Last month, Chicago-based Heitman and Buffalo, New York-based self-storage REIT Sovran Self Storage paid $144 million (€92 million) for a portfolio of 21 self-storage facilities located in markets throughout the US. It was just one example in a series of deals closed over the past few months, where private equity real estate has been targeting the storage industry.
The joint venture between Heitman and Sovran, formed in June this year, is expected to acquire up to $350 million of self-storage facilities throughout the US. “We've been investing in self-storage for more than ten years,” Olin Needle, director of research at Chicago-based Heitman, told PERE. “We've done investments with a lot of the larger storage companies. [The sector] provides both strong income and solid growth.”
One of the attributes of the self-storage sector, according to Needle, is the fact it doesn't require as much capital as say, the office and residential spaces. “The real estate is not very capital-intensive to maintain. The difference between the income yield and the cash yield is very small,” he added. In the deal announced in August, Heitman and Sovran purchased 1.6 million square feet of properties. The buildings will be branded under Sovran's Uncle Bob's Self Storage brand.
Chicago-based Heitman is not the only private equity real estate firm looking to capitalize on the self-storage property market, though. In June, Morristown, New Jersey-based Hampshire Partners purchased 661 climate-controlled self-storage units in Berkley Heights, New Jersey. The facilities, totaling 51,171 square feet of rentable space, are strategically located near major area highways.
Bill Scully, a principal at Hampshire, says there are still opportunities to be had in the sector, in the metropolitan as well as urban areas. “There is still a lot of demand for the product,” he says. According to Scully, Hampshire currently owns self-storage properties in the US as well as markets in the Caribbean and Puerto Rico.
Harrison Street Real Estate Capital also counts itself among the growing number of GPs in self-storage. In July, it closed its second real estate vehicle, Harrison Street Real Estate Partners II, on $430 million, to invest in “recession-resistant” niche markets, including storage facilities such as self-storage and boat storage.
“A large amount of demand for storage is a result of change,” Needle says. “And it can be good or bad. If somebody gets a new job often they move and they require storage. If somebody loses their job and they relocate they will need storage. A good portion of demand for the properties is due to lifestyle change, and those are things that can happen in good times and bad.”
Although nothing is recession-resistant, adds Scully, consumers need a place to store their goods either when selling their house, or for relocation, or even in urban areas where people are using self-storage to store seasonal goods.
Prudential in $500m NY office JV
Prudential Real Estate Investors has launched a $500 million (€336.5 million) joint venture with investment and development company L&L Holding Company to acquire office properties in New York City. Leonard Kaplan, principal for PREI's global merchant banking team said at the time “current markets have provided our investors with a unique opportunity to take advantage of softening prices.”
Singapore's GIC invests in Mexican retail
GIC Real Estate has taken a minority stake in Mexico Retail Properties (MRP), a developer and operator of retail properties in Mexico. The real estate arm of the Government of Singapore Investment Corporation is investing through a combination of debt and equity in MRP's operations as well as its second Mexico-focused investment vehicle. Mexico Retail Properties, an affiliate of Denver, Colorado-based private equity real estate firm Black Creek Group, currently has a portfolio of 14 retail centers as well as five projects under development and 21 near-term projects. The majority of MRP's centers are anchored by retailer Wal-Mart.
RREEF JV to develop $350m business park
Deutsche Bank's RREEF Alternative Investments and San Francisco-based real estate developer and investor Newcastle Partners have acquired 54 acres of land in California on which the duo is building a $350 million (€228 million) mixed-use business park. When completed, the project will comprise four million square feet of commercial space including a mix of office, industrial, retail and hotel space, as well as 9.9 acres of parks, according to media reports. Boeing is retaining the remaining acres in Douglas Park, estimated to be 260 acres.
Lehman considers sale of RE portfolio
Lehman Brothers is reportedly in talks with several firms to sell its $40 billion (€27 billion) of commercial real estate assets. According to the Financial Times, which cited sources close to the proposed sale, said firms such as Blackstone and BlackRock are believed to be involved in negotiations. Lehman is considering either selling its entire portfolio or selling the assets piecemeal. It has been plagued by losses incurred from the real estate holdings. It is believed that the bank may be willing to take a $5 billion hit from the sale. Lehman Brothers declined to comment on the report, which also said that there is currently a gap between what Lehman thinks the assets are worth and what the potential buyers think. According to The Wall Street Journal, the investment bank has also approached a handful of private equity firms about the sale of its investment management group – which includes private equity and hedge funds, wealth management and its Neuberger Berman asset management divisions – looking to strengthen its balance sheet by selling all or part of these assets, together valued at as much as $10 billion.