Storage appeal

Chicago-based Heitman's acquisition of 21 Uncle Bob's Self Storage facilities is the latest in a line of deals by private equity real estate firms as they look to capitalize on this apparently ‘recession-resistant’ sector.

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.

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