Blackstone Group’s $1.2 billion purchase of Simply Self Storage has helped open the acquisition floodgates.
Self-storage specialist Marc Boorstein, principal of Chicago-based real estate brokerage and investment firm MJ Partners Real Estate Services, said that after Blackstone announced the Simply Self Storage acquisition in October, he heard from self-storage REIT executives who told him: “We’ve got to sharpen our pencils.” Translation: The REITs don’t want to be outbid on coveted deals like they were with the Simply Self Storage portfolio.
“Now,” Boorstein said in late December, “there’s a flurry of activity.”
He expects the Blackstone-triggered flurry of acquisitions to extend well into 2021. Blackstone Real Estate Income Trust (BREIT), a subsidiary of Blackstone, said Dec. 18 that it had closed the Simply Self Storage deal.
“Sellers are saying, ‘I’m not going to miss this mark,’ and buyers are saying, ‘We think this is a long-term trend, we don’t think it’s temporary. We think the pandemic has just awakened people to self-storage.’ It’s really amazing,” he said.
During a Dec. 8 webinar hosted by commercial real estate services provider Marcus & Millichap, Liz Schlesinger, founder and CEO of Brooklyn, NY-based self-storage investor Merit Hill Capital, said the Blackstone deal is a “game changer” for self-storage. Before the deal, BREIT owned a $300 million portfolio of self-storage facilities. The acquisition of Orlando, FL-based Simply Self Storage catapults BREIT to No. 3 among the country’s largest non-traded owners of self-storage facilities.
Schlesinger noted that as a relatively new entrant in the self-storage business, New York City, NY-based Blackstone hadn’t made much of a mark until the Simply Self Storage deal was announced in October. She called the deal “a pretty big move” by Blackstone to stake a claim in self-storage.
“Obviously, they can throw their weight around, and they’re very smart, sophisticated buyers,” said Schlesinger, former head of self-storage investments at New York City-based REIT W.P. Carey.
Other smart, sophisticated buyers (and sellers) are making moves in self-storage, too. For instance:
- Columbia, MD-based ezStorage reportedly is exploring a sale of the company that may value it at more than $2 billion.
- Bill Gates, the billionaire co-founder of Microsoft, purchased an ownership stake in Columbia, MO-based storage operator StorageMart. The investment was made through Kirkland, WA-based Cascade Investment, a Gates-controlled private investment firm.
- Glendale, CA-based Public Storage, the country’s biggest self-storage REIT, is buying the 36-facility Beyond Self Storage portfolio for $528 million. Riverside, MO-based NorthPoint Development owns the Beyond Self Storage brand.
- Malvern, PA-based self-storage REIT CubeSmart is purchasing a New York City portfolio of eight facilities from New York City-based Storage Deluxe for $540 million.
- Williamsville, NY-based self-storage REIT Life Storage acquired 25 facilities from two joint venture partners for $326.7 million.
What’s behind the recent surge of interest in self-storage?
Boorstein explained that the sector has piqued investor interest because it has demonstrated resilience even during the coronavirus pandemic. All five of the publicly traded self-storage REITs reported steady or higher same-store occupancy rates through the first nine months of 2020. Furthermore, he said, the sector delivers favorable risk-adjusted returns compared with other alternative asset classes.
Players like Blackstone and Bill Gates are pouring capital into self-storage because “they like the long-term value proposition of self-storage. In other words, they think that demand is here to stay,” Boorstein said.
“You’ve got very well-capitalized groups that want to acquire regional portfolios out there, and large companies are saying, ‘You know what? Maybe this is the time to do it,’” he said. “So we anticipate … 2021 is going to be very active for acquisitions. We have almost no doubt about it.”
The flow of capital into the industry and the competition for a limited number of stabilized assets has compressed cap rates by 20 to 25 basis points, Boorstein wrote in a year-end report.
Don’t count out mom-and-pops
Schlesinger believes competitive pressures felt by mom-and-pop operators will keep driving industry consolidation, although she said small-scale operators that excel in their local markets can continue to thrive. Her message: Don’t count out mom-and-pop owners.
“I think the biggest mistake a lot of investors have in getting into storage is they say, ‘Oh, this is a mom-and-pop and they’re idiots, and we can do better.’ The reality is, you should check your ego because if they were in storage 30 years ago, they’re smarter than [you are],” Schlesinger said.