CubeSmart Acquires a Self-Storage Portfolio for $540M

CubeSmart has agreed to acquire a portfolio of eight self-storage properties in New York City from Storage Deluxe for $540 million. 

The portfolio, managed by CubeSmart, consists of 780,425 rentable square feet located in Brooklyn, Queens and the Bronx, NY.

“This exciting transaction represents the culmination of our ten-year strategic plan to establish our leading market position in New York City,” Christopher P. Marr, President and CEO, said in an announcement. “The acquisition of this portfolio expands our presence in attractive submarkets within each outer-borough that have positive demographic trends and a strong growth outlook. The timing of this opportunity allows us to take advantage of strong fundamental trends for self-storage in the boroughs.”

CubeSmart will make the acquisition with $201.7 million payable in cash, approximately $183.7 million payable in Class B Operating Partnership Units and the assumption of about $154.6 million of existing fixed-rate secured debt. It expects to finance the cash portion of the purchase price at closing through cash on hand and borrowings under the unsecured revolving credit facility. The transaction is slated to close in two tranches in the fourth quarter of 2020. 

Earlier this week, Blackstone Real Estate Income Trust entered into a definitive agreement to acquire Simply Self Storage from a Brookfield Asset Management real estate fund for approximately $1.2 billion. Simply Self Storage is one of the top five private owners of self-storage and operates a portfolio totaling eight million square feet across the US. BREIT currently owns a $300 million portfolio of self-storage facilities, and following this acquisition, BREIT will be the third-largest non-listed owner of storage in the US.

The Blackstone and CubeSmart acquisition comes when there is “an increased need to store and amass COVID-19 necessities, as well as students’ belongings for those who were sent home early from college last spring,” according to Moody’s Analytics REIS.

Still, there are signs the sector is struggling. Moody’s Analytics REIS reports that vacancy in the self-storage sector rose 40 basis points over the first quarter, leveling off at 14.9%. That represented an increase of 130 basis points over the first quarter of 2019, which was previously thought to be the sector’s cyclical high.

According to Moody’s Analytics REIS, national rents for 10×10 climate and non-climate-controlled units fell by -1.2% and -0.4% over Q2, respectively. Rents for 10×10 non-climate-controlled units saw their largest year-over-year decline on record at -3.2%.

In the future, Moody’s Analytics REIS expects some supply pressures on the self-storage sectors. Since the beginning of 2016, more than 1.2 million self-storage units have been built, but only 750,000 of those units were absorbed. That imbalance between supply and demand has caused the sector’s vacancy rate to rise from 10.9% in the first quarter of 2016 to the current rate of 14.9%.