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Portfolio Disposition

 

Nine-Property Self-Storage Portfolio

Region: Northeast
 Asset Type: Self-Storage
Size: 452,509 sf
Dates Purchased: 2012 – 2015
Sponsor/ GP Capital: Albany Road Real Estate Partners
LP Investors: Individual High Net Worth and Family Office Investors
Lender: Eastern Bank; five loans totaling $18,500,000; blend of fixed and floating rate debt; current all-in rate of 3.61%

Property Details and History

The Albany Road Self-Storage Portfolio (the “Portfolio”), which at disposition totaled nine properties and was comprised of 452,509 square feet and 3,560 units, was acquired in five separate transactions that took place between December 2012 and November 2015.  Each of the properties were acquired from small, private, often-times fragmented, ownership groups whose holdings consisted of a single, or few, self-storage properties.  With a target geography of the Northeast United States, the Portfolio ultimately consisted of eight properties located in Connecticut and one property located in Massachusetts.  The properties were acquired at occupancy percentages that ranged from the mid 60’s to the low 90’s, allowing for the delivery of current yield with the opportunity to increase cash flow through improved leasing and expense management initiatives.

The properties of the Portfolio were acquired at going-in, year-one capitalization rates (unlevered, initial yields) between 7.25% – 8.75%, which compared favorable to competing opportunities in the marketplace.  The strategy was to aggregate a portfolio of quality, mass, and density in the Northeast, which would ultimately create a bulk sale opportunity that could command a capitalization rate premium of perhaps 200 bps. The aggregation strategy also allowed for the realization of operating efficiencies during the holding period through common management by a multi-generational, local, and well-regarded operating partner in CT Self-Stor.

In February 2015, after the completion of the first two Albany Road self-storage acquisitions, a pledge fund (the “Fund”) was formed in order to bring greater efficiency to the acquisition process. The Fund was subscribed with pledges totaling $24,995,000, of which 15% was ultimately invested, bringing the total cost basis (in terms of purchase price) of the Portfolio to $27,650,000 ($61/sf) by year-end 2015.

In late 2015 and early 2016, capital began to flow into self-storage product earlier, and with greater volume, than was anticipated when the storage aggregation program was launched, leading to a significant compression in cap rates.  Having experienced increases in net operating income across the Portfolio, the decision was made to sell the portfolio in order to take advantage of the high demand for self-storage portfolios present in the market place.  The Portfolio was then sold to an active self-storage investment group at a price of $39,355,000 ($87/sf), the pricing of which represented a 5.7% capitalization rate on the trailing twelve months of net operating income.