On QuadReal's $1 Billion Self-Storage JV With Store Space

Four weeks ago, QuadReal and Store Space announced a $1 billion self-storage investment partnership:

QuadReal Property Group, a global real estate company, and Store Space Self Storage, a national vertically integrated self-storage operator, announced the formation of a strategic partnership today which is capitalized to build a $1 billion portfolio of self-storage assets. The companies share a long-term strategy focused on scaling a nationally diversified portfolio of institutional-quality self-storage assets across the United States in locations with strong demographic and migration trends.

The partnership’s value-add and core-plus investment strategy was seeded with the $200 million acquisition of a 13-property portfolio totaling over 9,000 units, or 1.1 million square feet. This portfolio includes a diverse mix of stabilized and recently developed self-storage assets in 7 states. Momentum continues to build with the subsequent closing of an off-market acquisition-expansion in New Jersey, and a significant acquisition pipeline.

“The self-storage sector offers steady growth. Further, it has shown resiliency and demonstrates consistent fundamental and demographic tailwinds that align closely with QuadReal’s core investment convictions,” said QuadReal’s Jameson Weber, Managing Director, International Real Estate, Americas. “We are excited to partner with the Store Space team—an experienced self-storage operator with a proven track record of success. Together, we are very uniquely positioned to invest at scale in a highly fragmented sector.”

QuadReal will commit the majority of the capital for the partnership and will leverage its extensive experience investing in alternative asset classes globally. As a vertically integrated self-storage operator, Store Space brings to bear in-house technology, full-service marketing/call center services, acquisition/development experience, and property management capabilities. The company was named the fastest-growing self-storage operator in the United States in 2021 by Inside Self Storage.

“We’re very enthusiastic to enter this partnership with QuadReal, with the shared goal of building a large, high-quality portfolio in this recession-resistant sector,” said Store Space CEO Chris Harris. “This also represents a significant milestone for us, as we’ve found an alliance that will help us grow our brand and bring our best-in-class platform to new markets at a rapid pace. QuadReal understands the significant value in our team’s ability to quickly drive outperformance across a growing portfolio and this investment will fuel even more rapid expansion across the country.”

QuadReal and Store Space are aligned in offering their self-storage customers a seamless experience of accessing high-quality, trusted storage solutions. Further, broad capabilities and an informed strategy position the partnership to deliver strong risk-adjusted returns to their respective stakeholders.

Store Space, whose motto is “Storage That Cares,” was founded in 2018 by Chris Harris and Rob Consalvo. The Store Space leadership team has more than five decades of experience acquiring, leasing, and managing self-storage properties. Harris and Consalvo previously helped grow, operate, and scale iStorage before its sale to a public REIT in 2016.

Jefferies LLC acted as exclusive financial advisor to Store Space.

About QuadReal Property Group

QuadReal Property Group is a global real estate investment, operating and development company headquartered in Vancouver, British Columbia. Its assets under management total $67.1 billion. From its foundation in Canada as a full-service real estate operating company, QuadReal has expanded its capabilities to invest in equity and debt in both the public and private markets. QuadReal invests directly, via programmatic partnerships and through operating companies in which it holds an ownership interest. QuadReal seeks to deliver strong investment returns while creating sustainable environments that bring value to the people and communities it serves. Now and for generations to come.

QuadReal: Excellence lives here.
www.quadreal.com

Store Space Self Storage

Store Space is a self-storage owner-operator and third-party management company, headquartered in Winter Garden, FL. The Company currently owns and/or operates more than 100 properties offering conveniently located, secure storage units in 20 states. The Company was ranked the fastest-growing self-storage operator in 2021, fueling growth with its experience-driven operations, state-of-the-art proprietary platforms, and strategic digital marketing programs. If you have an acquisition opportunity or would like to discuss third-party management, contact us at inquiries@storespace.com, or visit us at www.storespace.com.

This deal caught my attention earlier today and it got me curious about self-storage commercial real estate space.

Mainstay Global LLC which is headquartered in Austin Texas has a nice comment on how the self-storage space is recession-proof:

While not the sexiest asset class in commercial real estate, self-storage has seen strong growth over the past several years. Although many feel that we are nearing the end of a historically-long bull run in real estate, self-storage has proven to be the most recession-resistant sector in commercial real estate. During the Great Recession, all commercial real estate segments experienced a net annual loss of anywhere between 25 to 67% except self-storage, which actually posted a gain of 5% in 2008.

Why does self-storage perform so well? Americans accumulate a lot of stuff and they don't want to let go of it. With millennials being priced out of owning a home and baby boomers downsizing, many are opting to rent and live in apartments and smaller rental homes, which have much less storage space than larger houses. The biggest demand driver for self-storage is created by people moving from one place to another. Since renters move more often than homeowners and they're moving into increasingly smaller spaces, the need for self-storage continues to increase. This phenomenon is only exacerbated during a recession, as job loss often forces homeowners to either sell their homes or they loose their homes through foreclosure. Changing jobs, divorce, death, and other life-changing events also create strong demand for self-storage.

And for those who like to hedge their bets on lower vacancies during a recession, self-storage has the distinction of having one of the lowest break-even occupancies in commercial real estate, often as low as 60%. It also has a relatively quick eviction process for non-paying tenants. Property managers typically auction off the storage unit's contents to cover the unpaid rent.

This asset class is not without its risks. Increasing supply and competition is putting pressure on occupancies and rents in certain areas. Saavy buyers are doing their homework to ensure that a target micro-area isn't saturated before making an offer on a property.

Despite its risks, the self-storage business is unlikely to face a recession. The sector has been recession-resistant precisely because its demand is created by changes in living situations, which only increase during a recession. In fact, during the Great Recession, self storage was one of the asset classes with the least amount of foreclosures. As we have likely reached the top the current market cycle, self-storage is becoming more and more attractive as a recession-resistant investment. 

I must admit, self-storage real estate isn't the first thing that comes to mind when I'm thinking recession-proof, student housing and the red-hot life sciences sector are typically what come to mind. 

But there's definitely a strong rationale for investing in US self-storage units at this point of the cycle to prepare for an economic slowdown ahead.

How bad will it get? Nobody really knows but it's best to look at all portfolios across public and private markets and hunker down here.

That's what QuadReal is doing with this deal, partnering up with a well-known company which currently owns and/or operates more than 100 properties offering conveniently located, secure storage units in 20 states.

With this partnership, QuadReal and Store Space will work together to amass a $1 billion portfolio of self-storage assets nationwide. The companies will target markets with “strong demographic and migration trends,” according to the press release.

The partnership was seeded with the $200 million acquisition of a 13-property portfolio across seven states. A mix of stabilized and recently developed properties, the purchase comprises 1.1 million square feet in more than 9,000 units. According to the press release, Store Space and QuadReal also recently purchased a New Jersey property in an off-market transaction.

In choosing Store Space, QuadReal identified a strong operator in the space, a company which is growing fast and is run by a group with decades of experience:

Store Space, whose motto is “Storage That Cares,” was founded in 2018 by Chris Harris and Rob Consalvo. The Store Space leadership team has more than five decades of experience acquiring, leasing, and managing self-storage properties. Harris and Consalvo previously helped grow, operate, and scale iStorage before its sale to a public REIT in 2016.

Obviously, Harris and Consalvo know what they're doing in this space having previously helped grow, operate and scale iStorage before it was sold to a public REIT in 2016.

There is a lot of competition in the space but a lot of demand too an some areas aren't as well served as others.

Anyway, I really liked this deal for a lot of reasons, it was something new and it got me interested in the self-storage sector.

In related news, Round Hill Capital and QuadReal recently announced the expansion of their joint venture partnership in Ireland:

Round Hill Capital, a leading global specialist real estate investor, developer and manager and QuadReal Property Group, both leading global real estate real estate investors, developers and managers, today announce the expansion of their joint venture partnership in Ireland. The €200m additional commitment will be used to forward fund the purchase of high-quality multi-family rental assets across Ireland, focusing on apartment blocks in the country’s main cities, including Dublin.

The evolution follows the successful launch of the current partnership in 2018, which has already deployed c.€375M in rental assets across Dublin. This includes the acquisitions of Bridgefield in 2018, Blackwood Square in 2020 and Carriglea in 2021, delivering a total of 868 high-quality apartments for private rent, with construction works expected to be completed for both projects by Q3 2024. Today’s announcement brings the partnership’s total funding commitment to Irish housing to €575m. Round Hill Capital has a long and successful track record of delivering much-needed, well-located accommodation for the private rental market in Ireland. The firm has already made 8 investments in the country over the past 4 years, and has a strong pipeline in place to address the ongoing supply and demand imbalance in the Irish residential market.

Michael Bickford, Founder and CEO of Round Hill Capital commented: “We are delighted to continue our successful partnership with QuadReal to provide much needed high quality rental opportunities that underpin Ireland’s growing economy. Multi-family rental accommodation has proven to be a resilient, long-term investment for institutional investors. This partnership is a sign of confidence in our growing strengths and capabilities not only in the Irish market, but also our knowledge and expertise in putting tenant experience first to unlock strong yields from high-quality rental accommodation. We look forward to announcing new transactions under this partnership in the new future.”

Jay Kwan, Managing Director, Head of Europe, International Real Estate of QuadReal Property Group commented: “Our global residential experience, with a portfolio of 50,000 rental units, gives us insight and the courage of our conviction to extend the successful partnership with Round Hill in such a compelling market as Ireland. We admire what Round Hill Capital has accomplished in the market and are excited to continue our investment strategy there. We will continue to provide high quality, modern and amenitized housing to a chronically undersupplied market”

John Vaudin, Managing Director Round Hill Capital commented: “For too long now, Ireland has been dogged by a chronic undersupply in housing, which has led to inflated house prices in both the rental and private markets. We have a long-term investment strategy in Ireland, and are resolute in our mission to help deliver the homes that Ireland’s growing economy requires. The extension of our partnership with QuadReal will give us the expertise and investment capacity to meet this challenge now, providing families with high-quality housing for private rent in prime locations with great transport links and amenities.”

About QuadReal Property Group
QuadReal Property Group is a global real estate investment, operating and development company headquartered in Vancouver, British Columbia. Its assets under management total $67.1 billion. From its foundation in Canada as a full-service real estate operating company, QuadReal has expanded its capabilities to invest in equity and debt in both the public and private markets. QuadReal invests directly, via programmatic partnerships and through operating companies in which it holds an ownership interest. QuadReal seeks to deliver strong investment returns while creating sustainable environments that bring value to the people and communities it serves. Now and for generations to come.

QuadReal: Excellence lives here.

www.quadreal.com

About Round Hill Capital
Round Hill Capital is a leading global specialist real estate investment, development, and asset management firm. Since inception in 2002, Round Hill Capital has acquired and repositioned for long-term institutional ownership over 135,000 residential units and student housing beds. Round Hill Capital is a responsible landlord of assets offering housing to a range of occupants, from students through to senior citizens. Round Hill Capital has an established track record of positive returns and invests in and asset manages real estate on behalf of some of the world’s leading institutions and private investors. Further information on Round Hill Capital is available at: www.roundhillcapital.com.

This is another great deal with a world class partner, Round Hill Capital, investing in residential properties in Ireland.

The key passage in the press release above is this:

John Vaudin, Managing Director Round Hill Capital commented: “For too long now, Ireland has been dogged by a chronic undersupply in housing, which has led to inflated house prices in both the rental and private markets. We have a long-term investment strategy in Ireland, and are resolute in our mission to help deliver the homes that Ireland’s growing economy requires. The extension of our partnership with QuadReal will give us the expertise and investment capacity to meet this challenge now, providing families with high-quality housing for private rent in prime locations with great transport links and amenities.”

With rates moving up globally, now is a good time to invest more in multifamily properties all over the world, especially in countries like Ireland where demand for housing remains very high.

Below, “Storage That Cares” is more than just a motto for Store Space Self Storage—it’s how they do business. Listen to Store Space COO and President Rob Consalvo, Senior Vice President of Operations Michael Baillargeon and other company representatives discuss our use of technology and how it reinforces our culture of caring:

"To care for you, our valued customers, we have introduced technology such as in-store manager tablets, self-service kiosks and Touchless Rentals to make it faster, easier and safer to rent exactly the right storage unit to fit your needs. We also take exceptional care of you and the items you’ve chosen to store with us. All our facilities have state-of-the-art security features like individualized PIN codes, bright lighting, secure access codes and surveillance cameras. 

We also put a premium on caring for our customers and employees, which we demonstrate by participating in charitable events, such as community outreach programs and food drives. When making an important decision about where to store your possessions, make sure you choose the one that cares. Storage That Cares. StoreSpace.com"

As you can see, this is a lot more sophisticated than the old mom & pop self storage units. Great company and a solid long-term partnership for QuadReal.

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