From 2009 to 2016, Austin, TX-based Virtus Real Estate Capital LLC went on a self-storage buying spree. During that period, the firm spent $191 million to scoop up 61 self-storage facilities in the U.S., with seven of those properties being bought in partnership with Cordova, TN-based Absolute Storage Management Inc.
Today, Virtus owns just one self-storage facility in the Charleston, SC, market that it bought in 2016.
So, is Virtus essentially finished with the self-storage business? In a word, no.
For one thing, Virtus doesn’t want to abandon a sector that’s been so lucrative. Here’s just one example: In January 2016, Virtus sold a 160,000-square-foot facility in Palmetto, FL, to Orlando, FL-based Simply Self Storage for $13.3 million. Virtus bought the facility in 2012 for $5.8 million.
“We’ve made a lot of money in the self-storage business. We’ve been a very significant player in that sector through the years,” Terrell Gates, CEO of Virtus, told The SpareFoot Storage Beat. “But we became net sellers over the last few years.”
Gates said the firm’s four-member storage team still is hunting for self-storage deals and easily can tap into capital if a compelling opportunity comes along. But it’s in no hurry to make acquisitions after recently shedding 60 facilities.
Buy low, sell high
In selling those facilities, Virtus was able to take advantage of high valuations. But it’s those same high valuations — along with the current inundation of new supply — that are causing Virtus to be cautious in its current approach to acquisitions, according to Gates.
In the past couple of years, most self-storage deals that have popped up haven’t met the criteria of Virtus’ investment committee, Gates said. Virtus focuses on real estate opportunities based on three variables: projected supply, projected demand and entrance pricing. In self-storage, two of those three variables — supply and pricing — currently are off-kilter.
As a result, Virtus is placing more emphasis on its other core sectors: student housing, senior living, workforce housing, medical office and charter schools. In all, the firm has more than $3.2 billion worth of real estate assets under management.
In self-storage, Virtus is exploring a couple of compelling “sub-strategies,” or niches, that Gates declined to identify.
“Where can we play that maybe others haven’t necessarily fully figured out and maybe get there before the others do?” Gates said.
Hanging around the hoop
Along with the “sub-strategies” tactic, Virtus is eyeing a self-storage play that Gates said “will be interesting a few years down the road.” In high-growth markets where long-term demand is robust, Virtus will be “hanging around the hoop” to buy facilities where developers overbuilt and “got a little bit over their skis,” he said.
Gates said the “hanging around the hoop” approach won’t be viable in self-storage until after new supply is absorbed over the next 12 to 24 months.
In the meantime, Virtus keeps selectively looking for attractive self-storage deals. The firm typically targets acquisitions from mom-and-pop operators in top-tier and second-tier metro areas.
“We’re still long-term bullish on self-storage. We love that business,” Gates said. “We think demand is going to continue to remain strong in the space.”