A 40-year-old real estate company in North Carolina has made its initial foray into the self-storage sector and is pursuing even more opportunities in the Southeast.
Raleigh, NC-based Rivercrest Realty Advisors recently bought a self-storage facility in Winston-Salem, NC, and launched construction of a self-storage facility in Greenville, SC.
Those two facilities represent Rivercrest’s first self-storage holdings.
“We have been interested in self-storage for some time, but frankly have been focused on other asset classes for investment, primarily in retail, over the last decade or so,” said Jon Gaines, one of the principals at Rivercrest. “In looking at some of the challenges in the retail and multifamily spaces, we resolved to be more dedicated in diversifying our investment. Self-storage seemed like a natural avenue.”
Founded in 1967, Rivercrest buys, owns and manages shopping centers, office buildings, apartment buildings and self-storage facilities in the eastern U.S. The company’s 85 existing and under-construction properties — primarily retail centers — total more than 5 million square feet.
Two to start
In Winston-Salem, the 558-unit, climate-controlled LockBox facility purchased by Rivercrest occupies 70,962 square feet in a converted grocery store. Gaines said the property was in lease-up mode when his company bought it, and the facility “continues to lease very well.”
In Greenville, Rivercrest is building a three-story Class A facility with 694 units. The project will encompass 61,555 rentable square feet. Completion is set for the spring of 2018.
Gaines said that aside from the Winston-Salem and Greenville facilities, Rivercrest is looking for acquisition, development and retrofit opportunities across the Southeast.
“We hope to build a portfolio of quality self-storage assets in markets where our feasibility analysis substantiates a healthy supply-and-demand condition,” he said.
Timing the market
Supply-and-demand equilibrium is a key concern for self-storage operators and developers around the country.
“I see the major headwinds in the self-storage business to be oversupply in some areas and the popularity of this asset class for developers and investors,” Gaines said. “This has led to overheated markets in some areas of the country.”
As Rivercrest cautiously forges ahead with self-storage acquisition and development, another North Carolina-based self-storage operator is “pumping the brakes” on expansion plans.
Greensboro, NC, real estate developer Roy Carroll, principal of The Carroll Cos., told the Greensboro News & Record that he’s scaling back growth of the Bee Storage brand because he thinks the self-storage industry is overbuilt in some markets. For instance, he’s decided to scrap a project that had been slated for a 4-acre site in his hometown.
“I think there’s a lot of individuals that have jumped into the self-storage business in the last 18 months,” Carroll said, “and we’re seeing a lot of market saturation.”
In the newspaper interview, Carroll pegged his company’s projected investment in the self-storage industry at more than $250 million.
Avoiding oversupplied areas
Since entering the self-storage sector in 2014, Carroll’s company has opened four facilities, all of which are in North Carolina. The Bee Storage website shows 27 other facilities are “coming soon” in North Carolina, South Carolina, Tennessee, Texas and Virginia, but it’s unclear how many of those remain in the pipeline.
Gaines said the sentiments expressed by Carroll are why Rivercrest is being selective about where to buy and build, with just two assets in its self-storage portfolio thus far. Rivercrest’s due diligence seeks to identify and avoid oversupplied markets, he said.
“Of course, determining when a market is oversupplied or will be in the future is a complicated venture,” Gaines said. “Like most real estate investments, self-storage is a local business, and some markets have more supply than they will be able to absorb for some time.”