The Rise of Alternative Asset Classes: Self-Storage, Car Washes, and Data Centers

Traditional commercial real estate asset classes like office, retail, industrial, and multifamily have long dominated investment portfolios. However, savvy investors and lenders are increasingly turning their attention to alternative asset classes that offer unique value propositions, recession resistance, and compelling returns. Three sectors leading this charge are self-storage, car washes, and data centers.The Alternative Asset Class AdvantageWhy Alternatives Are Gaining Traction Alternative asset classes offer several compelling advantages over traditional commercial real estate:

• Less institutional competition creating better entry pricing
• Unique operational characteristics that create competitive moats
• Recession-resistant cash flows in many cases
• Higher yields compared to traditional asset classes
• Specialized expertise requirements limiting competition

Financing Evolution As these asset classes have matured, financing options have expanded dramatically:

• Dedicated lending programs from specialized lenders
• Agency financing becoming available for certain sectors
• Institutional capital flowing into proven operators
• Portfolio lending for experienced sponsors

Self-Storage: The Resilient Revenue Generator

Market Fundamentals Self-storage has emerged as one of the most resilient commercial real estate sectors:

• 11 billion square feet of self-storage space nationwide
• $35+ billion industry with consistent growth
• 1 in 10 households currently rent storage space
• Recession-resistant demand driven by life events

Investment Appeal Self-storage offers unique operational advantages:

• High operating margins (60-70% typical)
• Low maintenance costs compared to other asset classes
• Flexible rent structures allowing frequent rate adjustments
• Minimal tenant improvements required
• Strong cash-on-cash returns for experienced operators

Financing Landscape Self-storage financing has become increasingly sophisticated:Construction Financing

• Specialized construction lenders understanding development timelines
• Lease-up reserves built into loan structures
• Phased construction options for larger developments
• Conversion financing for adaptive reuse projects

Permanent Financing

• Agency lending through Fannie Mae and Freddie Mac programs
• CMBS execution for larger, stabilized properties
• Portfolio lending for multi-property acquisitions
• Sale-leaseback opportunities with operators

Key Underwriting Factors Lenders focus on specific self-storage metrics:

• Population density and demographic analysis
• Supply analysis within 3-5 mile radius
• Visibility and accessibility from major thoroughfares
• Management experience and operational track record

Car Washes: The Subscription Economy Meets Real Estate

Industry Transformation The car wash industry has undergone dramatic transformation:

• $15+ billion industry with consolidation trends
• Subscription model adoption creating predictable revenue
• Technology integration improving customer experience
• Express exterior model dominating new development

Investment Characteristics Modern car washes offer compelling investment metrics:

• High-volume, low-margin business model
• Recurring revenue through membership programs
• Weather-resistant with proper market selection
• Scalable operations for portfolio development
• Strong unit economics in proper locations

Financing ConsiderationsDevelopment Financing

• Specialized equipment financing for wash systems
• Environmental considerations for water treatment
• Municipal approvals for water usage and drainage
• Traffic studies and site accessibility analysis

Acquisition Financing

• Cash flow stability through membership models
• Operating history requirements for established locations
• Management transition considerations
• Equipment condition and replacement reserves

Lender Requirements Car wash financing focuses on operational factors:

• Traffic counts and demographic analysis
• Water rights and environmental compliance
• Competition analysis within trade area
• Operator experience in car wash management

Data Centers: The Digital Infrastructure Backbone

Market Explosion Data center demand has exploded with digital transformation:

• $200+ billion global market with continued growth
• Cloud computing adoption driving demand
• Edge computing requirements for low latency
• 5G deployment creating new infrastructure needs
• AI and machine learning requiring massive computing power

Investment Appeal Data centers offer unique real estate characteristics:

• Long-term lease agreements (10-20 years typical)
• Triple-net lease structures with tenant responsibility
• High barrier to entry due to technical requirements
• Mission-critical infrastructure with sticky tenants
• Inflation protection through escalation clauses

Financing ComplexityDevelopment Financing

• Build-to-suit construction for hyperscale tenants
• Speculative development for colocation facilities
• Power infrastructure requirements and utility coordination
• Cooling systems and environmental controls
• Security requirements and compliance considerations

Permanent Financing

• Institutional lenders comfortable with data center fundamentals
• Sale-leaseback transactions with operators
• Portfolio financing for data center platforms
• International capital seeking US data center exposure

Specialized Underwriting Data center financing requires technical expertise:

• Power availability and utility infrastructure
• Fiber connectivity and telecommunications access
• Disaster risk assessment and backup systems
• Tenant credit quality and lease terms
• Technology obsolescence risk evaluation

Common Financing Themes Across Alternative Assets

Specialized Lender Requirements All three asset classes require lenders with sector expertise:

• Operational understanding of business models
• Market knowledge of supply/demand dynamics
• Technical expertise in asset-specific requirements
• Relationship lending approach for ongoing partnerships

Due Diligence Enhancements Alternative assets require enhanced due diligence:

• Third-party market studies by specialized consultants
• Environmental assessments tailored to asset type
• Technical inspections by qualified professionals
• Operational audits of management systems and processes

Loan Structure Adaptations Financing structures have evolved for alternative assets:

• Cash management requirements during lease-up
• Performance guarantees from experienced operators
• Completion guarantees for development projects
• Replacement reserves for specialized equipment

Investment Strategy Considerations

Market Selection Criteria Success in alternative assets requires careful market selection:

• Demographic analysis specific to asset class needs
• Competition assessment and barriers to entry
• Regulatory environment and approval processes
• Growth trends and economic drivers

Operator Selection Choosing the right operating partner is critical:

• Track record in specific asset class
• Financial strength for operational challenges
• Growth strategy and expansion plans
• Technology adoption and operational efficiency

Portfolio Diversification Alternative assets can enhance portfolio diversification:

• Uncorrelated returns to traditional asset classes
• Different economic drivers than office/retail
• Varying lease structures and tenant relationships
• Geographic diversification opportunities

Challenges and Risk Considerations

Operational Complexity Alternative assets often require specialized management:

• Technical expertise for operations and maintenance
• Regulatory compliance specific to industry
• Technology updates and equipment replacement
• Staff training and operational procedures

Market Evolution Rapidly evolving sectors present unique risks:

• Technology disruption affecting demand
• Regulatory changes impacting operations
• Competition intensification as sectors mature
• Economic sensitivity varying by asset class

Financing Limitations Alternative assets may face financing constraints:

• Limited lender universe familiar with asset class
• Higher equity requirements due to perceived risk
• Shorter loan terms until track record established
• Personal guarantees often required

Future Outlook

Continued Growth Expected All three sectors show strong growth fundamentals:

• Demographic trends supporting demand
• Technology adoption driving usage
• Institutional acceptance improving financing access
• Operational improvements enhancing returns

Financing Evolution Expect continued financing market development:

• More lenders entering alternative asset financing
• Standardized underwriting as markets mature
• Longer loan terms for proven asset classes
• Portfolio lending programs for experienced operators

The Bottom Line

Alternative asset classes like self-storage, car washes, and data centers represent compelling opportunities for investors seeking diversification, higher yields, and recession-resistant cash flows. However, success requires specialized knowledge, experienced operators, and lenders who understand the unique characteristics of each sector.As these asset classes continue maturing and institutional acceptance grows, early adopters with the right expertise and relationships will be best positioned to capitalize on the significant opportunities ahead.The key to success lies in understanding that these aren't just alternative real estate investments—they're specialized businesses that happen to be housed in real estate, requiring a fundamentally different approach to underwriting, financing, and operations.

‍Sussex Capital arranges financing for alternative asset classes nationwide, working with specialized lenders who understand the unique requirements of self-storage, car wash, data center, and other non-traditional commercial real estate investments. Our experience across diverse asset classes helps clients access the right capital for their specialized projects.