New Firm to Help Clients Capitalize on Self-Storage Distress and Then Some

New Firm to Help Clients Capitalize on Self-Storage Distress and Then Some
Jul 07, 2009
By: Barbra Murray, Contributing Editor, Commercial Property News

Two real estate industry finance veterans have come together to create Davies Ingersoll Capital Partners, a firm offering debt and equity solutions, as well as investment opportunities to clients across the country, with a particular focus on the self-storage sector.

Jim Davies, a former senior vice president and shareholder of Buchanan Street Partners, as well as was a co-founder and principal of leading storage finance concern Buchanan Storage Capital, is the firm's president, while Peter Ingersoll, managing director of real estate services firm Sperry Van Ness/Davies Ingersoll, is on board as CEO. Newport Beach, Calif.-based Davies Ingersoll provides a series of services that includes debt, equity and note purchase financing, in addition to the arranging of equity and structured financing. "We are a client-centered firm so obviously, we're going to be meeting our clients' needs in the capital markets arena, including debt and equity, while also actively helping them source compelling investment opportunities," Davies told CPN. "Within this historical window, there should be some good opportunities for those groups that have ready capital and who are willing to be patient."

While Davies Ingersoll is involved in various sectors of commercial real estate, its targeting of the self-storage sector, which is performing better than many others, makes it unique among the new firms that are popping up to capitalize on distress in the real estate market. Self-storage has not been immune to the ramifications of the turbulent economic environment, but it is, by nature, better positioned to weather the storm. "I don't want to minimize the serious challenges many of our owner clients are facing both at the property level and with upcoming debt maturity issues," said Davies. "However, generally speaking, self-storage as a sector has held up better during past recessions and economic downturns than other commercial real estate product types, so most industry experts look for this to be the case again, even in this historically challenging period." The sector certainly has its advantages, but it is not fail-safe. "In the past some people have made the claim that self-storage is recession proof--that is just incorrect, however, there are some recession resistant elements of the property type."

Regardless, investors remain keen on the sector. "Interest in this asset class, particularly from private equity firms, continues to increase because of steady cash flows, high returns and low loss ratios," R. Christian Sonne, managing director of real estate services firm Cushman & Wakefield Inc.'s self storage industry group, wrote in an article for the Korpacz Real Estate Investor Survey for the second quarter of 2009. The article also noted that investors are drawn to the fact that there are no tenant improvement costs or leasing commissions, and limited large capital expenditures.

Investors eyeing real estate sectors such as office and hotel are eagerly awaiting the plummeting of price tags on properties, and those perusing the self-storage sector are not too different. "Our most experienced buyer clients have been talking about the gap between buyers and sellers for a couple of years now; however, prices are coming down and corresponding cap rates are increasing such that some buyers believe they will soon begin to see opportunities that will make sense," Davies noted. "This is the most distress, within this historic downturn, that the self-storage industry has faced."

While there is distress in the self-storage market, and therefore, opportunity for favorable deals, investors will not have as abundant a stock of properties to choose from as, say, office buyers will, particularly since overbuilding is not as big a factor. "Year-over-year construction starts have declined for the last several years; the amount of product being developed has decreased significantly and is almost at a standstill today," Davies said. "The supply of available properties for purchase has been relatively low. However, that supply appears to be increasing, in part because equity investors or lenders are now driving the decision to sell."