Extra Space Storage announced yesterday that it has closed a joint venture with a Harrison Street Real Estate Capital (HSRE) affiliate. HSRE and Extra Space each received a 50 percent interest in the joint venture, to which HSRE had contributed about $15.8 million in cash, while Extra Space contributed 19 wholly-owned properties in California, Florida, Nevada, Ohio, Pennsylvania, Tennessee, Texas, and Virginia. The properties secured about $101 million in debt, which was assumed by the joint venture. Extra Space will continue to operate the 19 properties.
“There’s a couple of reasons behind it: to generate a little bit of cash, to offload a little bit of debt into the joint venture,” Extra Space’s vice president of marketing and corporate communication, James Overturf, explained to the Salt Lake Tribune today. “It de-leverages us a little bit….But more than anything, it establishes a relationship with a really good joint venture partner.”
The deal was originally announced last June. At the time, HSRE planned to contribute about $62.4 million in cash, assume about $213 million of Extra Space’s debt, and receive 80 percent ownership in the new venture. But the terms of the deal were changed, Overturf explained, in response to changes in the market. Extra Space has done well financially during the recession, compared to other businesses. Like most companies, Extra Space reported a lower net income for its last quarterly report (ending Sept. 30) than it did for the same period in the previous year. But the downturn has affected Extra Space and other self-storage companies less than it has affected the rest of the real estate industry. Overturf says that banks have continued to be willing to finance self-storage properties because self-storage units have done relatively well despite the economic downturn. “So we’ve been able to roll our debt,” he noted. “It’s been an effort but we’ve been able to get it down. We’ve raised almost $350 million in debt last year to cover our upcoming debt maturing through the end of 2011.”
Extra Space Storage, a publicly-traded company based in Utah, is a real estate investment trust. It owns or operates 766 self-storage properties located in 33 states and in Washington, D.C. Harrison Street Real Estate Capital, a real estate private equity firm, currently owns or is developing around $2 billion in real estate. In addition to self-storage units, HSRE owns and/or is developing student housing, senior housing, assisted living facilities, marina berths, and rentable medical office space. Its properties are located in 29 states.