For two guys that have the patience of Job as they scope out potential self-storage acquisitions, Jon Erickson and Jonathan Vollinger strike quickly when it’s time to buy.
Witness two recent purchases that closed within the past three weeks. Their company, Austin, TX-based HPI Real Estate Services & Investments, first bought a 72,901-square-foot facility at 420 N. 4th St. in Lantana, FL, which is in the South Palm Beach area. Skyview Advisors of Tampa, FL, represented the seller. The purchase price was not disclosed.
It was the first transaction for HPI Storage Fund II, a $44 million equity fund for acquisitions only. The all-cash deal closed in just 37 days.
“It’s not unusually fast, but it doesn’t get much faster than that,” said Vollinger, director of storage acquisitions for HPI. “That’s been confirmed by most of the brokers I have worked with; anything under 45 days is the quickest they’ve done in their careers.
“The Lantana property was the first deal in our fund,” Vollinger said. “We saw an opportunity that we liked and wanted to open the fund with a home run deal. We got aggressive to win that deal, competing with over 10 other offers.”
Then during the week of Nov. 16, the duo closed another all-cash purchase, buying a Las Vegas, NV property with 79,000 net rentable square feet. That site had opened in August.
HPI Storage Fund II also was behind this deal. It’s backed by “a single non-institutional investor that wants to hold these long-term,” said Erickson, strategic investment partner. “It’s defensive, high cash flow, and does not require extensive asset capital expenditures.”
Vollinger added, “We have closed two deals in the second fund, both all-cash, and we will continue to do so for the foreseeable future.”
Eye on development
HPI also has a $30 million equity development fund, which is only for ground-up development. Hugh Horne Sr., who was with Public Storage for more than 20 years and served on the board of Extra Space, partnered with HPI on this initiative. High-net-worth and family office investors back the fund.
A third fund is possible. “We do anticipate raising another fund,” Vollinger said. “We anticipate once this one (Fund II) is fully invested, we’ll start the third one.”
HPI has 11 other storage facilities in four states, either under construction or in lease-up, all under Fund I.
Erickson and Vollinger favor the defensive strategy, watching for when a market gets overbuilt and prices drop.
“There’s a handful of ways that people define it,” Erickson said. “The REITs are the easiest way to get apples-to-apples comparisons. There’s much less volatility in self-storage.
“Although they don’t get the highs when things are going high, they also don’t get the lows when things are not going so well. It’s hard to hit home runs, but it’s also hard to strike out.”
Why this niche, which some people consider overbuilt?
“We have been focused on self-storage as a defensive asset class compared to other asset classes, such as office or retail or some of the other real estate ventures. We like it long term,” Erickson said. “We like the stable cash flows that we get from self-storage.”
Vollinger said, “There are markets we perceive as rebound markets, markets that have gotten a lot of press about new supply, suffered a lot of rental decline because of supply, but are strong long-term bets. We think these markets are starting to sort themselves out as far as supply and demand.”
HPI has a presence in four major Texas cities, with headquarters in Austin (with 11 million square feet in its portfolio) and locations in Dallas (5.2 million square feet), San Antonio (2.1 million square feet) and Houston (1 million square feet).
The company started in 1992 with four people and 1 million square feet to handle. Today, there are more than 185 employees, over 500 clients, and 18 million square feet of real estate in portfolios.
Erickson previously worked at Prudential Mortgage Capital Co. and Hawkeye Partners. In his 12 years at Hawkeye, he helped do platform sourcing and due diligence for fund investments that topped $1.3 billion.
Vollinger joined HPI six months ago after working with another Texas firm for about five years, buying self-storage development sites.