Self-storage REIT Extra Space Storage is dipping its toe into the bridge lending pool as a complement its third-party management platform.
During the company’s Feb. 21 earnings call, CEO Joe Margolis said Salt Lake City, UT-based Extra Space recently launched the bridge lending program “to fill what we perceive as a capital void in the market and make some money by lending to non-stabilized stores.” Margolis said the lending program is meant to shore up relationships with self-storage owners in conjunction with beefing up the REIT’s third-party management platform, which added 153 facilities in 2018.
Extra Space’s bridge lending program already has made a couple of loans, Margolis said, and a few more loans are in the works. Margolis didn’t specify the targeted volume of bridge loans.
“We’re getting very good reception in the marketplace. But we are just beginning. We’re going to walk before we run,” Margolis told Wall Street analysts. “We’re going to see how the market reacts to this, and I would not expect it to be a significant capital allocation in 2019.”
Margolis ruled out extending bridge loans to self-storage facilities that are under development.
“We don’t want to have to take over a half-finished development,” he said, “but we believe there is an opportunity [with] stores that are not yet stabilized.”
Extra Space joins companies like Irvine, CA-based Talonvest Capital Inc., Memphis, TN-based Jernigan Capital Inc. and Chicago, IL-based The BSC Group LLC which extend or arrange bridge loans to self-storage developers and owners.
New supply effects hit full force
Also during the earnings call, Margolis said that although the industrywide number of facility openings is expected to be lower in 2019 than it was in 2018, the effect of new supply on the company likely will be greater this year “due to the cumulative impact of several years of elevated development.”
Scott Stubbs, the REIT’s chief financial officer, said he and his Extra Space colleagues think that during the current cycle, 2018 will wind up being the peak year for delivery of new supply.
“But if, for whatever reason, a bunch of people go put capital into development and start putting shovels in the ground where they shouldn’t, then we could be wrong,” Stubbs said.
Financial highlights
Here are other highlights of the earnings call:
- Extra Space expects to spend $500 million this year on acquisitions, down from $580 million in 2018. Margolis said he envisions the company relying on off-market deals in 2019, as it did in 2018. Last year, 84 percent of the REIT’s acquisitions were done through off-market transactions.
- Same-store revenue is projected to rise 2 percent to 3 percent in 2019, compared with 4.1 percent in 2018.
- Same-store operating expenses are expected to climb 3.75 to 4.75 percent in 2019, compared with 4.3 percent in 2018.
- Same-store NOI is predicted to grow 1.25 percent to 2.75 percent in 2019, compared with 4 percent in 2018.
- Major markets that enjoyed above-average revenue performance in 2018 included Atlanta, GA; Hawaii; Indianapolis IN; Las Vegas, NV; Los Angeles, CA; and Philadelphia, PA.
- Major markets that saw below-average revenue performance in 2018 included Charleston, SC; Dallas, TX; Miami, FL; Washington, DC; and West Palm Beach-Boca Raton, FL.
