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95
Total Projects Exited
Since 1993, 28 since 2021
29.0%
IRR
Net of Fees and Carried Interest
3.3x
Equity Multiple
Weighted Average Project
6M
Rentable Sq Ft
Developed
Fund overview
Direct Equity Source is proud to offer the DES Storage Income Fund 2, a diversified investment fund that will develop self-storage and small bay office/warehouse flex developments in high-growth markets.
Key highlights of the investment opportunity include:
The Fund offers investors the opportunity to participate in the development of an identified and diversified portfolio of self-storage and office/warehouse flex properties with an experienced and successful developer. AAA will contribute between 20-25% of the total equity capital of the Fund on their operated properties and expects to guarantee all property-level debt.
AAA, our primary developer/operator, has over 32 years of experience and a history of providing an average internal rate of return to investors of 19-29%.
An identified pool of entitled development sites in Texas, North Carolina, Washington, and Florida that will be ready to begin development when acquired by the Fund.
A growth strategy intended to leverage the value created by the strong yield on cost in self-storage and office/warehouse, which drives above-average returns for development of these property types.
The life-of-fund objective is 6-8 years, and the target return is a 19-29% IRR, consistent with our track record. Proceeds from the sale of each property will be distributed to investors in the year they are sold.
The Self-Storage Industry
Growing demand for storage units:
According to Grandview Research, the self-storage industry in the United States is projected to grow at an annualized rate of 5.9% over the five years from 2025 to 2030. The demand for self-storage has been growing steadily over the past decade as people accumulate more possessions and living spaces become smaller.
High occupancy rates:
The self-storage industry has consistently high occupancy rates. According to the Self-Storage Association (SSA), the national occupancy rate for self-storage facilities in the United States is approximately 90%. This indicates a strong demand for storage units.
Resilience during economic downturns:
Self-storage has proven to be resilient during economic downturns. According to the National Association of Real Estate Investment Trusts (NAREIT), the self-storage sector had an average annual total return of 17.43% from 1994 to 2019, compared to 10.18% for the S&P 500 index. During the Great Recession, self-storage REITs outperformed all other real estate sectors.
Favorable demographics:
The aging of the baby boomer generation has led to an increased demand for storage units as baby boomers downsize. In addition, millennials and Generation Z are increasingly using self-storage as they transition into adulthood and today represent approximately 27% of self-storage customers. As a result, demand for self-storage facilities has continued to exceed supply and, on average, existing storage facilities increased in value by approximately 133% during the 10-year period from 2012 to 2022.
Institutional Investment:
There has been a significant increase in the acquisition of existing facilities by institutional investors over the last 5-8 years. This influx of institutional capital has driven premium valuations for well-located and well-built properties.
Office/Warehouse Flex Business Parks
Office/Warehouse Overview
Office/warehouse flex space combines office and warehouse spaces in single story buildings. Its versatility supports a wide range of uses including companies in the construction, home services, manufacturing, e-commerce, logistics and medical industries. Its wide range of users provides a larger population of potential tenants, and therefore supports quick lease up, stable economics and strong cash flows.
Increased demand for e-commerce:
The COVID-19 pandemic accelerated the shift towards e-commerce, which has increased demand for office/warehouse flex space. According to CBRE, e-commerce sales are projected to reach $1.5 trillion by 2026, which will continue to drive demand for warehouse space.
Rising demand for last-mile delivery:
The growth of e-commerce has also increased the need for last-mile delivery. This has led to increased demand for office/warehouse flex space that are located in urban areas, which are closer to customers.
High occupancy rates:
The office/warehouse flex space sector has maintained historically high occupancy rates. According to JLL, the national vacancy rate for this sector was 3.9% in the first quarter of 2025, which is lower than the overall industrial vacancy rate of 6.3%. This indicates a strong demand for this type of space.
Resilience during economic downturns:
Office/warehouse flex space has proven to be resilient during economic downturns. According to NAREIT, industrial REITs had an average annual total return of 11.28% from 1994 to 2019, which is higher than the overall REIT average of 9.87%. During the COVID-19 pandemic, industrial REITs outperformed other REIT sectors.
The Fund will develop office/warehouse flex space on land adjacent to its self-storage facilities when market conditions, demand, and property size allow. Developing both property types on the site allows the site and infrastructure costs to be shared and improves the overall cost efficiency of development.
Strategic Advantages
Experienced Sponsor with Successful Track Record
Our primary developer/operator, AAA Storage, has developed over 6,000,000 square feet of self-storage and office/warehouse flex space with a value in excess of $450,000,000. AAA's average internal rate of return to investors across 95 full-cycle projects is 19-29% annually. They will invest a minimum of 20-25% of the total capital raised by the Fund on terms identical to investors and expect to guarantee all property-level debt, which is anticipated to be approximately $60,000,000.
Property Acquisition
As a result of its long history and relationships, our operator has been able to consistently develop proprietary and off-market land opportunities. The Fund will acquire development sites from an affiliate of the Sponsor that are entitled and ready for development. This eliminates the substantial risks and time associated with acquiring raw/untitled land for development.
Development/Construction
The developer utilizes a value engineering approach to reduce construction costs, maximize project density, and optimize return on cost for each property. The developer has a dedicated team of contractors and construction crews that build all projects developed by the Sponsor in the state of Texas. The Fund's NC project will be built by a third-party general contractor. This experienced team has consistently delivered projects below market costs and in shorter timeframes than third-party contractors and construction crews.
Property Leasing and Management
An affiliate of the developer will provide leasing and property management services for each of the Fund's self-storage facilities at market rates. The developer's dedicated property management team has extensive experience in new facility lease-up. The developer engages local leasing agents to market and lease the office/warehouse flex space. Local leasing agents provide market knowledge and faster, more efficient initial property lease-up.
Property Disposition
The developer has exited 95 properties and is well known by institutional and private buyers across the industry. As a result, the Fund may be able to exit properties without the cost of a third-party real estate agent.
AAA Storage's cost-to-exit ratio across all completed projects is 62%, one of the best project margins in the industry.
Summary of Fund Terms
Fund Size
Up to $30,000,000
Total Net Return Objective
19-29% IRR or 2.5x-3x equity multiple
Distributions
• 12% fixed annual dividend during hold period, prorated based on investment timing (1% monthly)
Management Fee
• 3.5% of committed capital one time
• There will be no annual management fees charged to the Fund
Distribution waterfall
• First – 12% fixed annual dividend during the entire hold period
• Second – 90% to investors and 10% to manager on additional returns above the fixed 12% dividend
Distribution Targets
• January distribution for 12% fixed dividend, and additional revenue from any property net cash flows/sale event
• Target individual project time: 3 to 4 years
Investment Opportunity & Strategy
The yield on costs (NOI vs. cost to construct) in self-storage and office warehouse development exceeds all other sectors in real estate, and supports significant value creation. This fact combined with the historical NOI growth in both sectors makes the development of self-storage and office/warehouse properties an attractive investment.
Track Record and Experience
AAA Storage LLC and its affiliates began developing self-storage facilities in 1993 and since its inception have developed and exited 95 properties totaling approximately 6 million square feet with a value in excess of $450,000,000. The Sponsor is an integrated real estate company providing land acquisition and entitlement, site planning, development, construction management and property management services. This integrated approach utilizing dedicated contractors and construction crews allows the Sponsor to optimize a site's potential, control costs during development, and provide above-average potential returns to investors.
$450M+
Total value of projects exited
$125M
Returned gains to investors
Portfolio & Performance
Strategy Comparison
The Operator's 32+ year history and 95 exited projects have been analyzed in four groups to show performance across various strategies and economic periods.
| Strategy Comparison | Pre 2011 | 2008/2009 | Post 2011 | All Time |
|---|---|---|---|---|
| Strategy Mix (Income/Growth) | 50/50 | 50/50 | 0/100 | 35/65 |
| # of Projects | 60 | 39 | 35 | 95 |
| Weighted Avg. Proj. Equity Multiple* | 3.5x | 4.0x | 3.1x | 3.3x |
| Weighted Avg. Hold (Years)* | 8.7 | 10.9 | 3.3 | 6.3 |
| Investor IRR* | 18.00% | 13.80% | 33.10% | 19.00% |
(Pre 2011 and Post 2011 are grouped by syndication date. The 2008/2009 group represents all projects syndicated before 2009 which were still being held during 2009 and after.)
*Averages weighted by project equity Net of fees/promote
DES Storage Income Fund FAQ
What is the DES Storage Income Fund?
The DES Storage Income Fund, LLC is a private direct equity investment opportunity offered through Magnolia Ridge Capital in partnership with Direct Equity Source (DES) and experienced operators like AAA Storage. It provides qualified passive investors access to a diversified portfolio of new-construction self-storage facilities and small bay office/warehouse flex properties. The strategy emphasizes acquisition, development, lease-up, stabilization, and eventual sale in high-growth U.S. markets, with a heavy focus on Texas (e.g., areas around Austin, Houston, San Antonio) and select exposure in North Carolina, Florida, and others.
What types of properties does the fund target?
Primarily new-construction, single-story, drive-up self-storage (climate-controlled) and adjacent small bay industrial/flex space (typically ~5,000 sq ft bays with ~1,500 sq ft office and ~3,500 sq ft warehouse, featuring roll-up doors). Funds allocate roughly 60% to self-storage and 40% to small bay (with potential future shifts toward more small bay based on performance). These are slab-on-grade metal buildings in "city skirt" markets near major metros, avoiding high-cost multi-story facilities.
What are the expected returns?
Investors target a fixed 12% annual dividend, paid consistently. Historically, the operator (AAA Storage) has delivered an average 20% IRR (time-weighted, net of fees and promote) across 90 full-cycle projects through various economic cycles (including the Great Recession, dot-com bubble, and COVID). Portfolio diversification helps smooth results—individual projects range from low-to-mid teens to mid-30s IRR, averaging ~20%. Returns stem from strong yield on cost (9.5% self-storage, 10.5% small bay) plus a ~400 basis point development spread to market cap rates, often achieving 3:1 equity multiples over 3.5-4 years.
Who is the operator/developer?
The primary operator is AAA Storage, with 33 years of experience (slightly updated from prior references). They have completed 90 full-cycle projects (development through stabilization and sale), delivering millions of square feet and strong risk-adjusted returns. In partnership with DES, they've collaborated on 22-23 developments. AAA emphasizes transparency, on-time delivery, and thorough market due diligence (e.g., 142-page market analyses).
How does the fund reduce risk?
Key mitigations include:
- Operator (AAA) contributes 8-22.5% of equity per deal (skin in the game, same terms as investors—no management fees on their capital).
- AAA personally guarantees all construction debt (over $100M across projects).
- Diversification across multiple properties, markets, and asset types (self-storage for short-term resilience, small bay for longer 3-5 year triple-net leases with escalations).
- New construction lowers cost basis (~$100-105/sq ft vs. higher for existing or multi-story), providing a buffer against delays or market shifts.
- Rigorous site selection avoids oversupply.
What projects are included or planned?
The fund focuses on high-growth "city skirt" locations, such as Georgetown and Buda (near Austin), Arcola (near Houston), San Antonio, Charlotte (NC), and others. Examples include Green Valley Self-Storage & Business Park (Cibolo, TX), FM 3405 Self Storage & Business Park (Georgetown, TX), US 183 Self Storage & Business Park (Austin, TX), Palmetto Self-Storage (FL), Gastonia Self Storage & Business Park (NC), and more. Projects often pre-lease significantly (e.g., 70% in some cases before completion).
Who can invest?
This is a private offering available only to qualified investors (as defined under securities regulations). It requires reviewing the Confidential Private Placement Memorandum (PPM). Subscriptions are open to individuals and entities (e.g., LLCs, trusts, IRAs).
What is the minimum investment?
The minimum investment is $50,000 for qualified investors. Final terms are outlined in the PPM and Subscription Agreement.
How do I invest or get started?
1. Review the PPM (provided upon request after qualification).
2. Choose the appropriate Subscription Agreement (for Individuals or for Entities).
3. Submit signed documents and funds as directed. Contact Magnolia Ridge Capital or DES for the PPM, accreditation verification, or questions. This is not an offer to sell securities without the PPM.
What are the risks?
Investing involves significant risks, including potential total loss of principal. Risks include market shifts, development/construction delays, slower-than-expected lease-up, interest rate changes, oversupply in specific markets, occupancy fluctuations, and general real estate/economic factors. While the operator's track record shows resilience, no investment is guaranteed—full risk factors are detailed in the PPM. This is suitable only for those who can afford to lose their investment and have the sophistication to evaluate private offerings.
Is this a guaranteed investment?
No. The fixed 12% dividend and ~20% average IRR are targeted based on historical performance and structure, but actual results depend on execution, market conditions, and other variables. Past performance is not a guarantee of future results.
Why choose new construction over buying existing facilities?
New construction offers lower cost basis (~$100-105/sq ft), better value creation through development spreads, and reduced risk in high-interest or oversupplied markets compared to acquiring stabilized properties at higher cap rates. It also allows for modern, efficient designs (e.g., no sprinklers/elevators in self-storage) and strategic site selection.
Why include small bay office/warehouse flex?
Small bay properties meet growing demand from home services, last-mile logistics, e-commerce, internet businesses, and emerging uses (e.g., pickleball or gymnastics facilities). They provide stable, longer-term income via triple-net leases with escalations, shielding against rising taxes/insurance, and complement self-storage's shorter-term rentals for blended portfolio strength.
What drives demand in self-storage and small bay?
Self-storage benefits from high nationwide occupancy (~98% post-COVID), driven by life events, smaller living spaces, and demographic trends. Small bay sees ~97% average occupancy due to constrained supply and diverse tenant needs. Strategic market analysis avoids oversaturation.
How is this different from public REITs or single-property deals?
Unlike public REITs, this provides direct equity in specific new-construction developments with strong operator alignment (significant sponsor equity + debt guarantees) and potential for higher targeted IRRs through value-add. Unlike single-property investments, fund structure diversifies across 20+ projects, reducing the impact of any one underperformer.
Where can I learn more?
Request the full PPM and project details from Magnolia Ridge Capital. Watch educational videos like the DES interview with AAA Storage for insights on due diligence. All investments require careful review of offering documents. This page is for informational purposes only and not legal, tax, or investment advice.
Ready to Diversify Your Portfolio?
Join experienced investors in the DES Storage Income Fund 2 and access proven real estate investment opportunities with a track record of 19-29% IRR.
Disclaimer
The information contained herein is provided to you on a confidential basis at your request for informational purposes only and may not be relied on in any manner as legal, tax or investment advice or an offer to sell or a solicitation of an offer to buy securities. A private offering of securities will only be made pursuant to a confidential private placement memorandum (the “PPM”), which will be furnished to qualified investors on a confidential basis at their request for their consideration in connection with such offering. No person has been authorized to make any statement concerning the securities offered other than as set forth in the PPM and any such statements, if made, may not be relied upon. An investment in private securities involves significant risks, including the potential loss of the entire investment. Before deciding to invest, prospective investors should pay particular attention to the risk factors contained in the PPM. Investors should also have the financial ability and willingness to accept the risk characteristics of an investment in the securities being offered thereby.
MAGNOLIA RIDGE CAPITAL LLC
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