Commercial/Multifamily Briefs, April 20, 2023

Extra Space Storage, Life Storage to Merge

Extra Space Storage, Salt Lake City, and Life Storage, Buffalo, N.Y., entered into a definitive merger agreement by which Extra Space will acquire Life Storage in an all-stock transaction. The combined company’s equity market capitalization should approach $36 billion and the total enterprise value will equal nearly $47 billion.

Under the terms of the agreement, Life Storage shareholders will receive 0.8950 of an Extra Space share for each Life Storage share they own, representing a total consideration of approximately $145.82 per share based on Extra Space’s share price close on March 31, 2023. At closing, Extra Space and Life Storage shareholders are expected to own approximately 65% and 35% of the combined company, respectively. The respective boards of directors of both Extra Space and Life Storage both unanimously approved the transaction.

The transaction will increase the size of Extra Space’s portfolio by more than 50% by store count with the addition of Life Storage’s 1,198 properties, including 758 wholly owned, 141 joint venture and 299 third-party managed stores. In total, the transaction adds over 88 million square feet to the portfolio. The combined portfolio represents the largest storage operation in the country with over 3,500 locations, over 264 million square feet and serving over two million customers.

The firms expect the transaction to close in second-half 2023.

Citigroup Global Markets Inc. acted as lead financial advisor and Latham & Watkins LLP served as legal advisor to Extra Space. J.P. Morgan Securities LLC also served as a financial advisor to Extra Space. Wells Fargo Securities and BofA Securities acted as financial advisors and Hogan Lovells US LLP and Quinn Emanuel Urquhart & Sullivan LLP advised Life Storage.

CRED iQ Reveals Risks and Opportunities across $25 Billion in Floating-Rate Loans

CRED iQ, Radnor, Pa., a data, analytics and valuation platform serving the commercial real estate finance and investment communities, announced an important expansion in the company’s core data.

Learn more about the Floating Rate Debt Whitepaper & Databook here

CRED iQ analyzed floating-rate loans securitized in the Commercial Real Estate Collateralized Loan Obligation universe and isolated key parameters of interest rate cap agreements. Depending on client perspective, interest rate cap agreements can be a source of credit risk or serve as a basis for opportunity in prospecting and closing CRE transactions.

Loan cap agreements have skyrocketed in value (or cost) as interest rates have climbed. While floating-rate loans face challenges in today’s marketplace, the rate cap agreements represent a potentially meaningful asset. Investors, owners and brokers can monetize these instruments and thereby create significant value in a CRE transaction.

“Interest rate cap agreements in our dataset have termination dates ranging from 2023 to 2026. Of those rate cap agreements with expiration dates in the next four years, 40% have expiration dates that occur prior to respective loans’ maturity dates,” said Marc McDevitt, Senior Managing Director of CRED iQ.

CRED iQ’s enhanced dataset covers nearly 700 rate cap agreements that provide $30 billion in protection. The curation of the dataset was preempted by client demand and identified as a necessity in the current interest-rate environment.

“Floating rate and bridge loans represent some of the most challenging territory faced by CRE owners and investors,” indicated Mike Haas, Co-Founder and CEO of CRED iQ.  “There are also opportunities within the loan structures that we have attempted to unlock in our latest release.”

Security Properties Closes its Sixth Co-GP Multifamily Real Estate Fund

Security Properties, Seattle, completed its final Capital Call for Security Properties Multifamily Fund VI (“Fund VI”), a $200 million moderately leveraged, geographically diversified private equity real estate fund that invested primarily in institutional joint ventures as the General Partner. The structure of these investments afforded Fund VI members an opportunity to participate in shared potential promoted interests in various joint ventures with institutional partners.

Fund VI invested in existing apartment communities in 11 MSAs, from the Nashville and Austin Metros to the West Coast. In total, Fund VI made 28 multifamily investments. Twenty-six of these (80% of Fund VI’s committed equity) are co-GP investments, where Fund VI Members participate as LP’s of the General Partner, an affiliate of Security Properties, and have an opportunity to participate in the General Partner’s share of any promoted returns. Two other Fund VI investments (20% of Fund VI’s committed equity) are directly owned by Fund VI, without an institutional partner.

In total, Fund VI combined its $200 million of committed equity (10%, or $20M, of which, was co-investment from the firm and its employees) into joint ventures with 13 different institutional partners. These institutional partners contributed an aggregate of $780 million of equity, and, together, Fund VI and these institutional partners collectively acquired $2.1B of multifamily real estate, comprised of 6,400+ units. Total leverage on the fund was approximately 60% loan to cost.

Security Properties initially targeted a $150 million raise for Fund VI, expandable to a maximum of $200M. Fundraising commenced in Summer of 2021. Although the fundraise was initially projected to take over two years, Fund VI raised the maximum of $200 million in six months.

Fund VI was the sixth in a series of increasingly larger funds that have sought to team accredited investor and smaller institutional capital with Security Properties’ roster of 30 institutional partners in one-off acquisitions. These institutional partners have utilized Security Properties’ nearly 700-person operating and property management platform to allocate capital into over 130 existing, cash-flowing market-rate multifamily properties since 2010.