{"id":3208,"date":"2023-02-21T19:09:04","date_gmt":"2023-02-21T19:09:04","guid":{"rendered":"https:\/\/listselfstorage.com\/us\/industry-insights\/?p=3208"},"modified":"2023-02-21T19:09:04","modified_gmt":"2023-02-21T19:09:04","slug":"a-private-equity-real-estate-investor-bets-big-on-self-storage","status":"publish","type":"post","link":"https:\/\/listselfstorage.com\/us\/industry-insights\/a-private-equity-real-estate-investor-bets-big-on-self-storage\/","title":{"rendered":"A Private Equity Real Estate Investor Bets Big on Self Storage"},"content":{"rendered":"


\n\"selfPrime Group Holdings\u2019 latest self storage fund reached its hard cap of $2.5 billion.<\/span><\/p>\n

Single-sector private equity real estate funds are not unusual, but the majority tend to target core real estate assets. But Prime Group Holdings LLC has found success off the beaten path, focusing its funds on niche property types. Investors have poured $2.5 billion into its latest initiative, Prime Storage Fund III, focused on the self storage space, blowing past the fund\u2019s $1.5 billion target to reach its hard cap of $2.5 billion.<\/span><\/span><\/span><\/p>\n

The offering is the largest private equity fund ever raised to exclusively to invest in self storage properties, according to PERE. Prime announced the closing of the fund Jan. 26, 2023. The commingled fund\u2019s investors include sovereign wealth funds, public pension plans, university endowments, banks, insurance companies, family offices and foundations. Over 30 countries are represented in its investor base. The fund\u2019s base includes both new and repeat investors from Prime\u2019s previous funds.<\/span><\/span><\/span><\/p>\n

Single-sector private equity real estate funds are not unusual, but the majority tend to target core real estate assets. But Prime Group Holdings LLC has found success off the beaten path, focusing its funds on niche property types. Investors have poured $2.5 billion into its latest initiative, Prime Storage Fund III, focused on the self storage space, blowing past the fund\u2019s $1.5 billion target to reach its hard cap of $2.5 billion.<\/span><\/span><\/span><\/p>\n

The offering is the largest private equity fund ever raised to exclusively to invest in self storage properties, according to PERE. Prime announced the closing of the fund Jan. 26, 2023. The commingled fund\u2019s investors include sovereign wealth funds, public pension plans, university endowments, banks, insurance companies, family offices and foundations. Over 30 countries are represented in its investor base. The fund\u2019s base includes both new and repeat investors from Prime\u2019s previous funds.<\/span><\/span><\/span><\/p>\n

 <\/p>\n

It is the third fund the company has raised focused on self storage assets, with each growing in scale. Its first fund launched in 2015 raised $154 million in equity and acquired 67 assets. Prime launched its second fund in 2017 and raised $706 million, which it used to acquire 121 assets. To date, its third fund has deployed 18 percent of its capital and acquired 63 storage assets. Overall, Prime Group Holdings has purchased $5 billion in total assets in the self storage space totaling more than22 million sq. ft.”<\/span><\/span><\/span><\/p><\/blockquote>\n

 <\/p>\n

Why self storage?<\/span><\/span><\/span><\/strong><\/p>\n

\u201cAs 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,\u201d says Robert Moser, Prime Group\u2019s founder, principal and CEO.<\/span><\/span><\/span><\/p>\n

Prime\u2019s history dates back to 1998 focusing on roll-up strategies for niche real estate assets. Its first investments were in the manufactured housing and RV park sectors as well as in the self storage and multifamily spaces. Prime Group Holdings was founded in 2013 and began launching funds soon after. <\/span><\/span><\/span><\/p>\n

The interest in the Prime\u2019s latest fund is inline with a broader trend that\u2019s seen investors that have typically targeted other real estate asset classes cycle into self storage, lured by the sector\u2019s stable fundamentals and attractive cap rates.<\/span><\/span><\/span><\/p>\n

\u201cThe buyer pool for self storage assets has expanded since the health crisis began, as investors familiar with other property types have engaged with the sector,\u201d says Steven Weinstock, national director of the self storage division for Marcus & Millichap, working in the firm\u2019s office in Oakbrook Terrace, Ill.<\/span><\/span><\/span><\/p>\n

In times of economic uncertainty, self storage properties have proven to be especially attractive to investors.<\/span><\/span><\/span><\/p>\n

\u201cMuch of this cross-sector capital has come from multifamily investors, where yields have become comparatively more compressed,\u201d says Weinstock. Throughout these ups and downs, the cap rates investors accept for self storage properties continue to be significantly higher than multifamily cap rates. \u201cThat bodes well for continued capital inflows.\u201d<\/span><\/span><\/span><\/p>\n

Sourcing deals in a competitive market<\/span><\/span><\/span><\/strong><\/p>\n

Prime\u2019s strategy in the sector is to source off-market transactions as much possible. It focuses on undersupplied markets across the U.S. and aims to streamlining operations at the properties it acquires through institutional management via it\u2019s in house full-service property management operations. The goal is to take an asset class that\u2014outside some of the large publicly-traded REITs\u2014is fragmented. The space provides Prime \u201cwith the opportunity to implement professional and sophisticated managerial and operational protocols, as well as leverage economies of scale in seeking attractive risk-adjusted investor returns.\u201d<\/span><\/span><\/span><\/p>\n

 <\/p>\n

We have deployed capital from Fund III into assets for which we believe we can execute value-add business plans and best utilize our management capabilities. We look forward to leveraging our team\u2019s real estate investment experience as we pursue superior returns for our investors.”<\/span><\/span><\/span><\/p>\n

 <\/p><\/blockquote>\n

We continue to identify opportunities to aggregate and institutionalize ownership and management across the North American self storage market,\u201d Prime Holdings CIO Douglas Kotelly said in statement. \u201cWe have deployed capital from Fund III into assets for which we believe we can execute value-add business plans and best utilize our management capabilities. We look forward to leveraging our team\u2019s real estate investment experience as we pursue superior returns for our investors.\u201d<\/span><\/span><\/span><\/p>\n

The off-market pipeline could help it find acquisitions for the fund amid a broader climate in which investment sales volumes have dropped dramatically amid higher interest rates and tightening capital markets.<\/span><\/span><\/span><\/p>\n

\u201cWe have seen a slowdown in the number of deals available on market, as expected with the current economic environment and coming off a year with historic sales volume,\u201d says Scott Schoettlin, managing director with SkyView Advisors, based in Tampa, Fla. \u201cInitially, interest rates moved at a faster pace than expected with no indication of how far they could rise.\u201d<\/span><\/span><\/span><\/p>\n

Cap rates for self storage properties purchased in early 2023 are 100 to 150 basis points higher than a year before, says Schoettlin. \u201cTo offset the higher cost of capital, cap rates have moved up and prices have come down from historical highs.\u201d<\/span><\/span><\/span><\/p>\n

Marcus & Millichap also reports higher cap rates. \u201cIf we look at our current listing inventory as compared to closed deals in the last 30 to 60 days, we\u2019re seeing cap rates for new listings beginning to rise to high 5 percent and deals are closing above 6 percent,\u201d says Weinstock.<\/span><\/span><\/span><\/p>\n

Despite the recent uptick, cap rates for self storage properties are still lower than just a few years ago. Prices have risen nearly 33 percent since 2019, as more investors and new potential buyers have been drawn to self storage, says Weinstock.<\/span><\/span><\/span><\/p>\n

Prime\u2019s plan for navigating this market is to be conservative with its use of leverage.<\/span><\/span><\/span><\/p>\n

\u201cTo that end, we evaluate and buy forward-looking interest rate caps on our debt to hedge the risk on our assets, which has us well positioned in the current capital markets environment,\u201d Moser says. Prime Group-sponsored funds are also generally active for six to eight years. \u201cWe build in discretionary extensions so that we are never forced to sell during a down economic cycle,\u201d he says.<\/span><\/span><\/span><\/p>\n

 <\/p>\n

Prime sold the majority of the properties it acquired for Prime Storage Fund I in August of 2021. In all, the 67 assets sold for a reported $750 million. A joint venture of real estate investment firm Merit Hill Capital, affiliates of private equity firm Centerbridge Partners LP and Middle Crossing LLC, an affiliate of Singapore government wealth fund GIC, acquired the assets, according to the Albany Business Review. Fund returns were equal to 2.8 times invested equity, the according to the report.”<\/span><\/span><\/span><\/p>\n

 <\/p><\/blockquote>\n

The average \u201cstreet rents\u201d for self storage properties are down 2.8 percent compared to the year before, according to Yardi Matrix. Those rents were still higher than they had been before the pandemic.<\/span><\/span><\/span><\/p>\n

\u201cStreet rates have declined, but operators have focused on increasing existing customer rents to achieve strong revenue growth,\u201d says Doug Ressler, manager of business intelligence with Yardi. \u201cSelf storage had a strong year and is well-positioned heading into 2023.\u201d<\/span><\/span><\/span><\/p>\n

Strong demographics should continue to support self storage properties. “Millennial and Gen-X is using self storage more than any other demographic,” says Weinstock. “Also the number of new properties under construction is declining as development costs increase, creating less competition.<\/span><\/span><\/span><\/p>\n

“While rents may be flat to slightly declining, remember that rents had catapulted during the pandemic and they are simply returning to more traditional levels as is vacancy and once again impacted by seasonality,” says Weinstock.<\/span><\/span><\/span><\/p>\n

Source<\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Prime Group Holdings\u2019 latest self storage fund reached its hard cap of $2.5 billion. Single-sector private equity real estate funds are not unusual, but the majority tend to target core real estate assets. But Prime Group Holdings LLC has found success off the beaten path, focusing its funds on niche property types. Investors have poured $2.5 billion into its latest initiative, Prime Storage Fund III, focused on the self storage space, blowing past the fund\u2019s $1.5 billion target to reach its hard cap of $2.5 billion. The offering is the…<\/p>\n","protected":false},"author":13,"featured_media":3209,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[4],"tags":[],"gutentor_comment":0,"_links":{"self":[{"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/posts\/3208"}],"collection":[{"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/comments?post=3208"}],"version-history":[{"count":1,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/posts\/3208\/revisions"}],"predecessor-version":[{"id":3210,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/posts\/3208\/revisions\/3210"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/media\/3209"}],"wp:attachment":[{"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/media?parent=3208"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/categories?post=3208"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/listselfstorage.com\/us\/industry-insights\/wp-json\/wp\/v2\/tags?post=3208"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}