KKR (NYSE: KKR) recently revealed that it made some more self-storage investments. It's the latest move by the private-equity giant to expand into this segment, where it sees a lot of opportunities.
Here's a closer look at the deal and why KKR likes the self-storage sector.
Bulking up its storage portfolio
KKR purchased five self-storage properties with 3,884 units. It paid $92 million across two separate transactions with different sellers. Of note, these recently renovated or constructed properties were all in fast-growing Sun Belt markets, including Atlanta (two properties), Phoenix (two properties), and Orlando, Florida (one property).
These investments will expand the investment firm's self-storage portfolio. KKR made its first self-storage investment in July, buying three properties with 1,800 units in the high-growth markets of Austin, Texas and Nashville, Tennessee. KKR paid $36 million for those recently built properties in deals with two separate sellers.
KKR commented on both deals in press releases, providing insight into why it's investing in self-storage. Roger Morales, KKR partner and head of Commercial Real Estate Acquisitions in the Americas, commented on the initial deal, stating: "We believe that the self-storage sector exhibits strong supply-demand fundamentals and has appealing long-term dynamics, including resiliency through economic cycles. We expect to continue to grow our self-storage footprint through 2021 and into 2022."
Meanwhile, Ben Brudney, director in the Real Estate Group, made nearly identical comments about the most recent deal, saying: "We continue to believe that the self-storage sector is experiencing strong demand tailwinds and represents an asset class with attractive long-term fundamentals and resiliency through cycles. We are focused on continued expansion of our self-storage footprint through 2021 and into 2022."
Those comments make it quite clear that KKR expects to keep betting on self-storage by making additional investments. Notably, the investment giant seems to be focusing on recently built/renovated properties in high-growth Sun Belt markets. These properties should experience the highest demand as more people move into those cities. That should drive strong rental growth rates, making these potentially high-returning investments.
How to join KKR in self-storage investing
Investors who want to join KKR in investing in the lucrative self-storage sector have several options. The easiest way is to purchase shares of a self-storage REIT, which are open to all investors. The sector has generated strong returns for investors, with self-storage REITs producing an average 488% total return over the past decade. Investors have several excellent options, including Life Storage (NYSE: LSI), which like KKR, focuses on high-growth markets, with 60% of its stores in the Sun Belt region.
In addition, accredited investors (those with a high income or net worth) could consider using a crowdfunding platform to invest directly in a self-storage property or a real estate investment fund focused on self-storage. Meanwhile, those with access to capital could consider buying a self-storage property or developing one from the ground up, though that would be risky as a first investment in the space.
An attractive sector
Self-storage has historically been an excellent space for real estate investors. It tends to be recession-resistant, generates lots of cash flow, and benefits from short-term leases, allowing operators to reprice rents monthly as the market allows. These factors have helped self-storage investors earn strong returns over the years. That's leading KKR to dive deeper into the space and why other real estate investors should consider following their lead.