First Neck Self Storage has raised $50 million—and plans to perhaps double that in its next round—to buy operating storage facilities in primary and especially secondary markets.
It’s a joint venture involving CSM Capital Corp., a New York City-based multifamily office, and Self Storage Capital Partners, a Philadelphia-based self-storage firm that uses the brand name of Snapbox Self Storage.
It took about six weeks to raise the money.
“Our investors are very well-heeled, wealthy individuals who have worked with us for a long time,” said Christopher Moore, founder and president of CSM Capital Corp. “We’re going to spend this right now, and get back in the market probably when we’re within two-thirds of being done. The next round could be well north of $100 million.”
First Neck will use the initial raise to buy $150 million to $160 million in properties.
Hold and see
Moore said they plan to hold the facilities and draw distributions for the foreseeable future.
“We’ll happily entertain an industry sale to a third party, public or private. And we’ll be happy to look at becoming a REIT ourselves,” Moore said, “There’s no shortage of people looking at the opportunity. At some point, everything’s for sale. But we’re happy to hold it.”
Moore founded CSM Capital Corp. in 2004 and serves as president. The firm works with high-net-worth families and individuals, and has a total of $1.1 billion in accounts under management. The firm’s partners have completed more than $150 million worth of direct equity investments in multifamily properties.
Assembling a portfolio
First Neck will look at the top 100 markets, but with a special emphasis on the secondary ones, which are fragmented, according to John Blizzard, an associate at CSM Capital Corp.
“We saw a good opportunity to acquire stabilized facilities in primary and secondary markets, and to acquire relatively sophisticated operators and achieve management upsides through the management expertise of SSCP,” he said.
Another attraction of the secondary markets is that the cap rate and yields are higher in the core markets, “and the risk and the management are about the same as the core markets,” said Jake Ramage, CEO of SSCP. “You get rewarded much better in the secondary market than in the top 10 major markets, but your operational risk is slightly more. Maybe the rental growth is not as strong, but your reward is a higher yield.”
They’ll seek markets that are not overbuilt; Ramage cited Dallas and Oklahoma City as examples of oversupplied cities.
“Every deal will be looked at,” said Ramage, “But we won’t go into MSAs that are weak in demographics.”
Match made in storage heaven
Ramage and Matthew Lang founded SSCP in 2013. The company has bought and managed 28 self-storage facilities that have a combined 2 million square feet and are valued at about $200 million. SSCP, with operations in nine states, is one of the nation’s fastest-growing self-storage operators.
“We’re seeing very good reaction to our offerings, combined with the strengths of our operating partners, combined with our capital strength and name in the financial markets,” Moore said, “We’re a nice marriage of the two things that make transactions go well.”
Moore added: “There are a lot of equity investors that have not been able to close deals and end up not closing for whatever reason. But this group, SSCP, is in a very strong position to close deals going forward. We’re looking for new opportunities to acquire more property.”