Location and market conditions continue to drive the self-storage investment sector.
Locations where housing sales have stalled have been the first to struggle with self-storage occupancy. Rising interest rates and a lack of available bank funding have also put the brakes on self-storage acquisitions.
So it’s with some surprise that Prime Group Holdings LLC recently offered the largest private equity fund ever raised to exclusively invest in self-storage properties. Nearly $2.5 billion has been invested in its Prime Storage Fund III, which beat its original target by $1 billion.
“As a recession-resilient, need-based asset, self-storage offers its investors reliable cash flow with very little downside, plus multiple proven methods of creating value post-acquisition,” Prime Group’s Founder and CEO Robert Moser said about his fund.
“They’ve secured a lot from pension and endowment funds. It’s pretty impressive what has been put together,” said Ryan Gibson, co-founder and chief investment officer of Colorado-based Spartan Investment Group LLC. “The fundamentals in self-storage are super strong, and year-over-year same-store growth is good.” Spartan, a privately held real estate investment firm specializing in self-storage, is launching its own investment platform — Spartan Fund — in early March.
There are currently around 50,000 self-storage facilities in the U.S. and 1 in 10 households rent a facility, with 70% used by residential customers, according to U.S. Self Storage Industry statistics released at the end of January. According to SpareFoot reservations data, the average rental cost in the U.S. for all unit sizes hit a record high of $110 per month in 2022.
But without cash, Gibson says it’s pretty challenging to add to the self-storage industry and he says his group, which owns around 30,000 units in 11 states, is slowing down on purchases.
“Honestly, it’s just cost prohibitive to add more right now. We are building a lot fewer facilities,” he said. “But we’ve also sold some facilities in the past year and found we’re selling them at incredible cap rates. However, this year, any purchases we make will be in cash, and we can refinance them later.”
In launching its own Spartan Fund soon, Gibson says his company decided to “play to our strength and offer very specific investment profiles.” The fund is broken down into three categories: a growth fund for opportunities when the company builds facilities from the ground up, an income fund focused on cash flow and depreciation with existing facilities and a less-risky debt fund that touts 8% annual returns.
Photo by Adam Winger on Unsplash
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