CT SELF-STORAGE PORTFOLIO
Bloomfield, Simsbury, and Waterbury, CT
The CT Self-Storage Portfolio (the “Portfolio”) is comprised of four existing properties totaling 187,700 rentable square feet. The acquisition represents a unique opportunity to acquire an off-market, high yielding portfolio of well-located storage properties with upside. The Portfolio is located in the generally under-served New England market. According to Bloomberg, self-storage companies produced the best risk-adjusted returns among the 10 U.S. real estate investment trust indexes it tracked during the past decade.
|ADDRESS:||29 Old Windsor Road, Bloomfield, CT
1280 Hopemeadow Street, Simsbury, CT
123R West Street, Simsbury, CT
2454 East Main Street, Waterbury, CT
|SPONSOR/GP CAPITAL:||Albany Road Real Estate Partners|
|LP CAPITAL:||Individual High Net Worth and Family Office Investors|
|LENDER:||Eastern Bank; $7,500,000; 7-year fixed rate debt with 2 years of interest-only payments;
all-in rate of 3.67%
|ACQUISITION DATE:||December 17, 2012|
In an off-market transaction, Albany Road paid $11,300,000 ($60/sf) to acquire the Portfolio from a private operator who had purchased the properties individually over an eight-year period from 2003-2011. The four properties total 187,700 square feet (1,450 units) and are located in the towns of Bloomfield, Simsbury (2), and Waterbury.
Despite locations, layouts, unit mixes, and buildings that work extremely well from a functionality standpoint, at closing the Portfolio was just 72% leased. This lackluster performance can largely be attributed to (1) an owner with limited experience in the self-storage industry, (2) their decision to hire an absentee, out-of-state management firm, (3) their inability, due to ownership by different funds and different investors, to integrate the properties into a synergistic portfolio with operational and marketing efficiencies, and (4) their decision to not spend necessary, albeit nominal, capital dollars to upgrade and best position the Portfolio to compete in the marketplace.
The turnaround strategy for the Portfolio will be executed by Albany Road in conjunction with CT Self-Stor (“CSS”), a local, well-regarded, and multi-generational developer/owner of self-storage. The principals of CSS have been in the business since the 1980’s and during this time have acquired, developed, and managed numerous storage properties totaling roughly 600,000 square feet. CSS’s current properties run at an aggregate occupancy level of 88%. Albany Road (and CSS’s) strategy for the Portfolio is to provide the capital, expertise, and hands-on management needed to improve the Portfolio’s performance and position in the marketplace. This will be accomplished by employing all of Albany Road and CSS’s combined skill sets including, but not limited to, better branding, marketing/prospecting, cross-selling, collections, signage, curb appeal, and expense containment.
The $11,300,000 pricing paid by Albany Road represents an 8.0% cap rate (unleveraged return) on in-place income, which is favorable when compared to the most recent 7.0% national average cap rate for self-storage transactions, as determined by Cushman & Wakefield’s Self-Storage Industry Group. Moreover, Albany Road anticipates the 8.0% going-in cap rate to improve by upwards of 200 basis points as it joins forces with CSS to re-position the Portfolio, with occupancy over time expected to improve from its current 72% number to a figure more in-line with previously achieved results approaching 90%.
The Portfolio is the first of a planned accretive storage platform being developed by Albany Road. Storage is one of the very few products, in any industry, that commands a premium when traded in bulk. Due to the inefficiencies and difficulties associated with aggregating a series of relatively small one-off acquisitions (average deal size of +/- $5MM), when a Portfolio of reasonable critical mass trades (say greater than $50MM), it typically commands a cap rate premium (higher price) of perhaps 100-200 basis points upon sale. Over time, Albany Road intends to assemble a storage portfolio of this magnitude in order to realize such a pricing premium upon disposition.