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LADERA RANCH, CA-A new nontraded REIT called Strategic Storage Trust Inc. with a background in tenant-in-common sponsorship and private REITs, has launched a $1 billion offering of its shares. The new REIT is banking on investor demand, reliable returns from the product type and a chance to consolidate holdings in what remains a relatively fragmented industry. Attorney Michael Rafter, a partner at the Atlanta office of law firm Powell Goldstein, tells GlobeSt.com that if Strategic Storage raises even half of the $1 billion offering it will be the fifth-largest public storage REIT in the country.

Rafter and fellow Powell Goldstein partner Howard Hirsch led a team of lawyers on Strategic Storage Trust’s offering, which runs until March 2010. The new REIT, which is now marketing its shares through broker-dealers, is sponsored by Ladera Ranch-based US Commercial LLC, an affiliate of Napa, CA-based US Advisors. The president of both the new REIT and US Commercial is H. Michael Schwartz, an 18-year industry veteran who joined US Commercial in 2004 after serving as an executive with Santa Ana-based Triple Net Properties, which has since merged into Grubb & Ellis. At US Commercial, Schwartz oversees the company’s commercial real estate operations and its private self-storage REIT.

Rafter tells GlobeSt.com that the success of US Commercial’s private self-storage REITs and some TIC self-storage deals that it sponsored is one of the factors that led the company to sponsor the new nontraded REIT. Strategic Storage Trust is similar in structure to other nontraded REITs, like G REIT, T REIT and Wells REIT investment vehicles that sell their shares through public offerings but are not listed or traded on stock exchanges. Nontraded REITS typically plan to operate for a period of years before either liquidating or listing on a public exchange. In the case of Strategic Storage, the company will either list, liquidate or merge into another entity after five to seven years of operation, according to its recently filed prospectus.

Rafter points out that the profile of the typical nontraded REIT share buyer is similar to that of the typical TIC investor. Many if not most are of retirement age and are looking for steady, reliable income and preservation of capital but without the management headaches of directly owning property. He also notes that Strategic Storage is the first nontraded REIT in the self-storage industry, where the other REITs to date have been publicly held.

The self-storage industry was a likely choice for a nontraded REIT because the storage properties “are generating cash flows and cap rates north of 7%,” Rafter says. In addition, ownership in the industry remains relatively fragmented, offering the potential for consolidation, he points out.

The Strategic Storage prospectus states that: “In light of the current debt and interest rate environment, we intend to use low leverage (less than 50%) to make our investments during this offering. However, at certain times during this offering, our debt leverage levels may be temporarily higher as we acquire properties in advance.”

The trust plans to buy self-storage facilities and related real estate investments throughout the US, although it may also invest a portion of the net proceeds outside the US. Its prospectus cites Self Storage Association figures showing that the industry in the US consists of approximately 2.2 billion rentable sf at approximately 51,500 facilities.

The prospectus says that Strategic Storage believes that there is significant opportunity for the company to achieve market penetration and name recognition within three years if it can raise and invest at least $200 million of the $1 billion offering. It says that it may acquire properties through one or more joint ventures in order to diversify its portfolio in terms of geography or to co-invest with one or more of its property managers.

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