COVID Did Not Stop Sovereign and Public Pension Funds from Investing in Self-Storage
Posted on 05/31/2021
Sovereign wealth funds and public pensions have steadily increased allocation to the self-storage industry whether through direct investments, fund investments, or through publicly-traded real estate investment trusts (REIT). For many large investors, REITs have offered the greatest liquidity opportunities. Some notable private deals on the state-owned investor side include the Florida State Board of Administration investing in the iStorage Portfolio and Singapore’s GIC Private Limited investing in Columbia, Missouri-based StorageMart with Bill Gates’ Cascade Investment, L.L.C. In 2020, sovereign wealth funds and public pensions directly invested US$ 1.1161 billion in the self-storage industry vs. US$ 944 million in 2019 and US$ 414.549 million in 2018.
Direct Investments by Sovereign Wealth Funds and Public Pensions in the Self Storage Industry – Millions USD
Source: SWFI.com
BuyerTypes: Sovereign Wealth Funds, Public Pensions
Is self-storage a good business for large institutional investors? It depends. Liability-driven asset owners are keen on passive investing in real estate, usually opting for office and retail properties. Self-storage investing typically requires a more hands-on, operator approach. Self-storage facilities are subject to all operating risks common to the self-storage industry, which include decreases in demand for rental spaces in a particular locale, inability to collect rents from customers., and changes in market rental rates. Self-storage investors typically don’t view inflation as a key concern, as leases in the industry can be short-term in nature such as being month-to-month. The short-term nature creates risk in keeping properties 100% occupied, but it enables owners to increase rental rates in a timely manner in response to any potential future inflationary pressures. In the U.S., self-storage facilities tend to experience greater occupancy during the late spring, summer and early fall months due to the greater incidences of residential moves and college student activity during these periods.
Public funds will continue to seek out undervalued self-storage REITs like CubeSmart and Extra Space Storage, but will most likely need to partner when investing through a fund, separate account, or direct holding.
Asia
The concept of self-storage is growing in China and Hong Kong, as consumers accumulate more “stuff”. For example, RedBox Storage Ltd. operates five self-storage facilities in Hong Kong. RedBox Storage was formed in 2007. In 2018, Hong Kong-based InfraRed NF Investment Advisers acquired a 90% stake in RedBox Storage. InfraRed NF real estate investment fund was operated by a joint venture comprised of HSBC Holdings plc and the Nan Fung Group. InfraRed NF was acquired by BentallGreenOak on April 30, 2021.