Strategic Storage Buys Three in MI Market

DETROIT—Strategic Storage Trust II, Inc., a public non-traded REIT that focuses on self-storage properties, just closed on three properties in suburban Detroit totaling about 1,720 units and 197,400 net rentable square feet. The deal is one tranche of a larger deal by SST II.

The company will re-brand the facilities under the SmartStop® Self Storage trade name. The $11.9 million price tag is just a small percentage of the money changing hands throughout the US as the sector's high returns and constrained supply have made it quite attractive to many investors.

“These assets are ideally located within the Detroit metropolitan region, which holds roughly one-half of Michigan's population,” said H. Michael Schwartz, chairman and chief executive officer of the Ladera Ranch, CA-based SST II, in a prepared statement. He was not available by press time. “The three facilities will complement our growing self-storage portfolio.”

The SST II portfolio includes about 16,060 self-storage units and 1.8 million rentable square feet of space.

As reported in GlobeSt.com, new development for the sector remains anemic. Whatever the occupancy levels in existing product, bankers still consider each new development, all of which open with zero occupancy, a speculative project, according to Marc Boorstein, a principal of MJ Partners Real Estate Services, a Chicago-based firm that studies the sector. Therefore, instead of establishing funds that could finance giant blocks of development in multiple markets, bankers approach self-storage on a deal-by-deal basis.

Therefore, there is an intense competition for existing properties, leading to cap rate compression in both core and secondary markets. “We just have bidding wars for any property that we bring to market,” Boorstein said.

The properties just purchased by SST II include a 730-unit facility located in Troy at 262 E. Maple Rd., purchased for about $4.8 million. It sits on about 4.62 acres and contains roughly 82,200 rentable square feet of self-storage space. Built in 1988, the eight-building facility had at the time of acquisition a healthy occupancy rate of about 90%.

SST II also bought a 500-unit property in Warren located at 27203 Groesbeck Hwy. This facility sits on about 4.82 acres and has roughly 63,100 rentable square feet. Built in 1996, the property, also with eight buildings, was about 80% occupied at acquisition. SST II purchased the property for $3.4 million.

The second acquisition in Warren is an approximately 490-unit facility located at 24623 Ryan Rd. This facility contains about 52,100 rentable square feet. Built in 1987, the 10-building facility was approximately 86% occupied at acquisition. SST II purchased this property for about $3.6 million.

“We look forward to implementing our capital expenditures program at these locations and improving the general quality of the facilities,” said Wayne Johnson, senior vice president of acquisitions for SST II. “This should result in better performance at all the locations.”