TPG invests $120M in first self-storage industry foray

TPG Capital’s real estate unit invested $120 million in a company started by a former Public Storage executive, its first foray into the high-growth self-storage industry.

LifeStorage LP, based in Roseville, California, will use the money to buy properties in the 50 largest U.S. metropolitan areas, Chief Executive Officer Mark Good said, declining to specify terms of the private-equity firm’s investment. Good founded LifeStorage in 2011 after working as chief operating officer of Public Storage, the world’s biggest self-storage landlord. LifeStorage owns or has agreed to buy 78 properties in nine states.

“It’s an industry that has just grown phenomenally over the last 15 years,” Good said in a telephone interview. “We think our model will appeal both to consumers and potential sellers” of self-storage properties.

TPG’s investment is the latest sign of investor interest in an industry that generated more than $24 billion of revenue last year, according to the Alexandria, Virginia-based Self Storage Association. Americans’ propensity to accumulate possessions such as furniture and clothes, and constant demand from life changes such as moving and marriage drive demand for self- storage units, typically metal lockers or rooms with roll-up doors that are rented by the month. Small businesses also keep inventory in the units.

As Finance & Commerce has reported, Illinois-based Metro Storage LLC just completed $22 million in purchases of self-storage parks in four cities around the Twin Cities. Metro Storage is also busy converting a former car dealership in Blaine into a storage facility.

Late last year, California-based Pegasus Group jumped into the local self-storage market, spending $41.5 million on seven facilities around the Twin Cities.

“Not only is there strong continued demand for self- storage, but the industry also remains very fragmented, which should provide opportunities for further consolidation,” Avi Banyasz, partner and co-head of TPG Real Estate, said in a statement.

Bass investment

Jasper Ridge Partners LP, minority-owned by Texas billionaire Robert M. Bass and already a LifeStorage backer, made an additional investment in the company, it said today. The size of the contribution wasn’t disclosed. Menlo Park, California-based Jasper Ridge, known as Oak Hill Investment Management until last year, manages about $11 billion for wealthy families and institutions.

Small entrepreneurs own 83 percent of the 52,000 self- storage facilities in the U.S., according to the Self Storage Association. The four publicly traded self-storage property trusts — Public Storage, Extra Space Storage Inc., CubeSmart and Sovran Self Storage Inc. — together own less than 10 percent of the total. The other big corporate owner is Amerco’s U-Haul International Inc. unit.

Storage outperforms

The number of self-storage facilities in the U.S. has about doubled since 1998, according to the Self-Storage Almanac, a trade publication. Private-equity firm Carlyle Group LP in July teamed with a Santa Monica, California, developer to build self-storage properties.

Strong demand and a dearth of construction since the financial crisis have helped self-storage real estate investment trusts outperform other property types since the recession ended.

From the beginning of 2010 through the third quarter of this year, an index of the four storage REITs returned 162 percent with dividends, or 22.5 percent annually. That beat the gains from shopping malls, apartments, hotels and offices, and the 15 percent annualized return of the Standard & Poor’s 500 Index in the same period.

TPG Real Estate — started and led by Kelvin Davis, a TPG Capital senior partner — is a unit of the buyout firm co- founded by David Bonderman. TPG Real Estate has invested more than $2.6 billion of equity in North America and Europe since the beginning of 2009. Last month, a TPG joint venture agreed to buy Cassidy Turley and combine it with DTZ Group to form a global property brokerage that would have more than $2.9 billion of revenue.

The investments announced today follow a $100 million credit line secured from Citigroup Inc., LifeStorage said.