EBS Executive Summary
Philosophy
Equity Based Services, Inc. (EBS) is dedicated to creating value in Positive Cash Flow Commercial Real Estate, specifically Self Storage Property. EBS acquires strong assets by acquiring properties with a focus on markets with growing micro economies in Sunbelt regions. EBS creates value by leveraging a strong group of principals with backgrounds in Real Estate, Law, Finance, Venture, and Technology. EBS also has a core group of professionals that are experts in the fields of Real Estate, investment evaluation, due diligence, acquisitions, management, accounting, lending markets, and corporate oversight. EBS creates portfolio value by:
- Negotiating strong deals at time of purchase through a dedicated group of professionals that comprise the EBS Acquisitions Team.
- Leveraging a rock-solid infrastructure of corporate managers, Accountants, Lawyers, Administrators, Underwriters, Due-Diligence Officers, Construction Managers, and Real Estate Professionals.
- Operating every facility in the EBS portfolio more efficiently than any other operator in the industry with their wholly owned subsidiary management company, All American Property Management, Inc. (AAPMI)
- Deploying homogeneous transaction technology for real time analysis and tracking of point-of-sale transactions at the site level.
- Leveraging economies of scale to reduce the costs of management, advertising, and insurance.
- Actively pursuing cost savings by monitoring and protesting Property Tax effects of portfolio properties.
History
EBS started out as an acquisition company. Stephen Kaplan in a previous career as an acquisitions analyst for a large insurance company, deployed company investments into a number of Real Estate Asset classes. His job was to evaluate, and eventually sign off on deals that he thought were appropriate vehicles for the company’s investors.
In the early years of the technology bubble, Mr. Kaplan had trouble signing off on nascent technology investments because they were simply too risky for the company’s investors’ money. If the company that was invested in failed, there was nothing to liquidate and therefore the entire investment could be potentially lost. Mr. Kaplan and the managers of the company he worked for saw this differently and they decided that Mr. Kaplan’s investment philosophy didn’t match the goals of the managers who apparently wanted Mr. Kaplan to approve deals that he could not, in good conscience, sign off on.
After a brief sabbatical, Mr. Kaplan analyzed the Real Estate Investments that he had made during his tenure with his previous employer. He noticed a pattern with certain asset types. Mr. Kaplan noticed that time and time again, Self Storage Property investments met or exceeded pro forma returns. Of all of the Commercial Real Estate classes, Self Storage had the lowest cost to operate, least amount of wear and tear on the physical structure, a large tenant base, simple management systems, and most importantly, were strong cash flow producers.
Mr. Kaplan decided, for his money, Self Storage Property was what he wanted to invest his money in. After conducting some research on available facilities, he found a couple of projects that were available in a strong local market of Madison, Wisconsin. Unfortunately, the capital requirements for these projects were greater than the cash he had available, so, he got together a small group of investors from his tennis club that he knew through an earlier career as a Tennis Professional.
Mr. Kaplan recruited the help of his father, Howard Kaplan, who was had retired from a successful career as a Tax Attorney, and who was also involved in structuring a Real Estate Investment Trust (REIT) consisting of individual Mobile Home Parks that were successfully rolled up and brought to the public markets.
Together, Stephen and Howard Kaplan put together the deal to purchase the two facilities in Wisconsin. They put together the equity requirements from a “friends and family” round of investors, structured the deal, bought two great properties, and hired one of the most reputable third-party management companies in the region to run them. The plan was to have Stephen acquire properties, and to have Howard run the administrative side of the business.
The properties were strong acquisitions and should have been strong performers, but, they were simply treading water. Stephen analyzed the situation. He knew that the acquisitions were strong and that the properties were located in strong markets. It simply didn’t make sense that they weren’t performing. So, upon conducting site inspections, he noticed that the managers that worked for this marquis third party management company that he had hired were complacent, unprofessional, and disinterested. They had no “skin in the game” and were simply clerks that were collecting paychecks. At this point, it was clear that in order to be exceptional in Self Storage and to maximize Self Storage investments it was paramount to manage the facilities yourself.
Mr. Kaplan then took the proceeds that he made through syndicating these acquisitions and invested them into building an in-house management company, All American Property Management, Inc. (AAPMI)
The idea behind AAPMI was to run the most efficient operation possible, but to not run the management company as a profit center. The goal was to maximize the return on investment of the portfolio properties, but, not to make money managing them. This way, the interests of the investors and the interests of the sponsors are aligned. EBS, as the sponsor, would participate in the returns generated by portfolio properties only if they performed, paid the investors a preferred return, and returned all of the investment dollars back to the investors. The EBS Principals would also invest their own money, and the money of their families into the deals alongside the investors effectively participating on both sides of the deal.
Mr. Kaplan brought in his brother, Eric Kaplan to run AAPMI. Eric had a financial background and was a natural fit for running the management infrastructure allowing Stephen to concentrate on Acquisitions, and Howard to concentrate on the internal administration of the company.
The Kaplans worked with a technology company to help design a homogeneous, point of sale computer system geared specifically to Self Storage Properties. This allowed real-time observation and analysis of transactions happening at any portfolio facility from the EBS Headquarters in San Diego.
On top of this technology, they also built a multi-tiered management structure that employed site-level local managers that were accountable to regional managers. These regional managers reported to corporate level managers in the home office that all reported to Eric Kaplan. This structure created a system of dynamic tension between different layers of the management system from accounting to corporate management and regional management all the way down to the local facility managers.
This management structure proved to be effective at reducing “leakage” at the site level, and allowing efficiencies and economies that proved to be a recipe for success. AAPMI is the strongest management company in the Industry.
During this time, the Kaplans were syndicating new acquisitions. After careful analysis and working with economists, they noticed that most of the growth in the United States was expected in the Sunbelt. These were areas with strong, growing local economies. The strongest of these were around economic anchors, such as military bases, hospitals, service based economies, retirement communities, and medical facilities. Not only were these areas expected to grow, but, the real estate was relatively inexpensive, and the cost of operations was lower than counterparts in colder regions where maintenance items like snow removal, and corrosion took away from the bottom line.
After a successful run at building a portfolio of syndicated acquisitions, Troy Downing joined the team. Mr. Downing has a background in technology, and experience with Angel Investing and Venture Funds. When Mr. Downing joined the team, He helped structure and offer Private Equity Funds that invested solely in Self Storage Properties.
Between 2006 and 2007, three Private Equity Funds were created, the EBS Income Fund, The Pilot Equity Value Added Fund, and the EBS Income and Growth Fund II. These funds, all invested in the same Asset Class, Self Storage, but, had slightly differing investment philosophies.
The EBS Income Fund invested solely in stabilized, cash flow facilities. These were facilities that had 85-95% stabilized occupancy, and were not in need of any major renovation of deferred maintenance. The Fund would invest in these properties, and would pay out the generated cash flow in monthly payments.
The Pilot Equity Value Added Fund had a completely different philosophy. This Fund would not pay current cash flow, and would invest in opportunistic acquisitions. These were properties that were in need of capital improvements, or repositioning, or were simply new facilities that hadn’t yet stabilized. The goal was to buy these at discounts, quickly stabilize them, and then sell them at appreciated values. All of the proceeds from the cash flow and sales would be re-invested in the Fund in order to compound returns.
The EBS Income and Growth Fund II was a hybrid that invested 70% of its capital into stabilized facilities and the other 30% in Value Add facilities.
As of Spring, 2009, EBS has grown to be one of the fasted movers in the Self Storage Industry. They are recognized as a leader and one of the largest privately held owner/operators in the Country. EBS currently has a portfolio of 60 facilities in 11 states. The EBS portfolio is comprised of more than 33,000 storage units, and more than 4 Million Net Rentable Square Feet of storage space.
EBS closed 15 acquisitions in 2008 and is continuing to add new properties in 2009.
Structure
EBS is structured as a “pass through” entity. The principals of the company are the Kaplans and Mr. Downing. EBS provides the infrastructure, legal, and accounting services required to operate acquisitions, corporate operations, a legal department, and management.
EBS continues to acquire properties as syndications of cash investors, 1031 Exchange Tenants in Common, and through placing capital from the EBS family of Private Equity Funds.
All of these investment vehicles are similar in structure. There is a preferred return paid to the investor, and a carried interest earned by EBS. The carried interest is precedent upon the investor earning the preferred return plus 100% of their invested capital. After that, there is a profit sharing of the excess that is, in general, 25-30% of the excess gain going to the General Partners (EBS).
Each property in the EBS portfolio is held in a single-purpose, bankruptcy remote entity, usually an LLC. The Private Equity Funds will hold interest in the LLC as a Tenant in Common (”TIC”) as will cash investors that are not part of the Private Equity Funds will be Limited Partners in a “Cash Investor LLC” that has a TIC interest in the ownership LLC. This structure, which is usually a lender requirement, allows each property to stand alone and not be encumbered or harmed by anything that may happen to another portfolio property. With the exception of a small number of “portfolio” acquisitions, there is not cross collateralization amongst portfolio properties. Any portfolio property may have a combination of cash investors, 1031 investors, and Private Equity Funds.
In General, guarantees, when necessary, do not include investors. They have no liability associated with the operation of the property and cannot be pursued for restitution if there is a bankruptcy or similar failure of a property they are invested in. EBS Principals, generally Stephen Kaplan and Troy Downing take on any recourse when required.
Principals
Stephen Kaplan, Chief Executive Officer
Mr. Kaplan holds a real estate Broker’s license in California and has worked in the national commercial real estate industry since 1995. Early in his career Mr. Kaplan provided acquisition due diligence, investigative analysis and recommendations to a regional real estate organization.
Mr. Kaplan’s portfolio responsibility includes regional and site specific market analysis, acquisition negotiation and pre-closing due diligence, supervision and recommendation of onsite and offsite operation and management of the commercial properties.
In recent years, Mr. Kaplan has had primary acquisition, operational management supervision and sales for commercial real estate income properties totaling more than $300 Million. The commercial real estate included office buildings, industrial office warehouse complexes, mobile home parks, and self-storage facilities. The properties were located in Nevada, Texas, Louisiana, Florida, Colorado, Virginia, North Carolina, South Carolina, California and Tennessee.
Mr. Kaplan currently owns interests in and manages or oversees more than sixty self storage facilities located throughout the United States and provides onsite and offsite managerial and financial supervision. He is a graduate of the University of Nevada, Las Vegas holding a Bachelor of Arts degree in Criminal Justice with specialty in investigative research and a Bachelor of Arts degree in Communications with an emphasis on marketing.
Eric Kaplan, Chief Operating Officer
Mr. Kaplan is a licensed Financial Advisor and has extensive property management experience. He holds a Series 7 Securities license, a Series 66 Financial Advisors license, a Managed Futures/Options license, and a Life Insurance license. Eric Kaplan also has a B.A. in Fine Arts and a Masters Degree in Fine Arts.
Eric Kaplan negotiated the acquisition of and performed the pre-closing due diligence inspections for commercial real estate income properties totaling more than $200 million. In addition to overseeing and managing all aspects of EBS’ current portfolio of 60 properties, Eric Kaplan also personally negotiated the purchase of over 40% of the sites acquired in 2008, including properties in Austin, San Antonio, Dallas, and Houston.
Troy Downing, Fund Manager / Director
Mr. Downing started his career in academia as a Research Scientist with the New York University Media Research Lab and eventually as an instructor in the NYU Information Technology Institute. During this time, Mr. Downing was also writing books that were published by IDG Books, McMillan and O’Reilly and Associates, among others.
With a strong entrepreneurial drive, Mr. Downing left NYU to found a one-person technology company, WebCal, Inc. WebCal quickly grew from a one-person startup into a fast-moving technology company. After bringing a handful of colleagues and acquaintances together from NYU and other media companies, this small group of entrepreneurs merged WebCal with the fledgling Yahoo! Inc. in a mutually beneficial pooling of interests merger.
During Mr. Downing’s time at Yahoo!, he began investing in Silicon Valley technology startups and eventually started hosting pitch sessions and performing technical due-diligence with small venture funds that placed seed-level financing with nascent startup companies. In mid 2001, Mr. Downing left the technology field to pursue personal interests in real estate investments.
Deeply affected after September 11, 2001, Mr. Downing felt a need to give back to his Country and took time off to join the US Air Force / Air National Guard. After two tours to Afghanistan with a Search and Rescue Unit, 200 combat sorties, and 20 personnel recoveries, Mr. Downing once again turned his focus to Commercial Real Estate.
Mr. Downing is a principal Fund Manager with EBS and Pilot Equity Partners, LLC and brought his experience with technology funds and applied it to Private Equity Commercial Real Estate Funds. Mr. Downing has been heavily involved in fundraising, deal structuring, due-diligence, and fund structuring and has closed more than $150 Million in Commercial Real Estate deals.
Howard Kaplan, Chairman
Mr. Kaplan has broad experience in real estate finance, site investment analysis, and commercial property income and expense analysis. He has successfully negotiated the acquisitions of commercial properties and institutional commercial loans throughout the United States for over 35 years.
Mr. Kaplan has participated in the negotiation, acquisition, development, management and sale of more than $300 Million of commercial real estate including apartment projects, office buildings, industrial office/warehouse flex space projects, mobile home parks, and self storage facilities. He holds a Juris Doctor degree from Wayne State University Law School and has practiced law in Michigan.