, we provide conservative, transparent predictions and clear information on how we reached our forecast.
Capital Markets Got It Done
Spartan took out $166M in loans to fund our portfolio this year. The rise in rates meant we needed to be smart about negotiating competitive funding that would protect our bottom line. Luckily, our team was primed for the challenge.
In 2021, our average fixed rate on a loan was 3.88%. In 2022, that figure rose to 5.63%. Contrast that with the interest rate hikes imposed by the Federal Reserve, and Spartan came out ahead. Between 2021 and 2022, Spartan's interest rates rose by 1.75 percentage points against a 3.75 percentage point increase in the Fed Funds rate.
At the end of the day, our capital markets team got 26 deals done in a highly challenging environment.
Launching Spartan Storage Fund 1
When we launched Spartan Storage Fund 1 earlier this year, we planned to buy $400M in facilities. However, as interest rates climbed, we metered our approach, focusing on six high-quality acquisitions with fixed-interest rate loans.
This $64M portfolio is already generating returns for our early investors, with distributions for our fourth and fifth tranches of funding estimated to begin in early 2023.
After successfully closing the Fund this month, we'll be applying everything we've learned to the launch of Spartan Storage Income fund next year with a continued focus on cash flowing facilities.
While 2022 had no shortage of challenges, we are so proud to have completed our 2020-2022 strategic plan with 100% of our goals achieved — a credit to the incredibly hard work of our dedicated team.
We are sure to meet new economic headwinds in 2023. At Spartan, we'll keep doing what we do best. We will follow our simple, sustainable philosophy of focusing on red-hot markets, well-located facilities and high-quality assets.
We will approach each deal with caution and evaluate every acquisition against our rigorous due diligence checklist. Most importantly, we will continue to prioritize our investors in every decision.
In January, we’re unveiling our NEXT 3-year strategic plan. We can’t wait to pull back the curtain on what’s next for Spartan Investment Group.
For now, from all of us at Spartan, thank you for being a part of our investor community, and Happy New Year!