With a new $50 million line of credit in hand, storage operator iStorage aims to buy as many as 20 more facilities over the next 12 months.
Chris Harris, president of iStorage, told The SpareFoot Storage Beat that his company’s acquisition strategy will focus primarily on markets where it already has a presence. The iStorage portfolio is spread across 11 states, with concentrations in Alabama, Florida and New Jersey.
Harris said the new line of credit line gives iStorage the ability to close deals quickly without having to secure financing from traditional channels — offering a competitive edge in an increasingly crowded acquisition market.
Recently, some of the groups we compete against [for acquisitions] are new entrants that have raised large funds. They can be quick to close and will pay with all cash.
— Chris Harris, president of iStorage
With the new line of credit, Winter Garden, FL-based iStorage is able close a deal in as few as 10 days, Harris said. Chicago-based The BSC Group, a financial advisory firm for the self-storage industry, helped secure the line of credit from an undisclosed lender.
“Speed to close, in our mind, is extremely important,” Harris said. “What a seller wants is certainty of execution. If you have a long, drawn-out due diligence period, there is always the question of what approvals you have to go through to close the deal.”
Traditional lenders often require due diligence periods of up to 60 days.
The iStorage portfolio is heavily concentrated in Alabama, Florida and New Jersey.
Changing market, changing needs
Since Harris became president of iStorage in 2012, the company has grown from 15 facilities under management to more than 60. According to Inside Self Storage, iStorage is the 15th largest self-storage operator in the U.S.
The company previously relied on traditional loans from big banks, such as Bank of America, to finance acquisitions. But given the surge of new capital entering the self-storage marketplace, iStorage sought a more nimble alternative.
“Recently, some of the groups we compete against [for acquisitions] are new entrants that have raised large funds,” Harris said. “They can be quick to close and will pay with all cash.”
Harris said that in the past 12 months, he’s seen a significant increase in the number of investors aggressively bidding on self-storage facilities. Deals in primary markets draw as many as 30 potential buyers, he said, while smaller deals typically draw between five and 10 bidders.
Harris said iStorage could end up tapping more than just the $50 million line of credit to fuel its growth. “The lender plans to grow the relationship as we grow our portfolio,” he said.
Shawn Hill, principal at The BSC Group, says iStorage secured its line of credit at an ideal time.
Good timing
Shawn Hill, principal of The BSC Group, said iStorage secured financing at an ideal time.
“The combination of low interest rates and tremendous liquidity in the debt market make it an optimal time to help our clients find ways to lower their cost of funds,” Hill said.
The iStorage line of credit features a three-year term and a variable interest rate of 2.25 percent over LIBOR. It’s secured by 19 of the company’s self-storage facilities.
Hill said the financing puts iStorage on the same footing as REITs and other large operators when it comes to sealing deals quickly.
“When an opportunity comes up, they will be able to close the deal in two weeks, where someone else it could take 60 days to get financing together,” Hill said.
