Regency Affiliates, Inc. (RAFI): Value Trap or Free Call Option?
A strange OTC company with a potential catalyst on the horizon
Self-storage is one of the main real estate asset classes I have yet to get involved with. I’ve looked at several deals in the past, both private and public, but have not been able to find anything attractive enough to put money behind.
When I stumbled upon Regency about 6 months ago, I thought that would change. They own 5 self-storage properties that generate recurring revenue, and hold an interest in a piece of land slated to be sold to a developer eventually.
It is likely that the land is worth around what the entire market cap is worth in a private sale, and the self-storage properties’ net value on their own is well above the market cap.
The issue is that the chairman/CEO appears to be self dealing, incompetent, or both, and G&A costs eat up anything that would fall to the bottom line. Even with that, this one appears to be a free call option based on the sale of the land and we’ll dive into it below.
Background
The company organized in 1980 and was involved in the oil and gas space. In the mid-1990’s they bought the interest in the land we will be talking more about, and then in the late ‘90’s made some silly acquisitions and overall seemed to be poorly managed.
Around 2002 some upset shareholders file a lawsuit against the company and affiliates, alleging RICO violations and this leads to the entire board resigning in late 2002.
Lawrence Levy is then appointed CEO and through an entity he controls, he converts debt issued to the company into a controlling stake that he still owns today. From here it is a pretty sleepy company and they go OTC in 2010.
What do they own?
Regency owns 5 self-storage properties in Harrisburg, PA (about 2 hours west of Philly) and a 48.969% stake in a 34-acre property in Woodlawn, MD (slightly northwest of Baltimore).
Their self-storage properties are a lot easier for me to value than their land. For these, I’m simply taking their run rate NOI of about $3.23 million and applying an 8% cap rate to this, which gives us a value of $40.4 million. 8% should be a conservative cap rate for this asset class, I wouldn’t be surprised if it were closer to 7%.
The land they own was formerly a 700k+ sf office building for the Social Security Administration until 2023 when they vacated. The highest and best use seems to now be to demo and sell the land to a developer. Which appears to be what they are doing based on their Q1 2025 filing:
In a conversation I had with Levy back in early March of this year, he mentioned the other owner of the parcel (who has a voting majority) is about 80 years old and is looking to sell the land. Ideally, he’d like to sell to a data center developer as this would command the highest price. And if that doesn’t work, they seem confident they could sell to an industrial developer.
The question then becomes: what is the land worth in each scenario, and how likely is it that either happens?
In early April I spoke with 2 brokers at CBRE (a big commercial real estate brokerage firm) in the Baltimore office who had both data and industrial experience. We talked for 45 mins and they thought the property was very interesting. Their back of napkin math pointed to the land being worth around $1 million/acre to an industrial developer and higher for a data center developer.
This translates to $3.71/share for this land alone, which is just about what this trades for. The interesting thing is that if this sold as a data center play, it could command even higher. In northern VA, land has been going for $4 million/acre. Now, northern VA seems to be the mecca for data centers, so I don’t think it would go this high. Although, it does appear it would be north of $1 million.
My issue here is that I do not have a deep enough understanding of data centers and what is needed for a site to be valuable. The brokers I spoke seemed to think it would work as it was close to a power source, but I didn’t get enough conviction to put money behind this.
All told, based on my numbers that can be found below, if the land sells for $1 million/acre, the NAV/share is $8.41 while this trades for less than half of that. If the land goes for $2 million/acre to a data center guy, NAV is $12.12/share and the funds (before closing costs) from the land sale alone would be $7.43/share.
When I spoke with Levy back in March I asked what he would do with the funds once this sold and he mentioned they didn’t have any place to put it and would likely return to shareholders. This is good rhetoric, but he has not been exactly shareholder-friendly, which is giving me hesitation to get involved.
Absurd G&A levels
Remember, this is a company listed OTC with minimal costs associated with being public. And also, they own vacant land and 5 self-storage properties. None of these require lots of energy to manage.
Meanwhile, their G&A run rate is about $2.4 million, which is incredible. This means the company is paid $2.4 million to oversee vacant land and 5 self-storage properties. That could be done blindfolded for a fraction of a fraction of this amount.
This is exactly why I can’t bring myself to get involved….G&A eats everything up and it appears their dividend is likely to get cut, unless they can reduce these costs. If/when that happens the price will likely drop precipitously, and perhaps that is when I’ll start buying.
Calling all data center experts
If anyone knows a thing or two about data center development, give me a shout as I would love to talk this one through! It seems like if the land is suited for that, then this is a free call option that could be quite valuable.
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions.
There are two projects that are publicly known in the area of Frederick. They are both in southwestern part of Frederick County. There are large fiber infrastructure projects that plan on connecting these new campuses with the current ¨Data Center Alley¨ in Ashburn. Both projects are to be built near Adamstown, MD which is a small town of approximately 2000 residents. Honestly, I had never heard of Adamstown even though I was born in the DMV area. It is located in the valley of the Sugar Loaf mountains near the Potomac River. The idea is that Fiber would be installed crossing the Potomac River to these new projects.
¨Quantum Frederick¨ is a project that is now under new management of investment partners TPG on the former Alcoa (Eastalco) aluminum plant. This is over 2100 acres with over 1 gigawatt of power capacity. The construction of the infrastructure, a 40-mile loop of fiber, is underway and land preparation of the data centers has begun. I would add that the NIMBY factor here is almost irrelevant as this land used to be an aluminum plant which in my opinion is less attractive than a data center.
The other project is the Bauxite project in the same area. This project is still in planning phase but has secured over a $1B in funding.
Do note that there is a law passed (House Bill 524 (HB 524) in 2020 that offers exemptions from state sales taxes for up to 20 years if the data centers expand or create new jobs.
Here´s my take on all of this:
If there is an opportunity to invest in the upcoming projects in Frederick, the time frame of adequate returns will be shorter than investing in projects in the Baltimore area. I believe that the I70 route will be an organic expansion from Frederick to Baltimore. There are already duct banks with telcom along that route. The process of running fiber optic through those duct banks would not be too difficult, but I would not expect this to happen until Frederick has become interconnected with North Virginia. This process might take years even with accelerated construction schedules.
This leads us to the original topic, RAFI. I have followed your work, and I would trust your ability to evaluate the intrinsic value of properties. What I state above is what I would believe to constitute a real demand for land for future development. I appreciate your write up and I am now following this as well. It does seem like an interesting situation.
Hello Will,
As for the data center development, I would focus on power supply. The reason why most data center construction is filtering away from places like Fairfax County Virginia is due to a strain on the power grid. The new industry hot spot is Frederick, Maryland. Developers are looking for places that have ample power supply. Frederick County is very active in welcoming new data centers.
I would recommend looking into the BGE Meadows Substation located in Woodlawn. Perhaps you could directly ask management if they have any information on the supply capacity as I cannot find it publicly disclosed. I have also read that Exelon (BGE´s parent company) has stated that it is preparing for a major load increase. Connecting these two dots could open you up for an interesting conversation.
I also see that the Maryland Department of Commerce designated Woodlawn as a new enterprise zone. This would certainly point towards possible data center development.
I work for one of the largest mechanical contractors in the DC area that has been heavily involved in the data center constructions in northern VA. I do not operate in my company's sector that builds out data centers (I work in another division dedicated to large commercial plumbing construction), but I do hear quite a bit of chatter from others in my company as well as general contractors I know well. While I see the risks you lay out in RAFI, I would generally believe that a company looking to sell land for data center development in Maryland is quite plausible. I believe you would be better at determining land prices than I am, but I do know that property value in DC and northern VA is generally higher than in Frederick and Baltimore.
Thanks for sharing the idea.
Have a blessed day.