Bolstered by self-storage veteran Hugh Horne, a new joint venture aims to create a national portfolio of storage facilities over the next several years.
HPI Horne Storage, a collaboration between Austin, TX-based Horne Partners LLC and Austin-based HPI Real Estate Services & Investments, already has six self-storage facilities underway. The first three are under construction in San Antonio, TX, and are set to open in early to mid-2019.
The three other sites on the drawing board are in Houston, TX, and Orlando and Tampa, FL, according to Jon Erickson, strategic investments partner at HPI.
Selective site selection
Horne is a former executive at Glendale, CA-based self-storage REIT Public Storage Inc. and a former board member at Salt Lake City, UT-based self-storage REIT Extra Space Storage Inc. From 1998 to 2004, he was president and CEO of Storageworld LP and Storage Spot Inc. Extra Space bought Storageworld’s portfolio of 26 facilities in 2004.
Erickson said HPI Horne Storage is being selective about development sites in those markets, with Horne’s site selection and development expertise helping minimize risk so that the joint venture is “not stepping on any potential landmines.”
“We are taking the view that we would rather pay a premium for land,” Erickson said, “We think we’re taking less risk by paying for more expensive land than by buying cheap land in an unproven trade area.”
So, given oversupply concerns in the self-storage industry, why is this a good time to develop a portfolio of self-storage facilities?
“Because always is a good time,” Horne said. “What we are doing is to identify trade areas within major markets where there is an excess of demand over supply.”
Erickson also downplayed worries about new supply.
“One of the unique aspects of self-storage compared to some other asset classes is that you take more idiosyncratic risk within your specific trade area,” he said. “So, if Dallas is overbuilt on a per-square-foot or per-capita basis or [is overbuilt] in certain trade areas, you can still find a site and trade area that is undersupplied and can be successful.”
Horne said the challenge is to pinpoint trade areas with high occupancy rates and escalating rents, meaning there’s more demand than supply, and “then find better sites and build better buildings.”
Aside from San Antonio, Houston, Orlando and Tampa, the venture is seeking 1- to 3-acre infill sites in Austin and Dallas-Fort Worth, TX; Denver, CO; Northern and Southern California; and Seattle, WA.
Capitalizing on quality
Horne estimated HPI Horne Storage will build one facility per month over the next four of five years. At that level, the joint venture could reach 60 facilities within five years, although Horne said he and his partners are “more interested in producing quality properties right now. We’ll let their success guide us.”
HPI Horne Storage has the flexibility to either take a long-term hold approach to the portfolio or to sell facilities “at an optimum time,” Horne said.
The joint venture’s first capital fund contains a little over $30 million, Erickson said, and HPI Horne Storage’s capital partners have indicated a willingness to pump more money into the joint venture. Horne said the capital is coming from institutional and high-net-worth investors.
Depending on the market, each facility will cost roughly $8 million to $20 million to develop, Erickson said. Generally, the facilities will be three to four stories high and encompass about 70,000 to 90,000 net rentable square feet.
One of the major third-party managers in self-storage will run the joint venture’s properties, Horne said.
The overall goal of the joint venture, Horne added, is to develop and operate “the most successful self-storage properties in the industry. That’s what I’ve done in the past, and I plan to continue to do that.
”Erickson said Horne has the financial and infrastructure support from HPI to make that happen.
“Our role in this venture is not to tell Hugh what markets to go to,” he said. “Our role in this venture is to make sure Hugh has gas in the tank to be able to build and grow this platform as he sees fit.”