Glendale-based specialty real estate investment trust Public Storage Inc. has established a $220 million "off balance sheet" joint venture with a major public pension fund to develop 50 to 60 self-storage projects around the nation over the next three years.

The venture between Public Storage and the unidentified state employee pension fund has already approved eight development projects, including sites in Hawaii, New York, Florida and Texas, said Bob Cavanaugh, president of BT Securities Corp., a division of Bankers Trust New York Corp.

In addition to the eight which Public Storage had been targeting for development before the venture was formed another 17 are being evaluated.

Public Storage and the pension fund have created a venture initially characterized as "off balance sheet" for Public Storage's reporting purposes.

That treatment allows Public Storage to avoid short-term dilution of its key "funds from operations" (FFO) cash flow figure while the venture's properties are being built and leased up.

But once the new development projects are up and running with stabilized rental revenue streams, Public Storage plans to buy the properties back from the venture at market prices.

Strong investment demand for existing properties is typically driving investment yields below the 10 percent mark, while the Public Storage development venture's target yield is 12 percent to 13 percent, Cavanaugh said.

The venture's projects, typically featuring some 50,000 to 60,000 square feet of storage space, could collectively total as much as 3 million square feet.

BT is advising Public Storage in connection with the joint venture. Heitman Capital Management Corp. of Chicago is advising the pension fund.

Public Storage, the nation's biggest operator of mini-warehouse facilities, will contribute $66 million to the venture, while the pension fund will contribute $154 million.

Brad Berton

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