(Morningstar) – Blackstone Group Inc. has struck a deal to buy Simply Self Storage from Brookfield Asset Management Inc., making a bet on a sector that has remained strong throughout the coronavirus pandemic.
The private-equity firm’s nontraded real-estate investment trust, known as BREIT, is buying the 8 million square-foot portfolio of self-storage facilities for about $1.2 billion, the two firms said. The deal is expected to be announced later Monday.
In an industry dominated by publicly traded giants such as Public Storage, Simply’s more than 120 locations across 23 states make it one of the largest private players.
BREIT, which already owns 2.6 million square feet of self-storage facilities, plans to continue to acquire smaller assets in the fragmented industry and run them under the Simply brand, according to Tyler Henritze, head of acquisitions in the Americas for Blackstone’s real-estate group.
“The opportunity to acquire a $1 billion-plus storage portfolio, including a brand and a team, is incredibly rare,” Mr. Henritze said.
He said Blackstone decided to do the deal based in part on the performance of its own self-storage assets. Such facilities are attractive businesses because they require little in the way of capital expenditures, have relatively low turnover and offer the ability to raise rents since they typically don’t represent a major portion of their tenants’ monthly expenditures.
Like industrial warehouses used for e-commerce, another sector Blackstone’s $167 billion real-estate business has favored, self storage has also remained resilient through economic cycles. That has proven even more true during the pandemic as Americans who might no longer be tied to their office locations have moved out of cities or gone to stay with relatives, Mr. Henritze said.
“People in motion is a positive for the storage business,” he said.
Brookfield acquired Simply in 2016 for $830 million when it had 90 locations and grew it to more than 200 locations over the next two years through a combination of acquisitions and new development. Much of its expansion has happened in markets that have experienced strong economic growth, including Seattle, Dallas, the New York metropolitan area and Southern California.
In 2018, Brookfield sold 112 self-storage facilities to a joint venture of National Storage Affiliates Trust and an affiliate of Heitman Capital Management LLC for $1.3 billion. The deal allowed it to recoup the entirety of its investment up until that point, according to people familiar with the matter.
Simply fits the mold for BREIT, which focuses on stable, income-generating properties in growing markets, including warehouses, multifamily housing and assets like the real estate of the MGM Grand, Mandalay Bay and Bellagio Las Vegas casinos, which offer a guaranteed rent stream.
Formally known as Blackstone Real Estate Income Trust Inc., it has been the pillar of Blackstone’s strategy to attract more individual investors after years of catering primarily to institutions and the ultrarich. The vehicle, which Blackstone launched in 2017, has a net-asset value of $19 billion, up 46% from the end of 2019.