Northwest Self Storage, Optivest Properties LLC (Store More!) and SecurCare Self Storage Inc. have pooled 64 self-storage facilities in 11 states to establish National Storage Affiliates, the first self-storage REIT run by affiliates. The combined assets add up to 3.3 million of rentable square feet and are valued at more than $800 million.
Individually, Northwest, Optivest and SecurCare already are among the 25 biggest self-storage operators in the U.S.
‘An Innovative Concept’
As mortgage debt matures over the next two to four years, Northwest, Optivest and SecurCare will contribute the rest of their self-storage facilities to the private REIT. With just those assets, National Storage Affiliates will control about 220 facilities, featuring 100,000 units and 12.5 million rentable square feet in 15 states—ranking it as the largest privately owned self-storage operator in the U.S.
“This is an innovative concept, and execution must have been complex, requiring significant management expertise,” said Chris Sonne, executive managing director of the Self Storage Industry Group at commercial real estate firm Cushman & Wakefield. “I am very interested to see the results of this operating model.”
National Storage Affiliates is not registered with the U.S. Securities and Exchange Commission (SEC).
Strategic Storage Trust Inc. (SmartStop), one of the industry’s biggest players, is the first and only self-storage REIT that is registered with the SEC but whose shares aren’t traded on a stock exchange—a setup known as a non-traded REIT. Unlike National Storage Affiliates, Strategic Storage Trust is backed by just one operator.
Strategic Storage Trust is one of five publicly registered self-storage REITs in the U.S. The others, whose stock is publicly traded, are Public Storage Inc., Extra Space Storage Inc., Sovran Self Storage Inc. (Uncle Bob’s) and CubeSmart.
A ‘Healthy’ Development
John Manes, chief operating officer of The Jenkins Organization Inc., said he thinks establishment of National Storage Affiliates is “healthy” for the self-storage industry. The Houston-based company owns or manages 53 facilities and ranks among the 25 largest self-storage operators in the U.S.
“Knowing how fragmented the storage industry is compared to other industries, there is plenty of room for consolidation,” Manes said. “This REIT is just one avenue that allows for the opportunity to consolidate.”
Advantages of combining real estate assets under a REIT include tax breaks as well improved access to equity and debt.
Asked whether The Jenkins Organization would consider participating in a REIT, Manes said: “We are continually looking at opportunities within the self-storage platform.”
Executives of National Storage Affiliates declined to discuss specifics about the REIT’s ownership structure. National Storage Affiliates was organized in Maryland—a haven for REITs because of the state’s REIT-friendly laws—and is based in suburban Denver.
Targeting the country’s 100 largest metro areas, National Storage Affiliates plans to sign up more affiliates for the self-administered, self-managed REIT. The REIT envisions ultimately having a total of 10 to 12 self-storage operators on board, said Tamara Fischer, chief financial officer of National Storage Affiliates.
In a news release, Arlen Nordhagen, CEO of National Storage Affiliates and president of SecurCare, said: “With market trends in our industry increasingly favoring size and scale, we feel that our collective teams and assets are greater as a whole than the sum of the parts.”
Nordhagen added: “As affiliate-owners of National Storage Affiliates, we have addressed our desire to continue to operate and grow our respective contributed portfolios, while improving our financial and operational positions through the REIT.”
Under this arrangement, Northwest, Optivest and SecurCare will keep their current branding, Fischer said.
Sizing Up the Operators
According to the 2013 Self Storage Almanac, SecurCare had 7 million rentable square feet last year, making it the 10th largest self-self storage operator in the U.S. SecurCare owned or managed 148 facilities with 56,700 units. Meanwhile, Optivest ranked 18th, with nearly 4.1 million square feet of rentable square feet. It owned or managed nearly 25,700 units at 43 facilities.
The almanac’s 2013 ranking of self-storage operators didn’t list Northwest Self Storage. However, last year’s almanac ranked it as the country’s 17th largest operator in 2011, with more than 4.6 million rentable square feet at 71 owned or managed facilities comprising more than 33,400 units.
U.S. Bank, Wells Fargo and a Prudential Real Estate Investors debt fund provided financing for the National Storage Affiliates deal. Clifford Chance LLP is providing legal services, and Knightsbridge Realty Capital Inc. is providing strategic advisory services.