Bidders Vying for 43-Property Morningstar Portfolio

July 30, 2013 2
Bidders Vying for 43-Property Morningstar Portfolio

Real estate investment management firm Harrison Street Real Estate Capital is in the process of selling its joint venture stake in a 43-property self-storage portfolio that it owns with Morningstar Properties LLC, The Storage Facilitator has learned.

Depending on the winning bid, the deal could mean big changes for Morningstar, which also holds an ownership stake and operates the facilities under the Morningstar Mini-Storage brand.

The deal is attracting considerable attention because of its size and its strong assets. The portfolio spans 2.9 million square feet at properties in Texas, North Carolina, South Carolina, Virginia and Georgia.

“Morningstar has done a great job of managing this portfolio. It is a high-quality portfolio with lots of economies of scale,” said Chris Sonne, executive managing director of the Self Storage Industry Group at commercial real estate firm Cushman & Wakefield.

‘Aggressive Offers’ Expected
Self-storage REITs, along with some private buyers, are expected to bid on the portfolio. Publicly held Sovran Self Storage Inc. will be among the bidders, said Paul Powell, the REIT’s executive vice president of real estate investment.

“I think there is going to be a lot of activity and some aggressive offers,” said Powell, whose company’s facilities are branded as Uncle Bob’s.

Real estate investment banking firm Eastdil Secured LLC, a New York-based subsidiary of Wells Fargo, is marketing the portfolio. Representatives of Eastdil Secured couldn’t be reached for comment.

Although there’s a chance that a buyer might purchase only Harrison Street’s joint venture stake, it’s likely that bidders are seeking to snap up the entire portfolio. As such, the total price tag for the 43 Morningstar properties easily will reach into the hundreds of millions of dollars. Initial bids were due in mid-July, with final bids set for the week of July 29.

“Everyone is very interested, because I think it is going to set a new benchmark on portfolio premiums. So there is wide, wide interest to see what happens, who ends up with it, what the pricing looks like and how the market reacts to it,” Sonne said.

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Bevy of Bidders
A high sale price also could be a big incentive for other owners to put their portfolios on the sale block, experts said.

The size of the Morningstar portfolio is whetting investors’ appetites for the ability to substantially expand existing portfolios or to enter the self-storage market with a sizable presence. A number of institutional investors and private equity firms would like to jump into the self-storage niche, but they’ve been unable to enter at the scale they want.

This deal will be significantly bigger than $50 million—the minimum amount needed to spark interest from a broad array of investors who don’t already have a stake in the self-storage sector, said Aaron Swerdlin, executive managing director at Newmark Grubb Knight Frank (NGKF) Markets in Houston. “So, I would say that anybody that is looking to get into the (self-storage) space is looking at this deal,” he said.

Right Timing, Right Pricing
Although representatives of Harrison Street couldn’t be reached for comment, sources familiar with the deal say the private equity firm is simply making a move to capitalize on attractive pricing, realize returns for this particular investment and reinvest the capital. Harrison Street maintains a strong presence in the self-storage sector and continues to make new investments in self-storage properties.

According to the Harrison Street website, the firm owns more than 250 assets valued at more $4.2 billion, including more than 72,000 self-storage units. In June, Texas-based Advantage Self Storage said it had formed a joint venture with Harrison Street to buy and develop self-storage properties.

It’s unclear whether the pending sale will mark an end to the joint venture with Morningstar or whether Harrison Street and Morningstar might work together again on future investments. Representative of Matthews, NC-based Morningstar declined to comment.

On its website, Harrison Street bills itself as the exclusive provider of equity capital for all self-storage acquisition, development and redevelopment opportunities for Morningstar.

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Joint Venture Started in 2007
The original joint venture agreement dates back to 2007. At the time, Morningstar released a statement saying the two companies planned to develop and acquire a portfolio of assets valued at more than $200 million over a roughly three-year period.

In September 2008, Morningstar and Harrison Street formed an alliance with 2Guys Storage to invest in self-storage properties in the Southeast. According to a Morningstar statement at that time, the group planned to buy, develop and redevelop a portfolio of assets valued at more than $100 million over a three- to five-year period.

According to the 2013 Self-Storage Almanac, Morningstar was the 17th largest self-storage operator in the U.S. last year based on rentable square footage. According to the almanac, Morningstar owned 44 facilities totaling 2.9 million square feet and managed an additional 21 properties totaling 1.2 million square feet. Based on 43 properties being up for bid now, Morningstar’s facility numbers likely have changed slightly from 2012 to 2013.

Selling a portfolio and rebuilding a strong base is something that Morningstar has proven it can do—and do well. In late 2006, Morningstar sold most of its real estate to self-storage REIT Public Storage Inc., and Morningstar’s portfolio shrank from 63 properties to three.

“Morningstar is considered to be a very good operator. They are well-respected, and they are good managers,” Cushman & Wakefield’s Sonne said.

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  • bingo bill

    It looks like Public Storage is going to buyout Morning Star. This literally spells doom for almost all of Morning Star Employee’s, many of which are former Public Storage employee’s. It’s really sad because all of the employees are being told they need to reapply for their jobs. Public Storage is a horrid company, they treat their people like dirt, and the fact that so many former managers and employee’s jumped ship to Morning star is a testament to not only how bad of a company Public Storage is, but also how great Morning Star was. This sellout is going to cause REAL human misery and I hope those who profit understand the real cost of what they are doing.

  • FRACK20

    The transaction has, literally, put 150 loyal Morningstar employess out of work. Public Storage has told anyone who has expressed interest in staying that they will have to re-apply for their job and will be paid $8.50 – $9.00 per hour (non-resident manager). I get that PS may have had the best package put together, but you would think that someone would have been looking out for the team that helped build Morningstar into the brand that it is today.