Downtown-based industrial development and investment firm North Palisade Partners LLC has expanded its self-storage platform with plans to spend $400 million of capital on self-storage properties over the next 36 months.
The company will start by acquiring existing facilities and later doing ground-up developments. It is targeting assets in undersupplied areas with dense populations such as Los Angeles, D.C. and Seattle.
Previously, North Palisade only owned two self-storage properties – one 109,000-square-foot building featuring 1,530 units and one 215,000-square-foot building featuring 3,010 units – both in Huntington Park.
The company’s latest investment is an indicator of its market strength and long-term optimism related to the self-storage business as a whole.
“Self-storage has been an outperforming sector for decades, both over the short term and over the long run,” Steve Cobbs, North Palisade’s brand-new managing director of self-storage, said. “The pricing metrics today are pretty attractive, and we think it allows for some outsized risk adjusted returns relative to other sectors.”
As opposed to other types of industrial assets, Cobbs said self-storage offers more rental flexibility, stating the biggest benefit from an owner’s perspective is the month-to-month lease rates self-storage facilities often provide.
“In an inflationary environment, you’re able to adjust rates quickly to respond to inflation,” he said. “And as demand increases, you can adjust rates quickly.”
He also stated that the asset type requires very little transaction costs between tenants, since tenants are responsible for cleaning units out themselves, and the overall operating costs of managing a self-storage facility are relatively low.
Expansion mode
According to Cobbs, prices for self-storage properties are down 20% to 30% from their peak – allowing North Palisade to acquire properties at or below replacement costs in a number of markets.
“We think the fundamentals right now are right at the point of rebounding and looking to stabilize,” he said. “Asking rents have decreased; we think those are about ready to stabilize. In-place rates have remained pretty flat, despite headlines on asking brims, and occupancy (rates) have really never gone bad. They’ve remained healthy, kind of in that low-to-mid 90% range.”
As opposed to other asset types, the pandemic’s restrictions actually supercharged the demand for self-storage facilities with more people cleaning out their homes and upcycling home offices.
And it’s still on the rise. The U.S. self-storage market is expected to grow at a compound annual growth rate of 5% from 2024 to 2030, according to Grand View Research.
North Palisade is actively pursuing specific deals and expects to close on its first transaction in the first quarter of next year. According to the company, an average deployment of $100 million to $150 million per year is anticipated, though that may accelerate if the right portfolio becomes available.
Prior to joining North Palisade, Cobbs most recently served as a director at Invesco Real Estate where he was the self-storage sector lead for 10 years. In his new role, Cobbs is responsible for all North Palisade’s self-storage acquisitions, overseeing the deal sourcing, due diligence and transaction executions.
“To be able to build another platform like I had the fortune to do while at Invesco – to be able to repeat that – that’s special to me,” Cobbs said. “I feel very privileged to be in a position to be able to do that. To have the relationships to do that and to be surrounded by some really smart and talented folks, both at North Palisade and the self-storage sector that I’m lucky enough to call friends. To be able to build a platform, working with friends, working with smart people, all while earning good returns for our investors, that’s great. I don’t know what else I could ask for.”
