All Storage, a privately held self-storage facility operator, reportedly hired CBRE Group to explore a sale. The Bloomberg report said the company was hoping for a sales price above $1 billion.
All Storage is the latest private self-storage operator to put itself up for sale in what has been a hot market for these properties. Here's a closer look at how its sale might impact the sector.
All about the Dallas self-storage market
All Storage is a relatively small self-storage company, operating 50 facilities in Texas and three more in Oklahoma, with most of its sites in the Dallas-Fort Worth area. The company has been expanding in that metro region, opening several new facilities last year to take advantage of the growing demand for self-storage space.
One of the big drivers of that demand is the city's growing population. Over the past year, more than 120,000 people have moved to the Dallas-Fort Worth metro area, leading the country in growth, according to CoStar. That expansion should continue.
Witten Advisors sees Dallas adding 227,000 more people in the 2021 to 2023 timeframe -- second only to Atlanta -- while Fort Worth will bring in an additional 103,000 people, the 12th-highest projected total. And that steady stream of new residents will need space to store their stuff.
Because of that population growth trend, All Storage's focus on the Dallas-Fort Worth metro area makes it an attractive opportunity for potential buyers. They can purchase a growing operating platform in the rapidly expanding Sun Belt region, potentially positioning the buyer to benefit from above-average rent growth.
A red-hot property market
In addition to Dallas-Fort Worth being a hot metro area, the self-storage market is strong these days. At a recent conference, Joe Russell, CEO of industry-leading self-storage REIT Public Storage (NYSE: PSA), noted several factors driving demand:
When combined with the temporary needs from relocations and the longer-term storage requirements of many small businesses, these factors are driving occupancy, rental rates, and rental growth to record levels.
Because of that, a growing number of smaller self-storage operators are looking to cash in on the current market conditions by selling their properties amid strong investor demand.
For instance, Brookfield (NYSE: BAM) sold its Simply Self Storage business to Blackstone (NYSE: BX) last year for $1.2 billion. That's a tidy profit considering Brookfield bought the platform for $830 million in 2016. Meanwhile, earlier this year, Public Storage bought ezStorage for $1.8 billion.
These deals are leading others to consider cashing in on their portfolios. For example, Edison Properties is reportedly looking to sell its Manhattan Mini Storage business. The Manhattan-focused self-storage operator reportedly wants $3 billion for the company. It's hoping that a public REIT or an institutional investor, such as a private equity or sovereign wealth fund, will purchase the portfolio.
However, despite all the wheeling and dealing, the self-storage market remains very fragmented. Public Storage and other large self-storage REITs only control about 30% of the U.S. self-storage market. Meanwhile, about 45% of the market is institutional-quality properties not currently owned by REITs (the rest is non-institutional quality that wouldn't appeal to investors).
With so many institutional-quality properties still owned by smaller operators like All Storage, self-storage REITs see the sector ripe for consolidation.
A sales process to keep an eye on
All Storage is looking to join other smaller storage operators in cashing in on red-hot demand for self-storage. REITs and other institutional investors like Blackstone Group are gobbling up these properties, making now look like a great time to sell.
However, while its rumored $1 billion asking price might seem like a lot, it's just a small drop in the bucket, given the overall fragmentation of the industry. That still makes it an interesting sales process to monitor, though not likely one that would send too many waves across the industry, even if potential buyers bid up its price.