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Expert Strategies for Self-Storage Success
Posted 4/6/2015
Author Carrie Rossenfeld
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 LADERA RANCH, CA—Clustering assets in similar areas provides incremental benefits to self-storage properties, a sector that’s attracting new investor groups, H. Michael Schwartz, chairman and CEO of SmartStop Self Storage, tells exclusively. As reported earlier this month, the firm’s two affiliated REITs,Strategic Storage Trust II Inc. and Strategic Growth Trust Inc., recently acquired 27 of the 32 facilities in a portfolio transaction totaling approximately 18,000 units and 1.9 million net rentable square feet with an aggregate purchase price of approximately $145 million. The remaining five facilities are expected to close in the first quarter of 2015. We spoke with Schwartz about this transaction and developments within the self-storage sector. What stood out for you about your recent 27-facility transaction?

Schwartz: Overall, it’s the size. We’re always interested in portfolio transactions. This one has a nice overall aggregate allocation; some of the properties are in Southern California, while others are in Northern California, and we opened up a new market in the Seattle area in Everett, WA. We’re adding assets in Denver and Colorado Springs, which is an area that’s important to us, and we’re expanding our footprint in Chicago, DC and Michigan. We have nice, good diversification in markets other than the Seattle area, both in new markets and a build-up of existing markets. What are the most noteworthy trends in the self-storage sector?

Schwartz: Self-storage has had a very solid run, from the bottom of the Great Recession to where we’re at today. We saw very strong overall NOI growth on top-line and smaller regional operators and saw some positive trends. In 2015, we see nothing but overall strength in the self-storage market. Development has been significantly muted over the years, and it’s picking up, but this will not affect 2015 or 2016. The fundamentals are strong, there are high occupancies, and the larger platforms in bigger companies are good. In order to take in some of the marketing synergies and economies of scale, you have to cluster your assets in areas that are the same, which brings incremental benefits to the properties. How is the sector reacting to general improvements in the commercial real estate industry and the economy?

Schwartz: We’ve seen self-storage start to improve, and it tends to improve first among all the asset classes. It’s not just improved, but it’s accelerated to be one of the top asset classes in overall performance in the last few years. How is the buyer or seller profile for this sector changing as time goes on?

Schwartz: There’s no question it has. The positive performance that self-storage has been showing is bringing in more interest from everyone from private-equity shops to public companies. There are a lot of new entrants and existing successful regional and small operators, so there’s no question it’s more competitive today to get good acquisition candidates. That’s why I think this portfolio was a great buy for our organization.

SmartStop is a sponsor to REITs, and our acquisition goes into those two REITs, so we acquired the portfolio on behalf of those. We’re building out two new programs: our income and growth programs, and it will be interesting to see how those are affected if interest rates rise.

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