Ladera Ranch-based Strategic Storage Trust Inc. is snapping up self-storage businesses with the nearly $100 million that it has raised from investors.
So far, the two-year-old real estate investment trust has bought 24 properties in 13 states totaling 2.2 million square feet of self-storage space, including Baffin Bay Self Storage in Lake Forest, which has more than 250,000 square feet.
The company also recently unveiled a brand for its properties: SmartStop Self Storage, which all of its properties will soon be known as.
The company is a unit of Ladera Ranch-based Strategic Capital Holdings LLC, which manages more than 5.7 million square feet of commercial properties, including 4.1 million square feet of self-storage space, with a combined value of more than $622 million.
As a non-traded fund, Strategic Storage hopes to eventually gain more recognition with a listing on a major exchange such as the New York Stock Exchange or Nasdaq within the next three to five years, said Chairman and Chief Executive Michael Schwartz.
Buying Binge
The company’s been growing thanks to lower real estate prices compared to a couple years ago.
In its second-quarter earnings report—the most recent available—Strategic Storage listed its assets at $192 million, up from nearly $20 million a year earlier. The increase was due to acquisitions.
“We’d like to see this grow into a billion dollar venture,” said Schwartz.
In September, it acquired sites in Montgomery, Ala., and Phoenix for $5.8 million.
The company’s second-quarter sales of $1.7 million were up from $21,000 in the previous year, but it registered a much larger loss of $1.8 million, widened from a loss of $359,000, due mostly to acquisition costs.
Schwartz isn’t too concerned about the loss because of the support the company has from investors.
During the past 20 months, Strategic Storage networked with financial advisers across to country to tap 3,800 individual investors, who each placed an average of $30,000 with it to fund the acquisitions.
“We’re still going,” Schwartz said.
According to the company’s Web site, its investors should have a net worth of at least $250,000, excluding home, furniture and cars, or make at least $70,000 a year with a net worth of at least $70,000.
Investors are expecting returns in the neighborhood of 10% a year, he said.
With good loans for its deals, the added leverage could make for 14% returns, Schwartz said.
Being a real estate investment trust allows it to take tax breaks in exchange for paying out 90% of its income to investors, who in turn are taxed individually.
The investors have helped cover a shortfall from the lack of available loans.
Ideally, the company wants to use loans for a quarter of its purchases, but it has been impeded with high interest rates and fees, according to Schwartz.
“We’re just not getting the type of quotes that would provide good upside,” he said.
Strategic Storage is not alone in finding the tight credit market difficult. But its cash reserves from investors make it competitive on certain deals, Schwartz said.
“Cash deals get done easier,” he said. “With the lending depression, not many have been growing.”
Competition
Competition for deals include national operators Glendale-based Public Storage, which had a recent market value of about $14 billion, and Reno’s Amerco, better known as U-Haul, with a recent market value of about $1 billion.
There is room for some competition in the $220 billion self storage industry, which still is growing, according to the Alexandria, Va.-based Self Storage Association. The market is estimated to include nearly 52,000 sites and 2.2 billion square feet.
About three quarters of self-storage customers are home owners or renters who need extra storage space. Some 20% of units are rented by businesses and the rest is split between students and military personnel, according to the company.
The busiest time of the year usually is April through September, when most people move.
Strategic Storage counts 130 employees, 25 of whom are in its Ladera Ranch headquarters. Five are in its Dallas office, and the rest are spread across its storage properties.
Before starting Strategic Storage, Schwartz was a managing director for Santa Ana-based Triple Net Properties LLC, now known as Grubb & Ellis Co.
In 2004, he took control of Napa-based U.S. Commercial LLC before it was renamed Strategic Capital Holdings and moved to Ladera Ranch.
