In recent years, a partnership between Devon Self Storage and Inland Private Capital Corp. has purchased two dozen self-storage facilities. Now, the two companies are pivoting to redevelopment opportunities in Opportunity Zones.
Devon and Inland Private Capital recently launched an initiative that’ll seek to buy existing properties — including former stores, office spaces and manufacturing sites — within Opportunity Zones across the U.S. and convert them into self-storage facilities.
“We believe that great potential exists to uncover high-quality, undervalued self-storage conversion opportunities within Opportunity Zones, creating an economic benefit to the communities in which they serve while also providing meaningful tax benefits,” said Ken Nitzberg, chairman and CEO of Emeryville, CA-based Devon.
The benefits of Opportunity Zones
According to real estate data provider Yardi Matrix, the Tax Cuts and Jobs Act of 2017 allows investors to defer or avoid taxes on capital gains from any investment sale, including stocks, bonds or real estate, if the money is reinvested in an Opportunity Zone. The U.S. Treasury Department has certified more than 8,700 of these economically distressed zones.
Investors who keep their Opportunity Zone investments for five years will pay no taxes on 10% of the gains, Yardi Matrix says. After seven years, 15% of the gains won’t be taxed. Investors who keep investments for 10 years can avoid paying taxes on all of the gains.
Executives with Inland Private Capital and Devon said it’s difficult to forecast how many conversion properties they’ll purchase. The number of properties will depend on “our ability to identify quality opportunities in the marketplace that fit our investment criteria,” Nitzberg said.
Redevelop to hold
Those criteria include the quality, visibility and traffic count of a particular location, as well as the supply-and-demand ratio in that market, Nitzberg said. Redeveloped facilities likely will range from 65,000 to 85,000 square feet.
“Our development plans have a redevelop-to-hold mindset, with a long-term investment horizon in mind,” said Keith Lampi, president of Oak Brook, IL-based Inland Private Capital. “We plan to implement our strategy of converting existing buildings into self-storage facilities, and once the redevelopment is complete, we intend to manage each asset over an extended period of time.”
Although Inland Private Capital and Devon will be focusing on redevelopment projects, they’re still looking for stabilized facilities to buy.
Through five strategic relationships, including one with Devon, Inland Private Capital has grown its self-storage portfolio to more than $740 million in assets under management, consisting of 124 properties and more than 59,000 units in 15 states.
Founded in 1988, Devon has been participated in more than $2.5 billion in self-storage deals, having owned, developed and managed over 180 facilities in 24 states and three European countries. Today, Devon operates 45 facilities in 15 states.
