Dean Jernigan might have retired recently from the top spot at CubeSmart LP, but the industry veteran isn’t finished working in the self-storage sector. In fact, he’s looking to lend millions of dollars to self-storage operators.
Following his long-planned exit as CEO of publicly traded self-storage REIT CubeSmart, Jernigan just launched his new venture: Jernigan Capital LLC.
“I’m still a young guy,” the 67-year-old Jernigan told The Storage Facilitator. “I stay very active and have no interest in retiring. Storage has been my life for 30 years now.”
From Borrower to Lender
Jernigan Capital, based in Miami Beach, FL, is a merchant bank and advisory firm catering solely to the self-storage industry. Jernigan said he’s investing his own money to back the loans. He’s also recruiting an institutional joint venture partner to contribute capital.
“I decided that all the things I’ve learned over the years being a borrower, I’d like to use as a lender,” Jernigan said. “I think I have a unique perspective to offer many people out there looking to build, buy or refinance a facility.”
Jernigan entered the self-storage business in 1985 after building his first facility in Memphis, TN. The company Jernigan founded, Storage USA, went on to become the first publicly traded storage REIT. After GE Capital bought that company, Jernigan started a development firm. But it was only a few years later, in 2006, that he was recruited as CEO of U-Stor-It, now known as CubeSmart.
With his latest venture, Jernigan will be looking to issue loans to operators starting at $1 million for single-asset acquisitions. He said most loans should be in the $8 million to $10 million range.
Jernigan expects to start signing deals in March. In the meantime, Jernigan is working on hiring staff. He already has assembled an advisory board to help vet deals.
Spurred by CMBS
One motivating factor Jernigan cites for entering the lending side of the business is the $10 billion in self-storage CMBS loans that are coming due over the next five years.
“Many of these people will struggle to refinance their existing loan amounts,” Jernigan said.
Why? Many self-storage properties built between 2005 and 2008 didn’t perform as well as forecast, he said, and aren’t able to borrow much under traditional refinancing programs.
“My plan is to be a source for those people,” Jernigan said.
Jernigan Capital will be considering deals in the top 50 metro areas with higher loan-to-value ratios than typical lenders would.
The firm also will provide loans for acquisitions and development projects.
“We are coming back into a development cycle, and banks that have traditionally been lenders for people who are developing storage facilities are fairly hamstrung nowadays with all kinds of regulatory requirements,” Jernigan said.
For development loans, Jernigan will focus only on the top 20 metro areas.
Keeping an Eye on Interest Rates
Jernigan is monitoring the effect that rising interest rates will have on the self-storage industry. Rates are creeping up, and he said that’s likely to prevent the volume of acquisitions like the industry saw in 2013.
“Potential sellers out there are going to have to adjust their expectations on values because the cost of capital is going up,” said Jernigan, citing news that the 10-year Treasury yield is hovering above 3 percent.
A rise in interest rates will push up cap rates, which will diminish the appetite for large portfolios, Jernigan said. However, he still expects the industry to keep consolidating.
One- and two-facility deals “will continue in a pretty big way,” Jernigan said.
Top photo courtesy of REIT.com