REITs on Self-Storage Buying Spree

CHICAGO—REITs in the self-storage business continued in 2013 a buying spree that has lasted for several years, snapping up more than $1 billion worth of properties in the sector, still largely dominated by smaller operators, according to a new Self Storage Market Overview by Chicago-based MJ Partners Real Estate Services.

The sector also continued to show strong revenue growth and occupancy levels in the fourth quarter, MJ Partners found. The top four self-storage companies all saw revenue increases between 5.3% and 7.7% for the entire year. Furthermore, the NOIs of each company grew as well, ranging from 8.2% to 10.0%.

The researchers also found strong customer demand and robust acquisition activity. Occupancy rates ranged from 89.2% to 93.0% and the publicly-listed REIT Public Storage, the largest storage firm with 2,200 US sites, just this year acquired 121 properties worth $1.16 billion, the majority in the fourth quarter. REITs acquired self-storage properties worth more than $2 billion in 2013, an increase from about $1.5 billion in 2011 and 2012.

Extra Space Storage Inc., a Utah-based REIT and another of the top four, last year purchased 78 properties for $586 million. This year, it already has properties worth $304 million either purchased or under contract. The Pennsylvania-based REIT CubeSmart bought 20 properties last year for $189.8 million and Sovran Self Storage Inc., a Buffalo-based REIT, bought 11 facilities for $94.9 million.

As reported in GlobeSt.com, Public Storage completed one of the year's largest deals last fall when it bought a portfolio with 43 properties and 22,500 units from Harrison Street Real Estate Capital, a Chicago-based real estate private equity firm, and Morningstar Properties.

But one of the big surprises of the new market report was that even with the strong occupancy and revenue levels developers have launched relatively few new self-storage facilities. “According to F.W. Dodge,” the new report noted, “only approximately 221 facilities nationwide are in various stages of development, equivalent to less than 0.5% of total inventory.”

Marc A. Boorstein, a principal of MJ Partners, could not be reached for more extended comment, but the report noted that this is a big change from much of the past decade. From 2003 to 2009, the number of facilities increased 32% to 48,721, and the amount of rentable space increased 95% to 2.6-billion-square-feet.

“Construction financing remains difficult to obtain for many smaller, private developers, requiring more equity capital to fund and carry project throughout stabilization,” MJ Partners said. However, Public Storage, the industry giant, has about 30 new facilities in various stages of development with a total of about 1.8-million-square-feet.

Officials from MJ Partners have said that unlike sectors such as office, industrial and multifamily, among others, the self-storage industry lacks comprehensive sources of information to help prospective investors understand the marketplace and make decisions on allocating funds. MJ Partners wants to help change that, and hopes these market overviews will serve “as a benchmark of the current investment market, operations performance, capital markets and trends within the self-storage industry.”