The Saratoga Springs, New York-based self-storage specialist raised $2.5 billion for its third value-added institutional storage fund, Prime Storage Fund III, PERE has learned. The firm eclipsed its $1.5 billion hard-cap, the same amount GCP closed on for its GCP SecureSpace Property Partners fund in November.
Fund III also significantly surpassed Prime Group’s prior vehicle in the series, Prime Storage Fund II, which closed in February 2018 with $706 million in capital commitments, according to PERE data.
The fundraise was bolstered by an increased interest from sovereign wealth funds that were recommended the fund via word of mouth, Robert Moser, Prime Group’s founder, principal and chief executive officer, told PERE. Prime Group also added some new North American pension fund clients to its investor roster, Moser added.
“You’ll hear people say it’s driven by death, divorce and disaster as well as other periods of change. That need base makes it very resilient”
Despite the newfound scale, Moser does not envisage the firm deviating from the investment strategy that got them here. He explained that the self-storage market is still very fragmented, with up to 80 percent of the market still owned by “mom and pop” operators. Prime Group will continue to acquire assets off market, one deal at a time, but will do more deals given the increased size of the fund. The scale of the fund allows the firm to take advantage of buying off-market before the market becomes less fragmented.
“What a larger fund allows us to do though is consolidate this asset class that’s not going to be fragmented forever,” Moser said. “As time goes on, the asset class goes from being 80 percent fragmented to the low to mid-60s. When that happens, it becomes infinitely more difficult to buy deals off-market.”
Prime Group will also continue to target similar markets to its previous fund. The firm currently manages assets valued at approximately $4 billion in 28 US states. Moser said the firm typically targets coastal markets, with its East Coast portfolio spanning southern Maine to Florida and the West Coast portfolio stretching from San Diego to Seattle. Prime Group also invests in select Mountain West cities like Salt Lake City and Denver.
Around 18 percent of the fund has already been deployed, with another $1 billion or so of deals in the pipeline, Moser said. Prime Group has been buying interest rate caps, a practice it employed before the increase in interest rates and the cost of debt. Moser said the firm will continue to use them to be active, despite their increasing prices.
The asset class is also recession resilient, with Moser pivoting his focus during the GFC when he saw self-storage outperforming other asset classes despite the economic turmoil. “It’s not aspirational. People need it through all types of cycles,” he said.
This cycle should prove resilient for that reason but also for the fact it can weather some inflationary pressures. The month-to-month contracts allow Prime Group to adjust rents relative to the macroeconomic environment in “real time.”
“You’ll hear people say it’s driven by death, divorce and disaster as well as other periods of change. That need base makes it very resilient,” Moser said. “It’s a defensive asset.”
Prime Group began raising the fund in 2021, holding a first close in June of that year. The firm targets properties where it can achieve an equity multiple of between 2.5x and 3x, PERE understands. He declined to disclose IRR targets for the value-add fund, but vehicles with that risk-return profile typically target between 14 and 16 percent net IRRs. The capital in Prime Storage Fund II has been fully called and has achieved a net IRR of 27.8 percent, per PERE data.