Public Storage Inc., the country’s largest self-storage REIT, beat out a field of competing bidders for a 43-property self-storage portfolio owned jointly by Harrison Street Real Estate Capital LLC and Morningstar Properties LLC. The Storage Facilitator has learned that publicly held Public Storage is paying $315 million to assume sole ownership of the portfolio.
It’s unclear whether the pending sale will mark an end to Harrison Street’s joint venture partnership with Morningstar or whether the two companies might work together again on future investments. 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.
Phyllis McArthur, a spokeswoman for Matthews, NC-based Morningstar, said the deal is expected to close in early October. Beyond that, she said, “it is premature for us to comment.” Representatives of Public Storage couldn’t be reached for comment.
‘A Terrific Organization’
Because it drew considerable interest from buyers, the Morningstar deal exceeded pricing expectations. Buyers found the portfolio attractive both for its large size and the quality of the assets. The portfolio spans 2.9 million square feet in Texas, North Carolina, South Carolina, Virginia and Georgia.
“Morningstar is a terrific organization. It was a very strong portfolio with attractive, modern facilities in strong markets,” said Ann Coolidge Taylor, managing director in the Dallas office of real estate REIT W.P. Carey Inc. “We wish we could have been more competitive on it.”
W.P. Carey, which holds an ownership stake in 167 self-storage properties across the U.S., was one of the unsuccessful bidders for the Morningstar portfolio. Others that bid on the portfolio include Sovran Self Storage Inc. (Uncle Bob’s) and Extra Space Storage Inc. The Storage Facilitator was the first to report that the Morningstar portfolio–or at least Harrison Street’s stake in it–was on the market.
Supply and Demand
Public Storage owns and operates its growing national self-storage portfolio. As of June 30, the public REIT had an ownership stake in 2,081 self-storage facilities in 38 states, with about 133 million net rentable square feet, according to the company’s website. In addition, the REIT also has an interest in 188 storage facilities in Western Europe, with about 10 million net rentable square feet operating under the Shurgard brand.
The Morningstar sale is further proof of investors’ big appetites for high-quality, large-scale self-storage portfolios. The Storage Facilitator has learned that the Morningstar portfolio, which operates under the Morningstar Mini-Storage brand, is being sold at a sub-5 percent cap rate. Anything below 5 percent is considered an aggressive cap rate.
“There is a high demand for self-storage, and so the market is quite frothy, especially among the large portfolios,” Taylor said. “It is easier to grow in larger chunks rather than one-off transactions.”
Harrison Street Remains a Player
Even with the Morningstar sale, Chicago-based Harrison Street will continue to maintain a strong presence in the self-storage sector. According to its website, the privately held firm owns more than 250 assets valued at more than $4.2 billion. Those assets include about 72,000 self-storage units, with Morningstar’s owned properties representing more than 33,000 of those. In addition, McKinney, TX-based Advantage Self Storage announced in June that it had formed a joint venture with Harrison Street to buy and develop self-storage properties.
The original joint venture between Harrison Street and Morningstar dates back to 2007. At the time, Morningstar said 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, privately held 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, Morningstar’s facility numbers likely have changed from 2012 to 2013. The managed properties are not part of the Public Storage deal.