The 2016 Summer Olympics in Brazil have come and gone, but there’s still many searching for gold in the vast South American country.
Specifically, a number of American investors are investing in the nascent self-storage market in Brazil, with a population of more than 200 million people and only about 120 modern self-storage facilities throughout the entire country, according to some estimates. Some investors are convinced that the Brazilian market is going to boom in years to come, as the nation basks in the after-glow of the Olympics and finally emerges from long years of recession.
“There’s a clear supply-demand imbalance in Brazil for this type of product,” said Jay Harron, president of Metro Storage International LLC, a wholly owned subsidiary of Illinois-based Metro Storage LLC, one of the largest privately held self-storage companies in the U.S. with more than 100 facilities.
The company got a huge boost earlier this summer when Goldman Sachs Group Inc. announced it would invest $184 million in MetroFit over the next six years.
In 2012, Metro Storage teamed up with Brazilian real estate company TRX to form MetroFit, to build and buy self-storage facilities in Sao Paulo, Brazil’s largest city with nearly 12 million people (pictured at top).
So far MetroFit has opened two self-storage facilities (each about 5,000 square meters in size) and two more are under development.
Harron couldn’t say exactly what the Goldman money will be used for, except to say MetroFit has the goal of owning at least 30 self-storage facilities in Brazil within five years, half of them in Sao Paulo.
“Goldman Sachs’s investment in MetroFit is an affirmation of Brazil’s future,” said Harron.
The team of Metro Storage, TRX and Goldman Sachs are not the only international players seeing huge potential in Brazil.
Competition turns on
Founded in 2013, GoodStorage, a venture of Brazilian private equity firm Hemisfério Sul Investimentos (HSI) and Chicago’s M3 Capital Partners, already has nine self-storage facilities in Brazil, all of them in Sao Paulo. And then there’s GuardeAqui, a Brazilian self-storage company controlled by Equity International, a Chicago real estate investment company led by Sam Zell and Tom Heneghan. Morgan Stanley Alternative Partners is a partner in the venture and the Teacher Retirement System of Texas made an investment in 2014.
So that makes three Chicago area firms with ties to three separate Brazilian self-storage firms, all vying to build and expand in a country with little familiarity with self-storage facilities in general.
Investors point to Brazil’s huge economic potential, now that it’s showing signs of finally shrugging off the worst recession the nation has suffered since the 1930s. They also note the country’s growing urban middle-class and its expanding number of small businesses.
“We believe the self-storage market in Brazil is underserved,” said Tom Conway, a principal at M3 Capital Partners, the investor in Goodstorage.
“We believe that as consumers and businesses become more aware of self-storage and understand the benefits…the demand for self-storage will increase,” Conway said.
But Conway and Harron say Brazil’s unfamiliarity with the concept of self-storage does test their marketing skills. Spokesmen representing GuardeAqui could not be reached for comment.
“Creating awareness is a challenge in Brazil, as it is in all other global markets, excluding the US, where people generally understand self-storage,” said Conway. “But professional (self-storage) businesses with scale, such as Goodstorage and Metrofit, have the capacity to market their brands and self-storage in general.”
“It’s not a well-known product,” agrees Harron. “We have to teach people what it’s all about.”
Harron said he enjoys showing Brazilians MetroFit’s facilities and explaining how they work. “They’ll ask ‘How do you use it?’ and we’ll explain and they’ll say ‘Wow, I’ve never heard of it.’”
Small business appeal
Interestingly, small business owners tend to quickly grasp the self-storage concept, said Harron.
In the US, residential customers make up about 80 percent of Metro Storage’s business, with 20 percent are commercial customers. But in Brazil, at least so far, it’s more of a 50-50 split.
“It’s a great dynamic for us, since the business guys tend to stay longer,” Harron said, adding salesmen, retailers and even wine importers are now using MetroFit’s self-storage facilities to store their inventories of products.
Harron said he’s confident the residential market for self-storage will eventually catch on big-time because of Brazil’s increasing urbanization.
The few major self-storage players in Brazil, including MetroFit, GoodStorage and GuardeAqui, collaborate via a recently created self-storage association in Brazil, to promote the self-storage industry. Harron said the three firms remain “friendly competitors.”
“We’re very optimistic about Brazil,” said Harron. “It’s been a challenge at times, but the dynamics in Brazil are excellent.”