IN THE NEWS

North American Self Storage Group acquires self-storage conversion site in Peabody, Massachusetts
07/10/2017 | Tony Laughlin

Costa Mesa, California based North American Self Storage Group, LLC has acquired a book distributing office/warehouse located in Peabody, Massachusetts, which is part of the greater Boston MSA. The site will be converted into a state-of-the-art, 100% climate controlled self-storage facility with 120,418 of gross building area. Construction will commence in September 2017, with the self-storage facility opening planned by April 2018. Features of the new facility will include multiple loading points, drive up access, state of the art security, and a large modern business office.

According to Russ Colvin, CEO and President for North American, “We are pleased to announce this acquisition. We believe this is an excellent self-storage conversion opportunity, which is located in a vibrant area of the Boston MSA and benefits from excellent visibility and access.” Colvin also indicated that “this acquisition is consistent with our business plan, and will be the highest quality, best located self-storage facility in the Peabody market. A project that will raise the bar in the area, as there is a very limited supply of state-of-the-art Class “A” self-storage facilities in the market.”

The project will be professionally managed by CubeSmart, which is one of the four primary publicly traded self-storage REIT’s in the United States.

North American Self Storage Group acquires self-storage conversion site in Sacramento, California
04/10/2016 | Tony Laughlin

Costa Mesa based North American Self Storage Group, LLC has acquired a former warehouse/distribution building in Sacramento, California the capitol and the sixth largest city in California.

The building will be developed into a Class A self-storage facility offering 80,044 RSF of climate controlled storage.  Construction is scheduled to commence in August, 2016, with the self-storage facility opening in December 2016.  Features of the new facility will include multiple loading points around the building, RV/Boat/Auto storage, 100% climate controlled units, state of the art security and business office.

According to Russ Colvin, CEO and President of North American, “We are delighted to announce this acquisition.  We believe this is an excellent self-storage conversion opportunity, which is located in an area experiencing significant growth.”  Colvin also indicated that “the project is well located along Interstate 80, a major U.S. highway benefitting from excellent visibility, huge traffic counts, a dense three mile population, and strong market demographics.”

The project will be professionally managed by CubeSmart, a self-administered and self-managed real estate investment trust. CubeSmart owns or manages 700 self-storage facilities across the United States. CubeSmart is one of the top four owners and operators of self-storage facilities in the U.S.

North American Self Storage Group acquires self-storage development site at 852 Metcalf Street, Escondido, California
07/22/2016 | Tony Lauhglin

Costa Mesa based North American Self Storage Group, LLC has acquired an existing self-storage facility and office building located in Escondido, California.  Escondido is a community in North San Diego County.

The existing improvements will be demolished, and the site will be developed into a state-of-the-art, 100% climate controlled self-storage facility offering 90,000 NRSF of storage.  Construction will commence in January 2017, with the self-storage facility opening planned for October 2017.  Features of the new facility will include multiple loading points and elevators, 100% climate controlled units, state of the art security, and a large modern business office.

According to Russ Colvin, CEO and President for North American, “We are delighted to announce this acquisition.  We believe this is an excellent self-storage development opportunity, which is located in a vibrant and growing community in North San Diego County, which is one of the most economically vibrant counties in America, with a population exceeding 3.3 million.  Colvin also indicated that “the project is a well located urban infill location, with a dense three mile population, and strong market demographics, with a shortage of self-storage, and no state-of-the-art Class “A” self-storage facilities in the market.”

The project will be professionally managed by CubeSmart, which is one of the four primary publicly traded self-storage REIT’s in the United States.

North American Self Storage Group acquires self-storage conversion site in Springfield, Massachusetts
10/07/2016 | Tony Laughlin

Costa Mesa based North American Self Storage Group, LLC has acquired a former food distribution facility located in Springfield, Massachusetts.  Springfield is the third largest city in Massachusetts and the fourth largest city in the New England area.

The site will be developed into a state-of-the-art, 100% climate controlled self-storage facility offering 91,391 NRSF of storage.  Construction will commence in January 2017, with the self-storage facility opening planned for September 2017.  Features of the new facility will include multiple loading points, drive in loading and unloading, RV/Boat/Auto storage, 100% climate controlled units, drive up access, state of the art security, and a large modern business office.

According to Russ Colvin, CEO and President for North American, “We are delighted to announce this acquisition.  We believe this is an excellent self-storage conversion opportunity, which is located in a vibrant and growing community in the Northeastern United States, which is in the midst of a very positive transformation, including the construction of the new $1 billion MGM Springfield Casino less than one-mile from our facility.”  Colvin also indicated that “the project is a well located urban infill location, with a dense three mile population, and strong market demographics, with a shortage of self-storage, and no state-of-the-art Class “A” self-storage facilities in the market.”

Colvin went on to say that “given the strong and growing economy and demographics of the Springfield market, a modern state-of-the-art self-storage facility is needed to support the self-storage needs of the community.”

The project will be professionally managed by CubeSmart, which is one of the four primary publicly traded self-storage REIT’s in the United States.

GlobeSt – Self-Storage Rides Wave of Growth
04/23/2015 | Paul Budny

These are good times for self-storage, Marcus & Millichap says in its new report on the sector. For starters, says MMI, the sector will see a 50-basis point decline in vacancy nationwide this year, driven by “a more robust pace of economic growth” that will also fuel rent increase as high as 4.2% for climate controlled product. Already in several markets, notably California’s major cities as well as Atlanta, declines in vacancy last year were significant.

MMI’s report, prepared in collaboration with Richard A. Bird, who heads the firm’s national self-storage group, notes that payrolls are growing steadily. Meanwhile, real disposable income, “a broader measure of spending power than wages that takes inflation into account,” is rising. Accordingly, says MMI, “purchases of consumer goods suitable for stowing continue to climb, creating potential new requirements for space in existing self-storage properties nationwide.

”Even as growing space demand appears to justify building new facilities, “construction remains anemic,” according to MMI. There’s fierce competition for development sites, “with multifamily builders in the midst of a building boom that is pushing up land prices and shutting out self-storage developers.

”Permitting and entitlements for self-storage also pose a challenge, especially as municipalities seek “more potent sources of fees and tax revenue,” according to MMI. “While limited now, construction will eventually rise and exert greater pressure on property performance, perhaps as soon as late 2016.

Publicly-traded REITs in the self-storage sector also continue to gain strength from positive space demand and rent trends, and have been enjoying elevated returns and lofty stock prices over the past year, says MMI. “During earnings calls in early 2015, the REITs reported strong results for 2014 and offered bright outlooks for 2015 operating results.” For example, Buffalo-based Sovran Self Storage, which operates under the Uncle Bob’s brand name, “forecast full-year revenue growth from 5% to 6% and cited its greater ability to push rents higher in most of its markets.

”REITs in early ’15 earnings calls also expressed a desire for additional transactions, especially in infill locations with formidable barriers to development. Yet MMI notes that sourcing transactions involving large portfolios of newer high-quality properties, remains challenging, partly reflecting the lack of new facilities coming on line over the past few years.

While there were more sales of multiple assets in single transactions last year, the total includes “only a handful of deals” that involved more than 10 properties. Meanwhile, the one-off transaction market remains in sound health following an increase in deal flow and substantial jump in dollar volume in ’14.

“A good portion of trades continue to occur in the $1-million to $5-million price tranche, the domain of small single-property owner-operators and many regional investors,” says MMI. “First-year returns in this segment of the market typically range from 7% to 8% and buyers are becoming more active as debt financing loosens. Conversely, cap rates for REIT and institutional-caliber assets can drop below 6% “due to intense competition for properties.

”On the transaction front, MMI says, steady flows of equity and debt into the self-storage sphere, plus expectations of a near-term rise in interest rates, are likely to support a volume increase throughout the year. “Recent property performance improvements will place upward pressure on valuations,’ notes MMI.

Commercial Property Executive $14 Million CubeSmart Self-Storage Facility Approved for Development
01/29/2015 | Veronica Grecu, Associate Editor

The Boston Redevelopment Authority (BRA) green-lighted a project proposal to transform the vacant warehouse at 99 Rivermoor Street in West Roxbury off of VFW Parkway into a high-quality self-storage facility with new loading areas and accessory uses.The $14 million project will be developed by Newton-based VLR-Roxbury LLC, which also owns the six-acre site. According to PropertyShark, VLR-Roxbury purchased the property in November 2014 for $6.86 million from previous owner M&H Holdings LLC.

The facility at 99 Rivermoor Street will be managed by CubeSmart, a self-storage real estate investment trust that owns and manages self-storage facilities in the Greater Boston area and operates approximately 600 facilities across the U.S.  As detailed in the Project Notification Form, the existing one-story warehouse and office structure and the associated surface parking spaces have a combined square footage of 85,614.

VLR-Roxbury will redevelop the current structure in two phases. Phase I, which is expected to begin in the following months, calls for the construction of a single story, 2,500-square-foot addition at the corner of the existing building at Rivermoor Street, Gardner Street and Charles Park Road that will serve as office and high security storage space. Additionally, approximately 12,000 square feet of existing front office area in the former warehouse will be converted into storage use. During Phase II, VLR-Roxbury will add a second story encompassing nearly 66,270 square feet of space.

When fully completed, the CubeSmart facility at 99 Rivermoor Street will have 154,376 square feet of space with around 1,100 self-storage units, as well as 77 on-site surface parking spaces and new off-street loading areas, and storage for 75 recreational vehicles. Jordan Architects of San Clemente, Calif., designed the project, while Red Hill Construction Services will oversee construction management at the site. The project is estimated to create up to 60 construction jobs.

NREI – Private Equity Pours Money into Self-Storage Deals
01/16/2015 | Robert Carr

Marc Boorstein, a principal with Chicago-based MJ Partners Self Storage Group, said in his full year and fourth quarter overview that the average 2014 investment return for self-storage REITs was 31.4 percent. The REITs are the major owners in a largely fragmented sector, as about 80 percent of self-storage properties are owned by small mom-and-pop-type firms. But according to Boorstein, private equity is starting to enter the sector.

Long-term returns for self-storage beat out all other commercial real estate sectors, Boorstein says. The five-year average return for self-storage is at 24.4 percent, the 10-year average is at 17.8 percent and the 15-year average is at 20.3 percent, beating out the closest sector, multifamily, by about 400 basis points for each category. These numbers, as well as a lack of new supply and unusually high demand, have led to increased competition for assets.

“There’s just a lot of transaction activity going on, for every $50 million portfolio there [are] 20 offers,” Boorstein says. “Average occupancy has increased to more than 91 percent, and new supply was at less than 100 new properties last year. That compares to about 3,665 new properties that opened in the peak year of 2005. Even if we have 300 to 500 new properties in 2015, as Extra Space Storage CEO Spencer Kirk predicts, that’s still not enough to even match the population growth.

”The returns have attracted private equity firms new to the sector, such as the Carlyle Group partnering with self-storage operator William Warren Group last year, as well as increased activity from investors such as Prudential, Fortress, Morgan Stanley and Harrison Street. The four major REITs—Public Storage, Extra Space Storage, CubeSmart and Sovran Self Storage—are able to take down the large deals of more than $75 million, but there are aggressive bidding wars by private equity for the smaller portfolios, Boorstein says.

“If it’s a mid-sized deal, say between $20 million and $70 million, there’s four times as many private equity groups looking to purchase than there were two years ago,” he says. “There [are] groups bidding that have barely been in the market that long. Cap rates have plunged because of all this competition and partnering that’s going on.

”For example, Roseville, California-based Life Storage secured more than $120 million from TPG Real Estate and Jasper Ridge Partners late last year. “Not only is there strong continued support for self-storage, the industry remains very fragmented, which should provide opportunities for consolidation and attractive follow-on acquisitions,” said Avi Banyasz, partner and co-head of TPG, in a statement regarding the investment.

Michael Mele, senior director with Marcus & Millichap’s national self-storage group, says he agrees that private investment in the sector is “bigger than it has ever been.” He says while these investors can’t compete with the REITs in the large deals, there’s much more competition for the second-tier properties.

“Mom-and-pop ownership of self-storage is declining because of the demand by private investment,” Mele says. “There’s also a continued consolidation of the industry, with a lot more private firms going after large portfolios with the help of the REITs, or using the REITs as third-party managers. You’re going to start seeing, in major and secondary markets, the same people owning many of the properties.

”Scott Humphreys, self-storage acquisitions director at Austin, Texas-based Virtus Real Estate Capital, says a new trend in the industry being employed by many of the REITs and larger regional players is purchasing sites in construction or shortly after they open. This eliminates some of the risk/liability associated with the development time frame, and has also allowed the REITs to move forward with new site development without the added overhead and expense of keeping a full coterie of development resources in house. For example, Extra Space recently bought a portfolio of three self-storage properties in Austin from Endeavor Real Estate Group. All three properties were new, with two of the three having been opened less than a year at the time of sale.

“The difficult element to this type of purchase is the valuation gap, and determining how much to pay for yet-to-be leased space,” Humphreys says. “In core and growth markets, the risk is obviously not as great, and this allows you to rely on ‘merchant-build’ type development resources who know the local municipalities, and their nuances, well.”

NREI – “Top 5 Predictions for the Self-Storage Sector in 2015”
01/14/2015 | Susan Piperato

Year-over-year NOI growth will be surprisingly strong: With limited new supply coming on-line, all-time-high occupancies and limited rent concessions, 2015 will be the strongest year ever for revenue per available sq. ft.

New development will continue to be in the headlines, but won’t have a material impact on sector performance: With cap rates at all-time lows, development continues to make sense, even at all-time low returns on cost. But unless banks begin to make low-/no-equity construction loans, over-supply will not be widespread.

Occupancy will decline slightly, but that’s a good thing: 2014 [marked] an all-time record high occupancy, at over 90 percent. With more confidence in what drives pricing equilibrium, operators will benchmark more off achieved rental rates rather than target occupancy, so that leasing will yield [higher] rents than in 2014.

The acquisition field will extend beyond the REITs: With an abundance of large portfolio transactions feeding the institutional appetite [in the last three years], there’s been little room for smaller, local and regional operators, to deploy capital in the transaction market. A combination of REITs [pulling] back a little and deal size shrinking, 2015 will [present] a more balanced and diverse roster of buyers for marketed deals.

Private equity will enter the picture:  Although most of the large portfolios that were likely to trade fee-simple already traded between 2011 and 2014, and most of the fee-simple transactions in 2015 will be one-offs and small portfolios, there will be a very large (maybe more than one) joint venture/recapitalization deals that will give entry to the product type to brand name private equity firms.

NREI – Self-Storage Still Attractive, but Good Deals Will Be Harder to Find in 2015
01/05/2015 | Robert Carr

Self-storage properties remain one of the hottest commodities in commercial real estate, generating steady returns for investors while supply has remained somewhat constrained. But experts say the sector could experience a mild slowdown this year, as attractive assets become harder to find and investors revise their return expectations.

Occupancy averaged above 90 percent in the self-storage sector in 2014, a record high. In the third quarter of the year, the top four sector REITs, including Public Storage, Extra Space Storage, CubeSmart and Sovran Self Storage, were trading at 22.1 times stock price to FFO, the highest price-to-FFO multiple in the REIT universe, according to SNL Financial, a Charlottesville, Va.-based research firm. All four companies were included in SNL’s top 25 U.S. REITs for five-year total returns.

The sector’s strength led to immense competition by investors to acquire self-storage facilities in 2014, says R. Christian Sonne, executive managing director in Cushman & Wakefield Inc.’s self-storage industry group.

“Self-storage is now legit, it’s not anymore like that odd business model that nobody really understood,” he says. “We’ve had entities from family money to equity firms and hedge funds jumping into the sector, which is now considered at least core, if not core-plus.”

A few firms announced plans for further expansion in the self-storage arena. Ernst & Young Capital Advisors LLC advised LifeStorage LP on a $120 million equity raise to extend the company’s footprint from the East Coast to across the country. Demand has been so strong, Los-Angeles-based DealPoint Merrill recently launched a $25 million fund that will convert former retail properties, in particular stand-alone big boxes and strip centers, into self-storage properties.

Cap rates for self-storage assets are at all-time lows, with strong competition for every deal, according to Sonne. Buyers are facing immense competition for even less-than-great product as sellers know their properties are hot.

“We were seeing stabilized assets trading at 5.5 percent cap rates, where this sector doesn’t usually see rates of less than 6 percent,” Sonne says. “Some of the portfolios went down to 5 percent. It’s just getting harder to find anything. The class-A stuff gets picked up before it’s even marketed, in quiet deals. The pace of acquisitions should slow in 2015, though, as the low-hanging fruit has been picked.”

 Portfolio sales continued in the fourth quarter, including CubeSmart buying up the first part of its 36-property acquisition from Chicago-based Harrison Capital. Newmark Grubb Knight Frank arranged the 26-site sale for $223 million, with the second part of the transaction expected to close with the repayment of property level financing by the end of March 2015.

New construction in the sector remains below pre-recession levels. Michael Mele, senior director with Marcus & Millichap’s national self-storage group, says he doesn’t expect a significant increase in supply in 2015. Developers were on pace to deliver about 4.7 million sq. ft. in 2014, up from 3.2 million sq. ft. the year prior. “While there are projects in the pipeline, most will not be completed until after 2015,” he says.

 Mele expects that institutional players in the sector will continue consolidating and that there will be a rush toward new development projects and expansion in the future. He says he doesn’t believe a hike in interest rates would hamper growth in the self-storage industry.

“Most markets are still undersupplied. It may slow down sales of existing facilities, but the sector as a whole will continue to be strong,” he says. U.S. REIT total returns were more than double those of the broader equity market in the first seven months of 2011, and significantly outperformed the market in July. All but one of the major REIT market sectors achieved gains for the first seven months of the year, and most sectors delivered double-­digit returns.

The total return of the FTSE NAREIT All Equity REITs Index gained 11.79 percent and the FTSE NAREIT All REITs Index was up 10.36 percent for the first seven months of 2011, compared to 3.87 percent for the S&P 500.