Can SmartStop Asset Management recreate the self-storage investment magic? Many industry insiders think it can – and will – over coming months and years with its new Strategic Storage Trust IV fund.
The Ladera Ranch, CA firm struck it big when it engineered the recent sale of 122 self-storage facilities within the portfolio of its affiliated SmartStop Self Storage to Extra Space Storage, in a deal valued at more than $1 billion.
Now SmartStop Asset Management is at it again, helping to start the new Strategic Storage Trust IV that last month got regulatory approval for its immediate offering. The stated goal for Strategic Storage Trust IV is to raise up to $1 billion for investment purposes within the self-storage industry in the United States and Canada—starting with a 48,000-square-foot self-storage facility in Jensen Beach, FL.
The 504-unit facility at 1105 North Industrial Boulevard was 99 percent leased at the time of sale. Other than the maximum amount of money it hopes to raise, the company is being mum about the fund’s investment details and strategy moving forward.
The company also declined requests to comment about its other affiliated, non-traded REIT funds, Strategic Storage Growth Trust and Strategic Storage Trust II.
But industry officials say they know enough about SmartStop Asset’s track record to guess what it’s going to do – and they say it will be an undoubtedly smart yet aggressive acquisition strategy, whether the self-storage industry continues to surge as a whole or whether the industry, and the US economy, experience a downturn.
Proven track record
“I’m very optimistic about this fund,” said Marc Boorstein, a principal at MJ Self Storage Group, an investment and real estate brokerage firm that’s worked with SmartStop Asset on past self-storage deals. “They just have so much credibility.”
Before the recent sale of its properties to Salt Lake City-based Extra Space, SmartStop would buy and then operate facilities. But the recent sale agreement with Extra Space also called for Extra Space to assume management of SmartStop’s 43 other storage facilities contained within its two other funds, Strategic Storage Growth Trust and Strategic Storage Trust II.
Boorstein said the same management deal applies to future properties acquired by Strategic Storage Trust IV – and that would make it a pure investment vehicle. No day-to-day operational headaches. Just focusing entirely on the next investment move.
“They can buy into more markets this way,” said Boorstein.
So what type of properties might it go after? Boorstein thinks it will be a combination of small portfolios along with “one-off mom-and-pop shops.”
Market opportunity ahead
James de Gorter, co-founder of Union Realtime LLC, a New York data research firm for the self-storage sector, said the market right now seems to be slowing a bit, as a surge in newly built facilities come online and suppress prices a bit. “But it’s still a great industry that’s going strong,” he said.
As long as Strategic Storage Trust IV makes “very surgical” investments in underserved self-storage areas, it should do fine, he said.
Even if the industry and economy experience a downturn, the fund would be in good shape to snap up distressed, or near distressed, properties, he said. In particular, there might be some recently built facilities available for sale, if they were constructed at the top of the market, only to experience a market drop off after opening, he said.
“We don’t think there’s going to be any bloodbath with people paying pennies to the dollar,” de Gorter said of a possible downturn during the life of Strategic Storage Trust IV. “But smaller players, particularly smaller developers, may have to unload.”
Tom Doyle, a director at HFF and who co-heads his firm’s national self-storage group along with colleague Barbara Guffey, said now is a smart time in general to start a new investment fund.
If the market and economy stay relatively strong, then fine, Strategic Storage Trust IV would be operating in a healthy industry environment. If a downturn occurs down the road, it’s still in a good position to follow the classic long-term “buy low, sell high” strategy that many investors swear by during recessions.
As for raising funds, Doyle said an experienced and respected firm like SmartStop Asset Management should have no problem at all on the equity front. The self-storage investment market has recently become hugely popular with many types of investors – from foreign investors to private-equity firms to pension funds.
“There’s a lot of new equity chasing (self-storage) space these days,” he said. “A lot of new folks are getting into self-storage.”
Like Boorstein, Doyle said Strategic Storage Trust IV will be helped by Extra Space managing its properties, freeing it up to focus on investment moves.
Of SmartStop Asset Management, Doyle said: “They’re a strong company and phenomenal at what they do. I see no reason why they shouldn’t be successful moving forward.”