Fresh off its $900 million purchase of Jernigan Capital’s 38 self storage facilities and other assets around the country, NexPoint has ambitious plans to quickly expand its portfolio over the next 18 months by adding 20 to 25 facilities to its portfolio.
And, if all goes well, the new stand-alone company it has established, NexPoint Storage Partners, could “easily double in size” over the next two to three years, says John Good, the former head of Jernigan Capital who will be CEO of the new NexPoint Storage Partners.
“We really want to grow,” says Good, noting the new entity will expand via facility acquisitions and via financing of new developments with right-of-first-refusal purchase clauses in agreements.
Rinse and Repeat
In many ways, NexPoint Storage Partners’s business model will closely follow Jernigan Capital’s previous strategy of investing in promising self-storage development projects in major Metropolitan Statistical Areas (MSA), then either selling or buying out the properties after they’re up and running.
“It’s roughly the same business plan,” says Good of the NexPoint Storage model moving forward.
And the new entity will certainly have the deep financial pockets to fund a quick expansion, after Extra Space Storage Inc., one of the nation’s largest self-storage REITs, provided $300 million of the proceeds to finance the acquisition of Jernigan Capital. Extra Space was the third-party manager of Jernigan’s facilities before the sale – and will be a manager/equity partner in the new company moving forward, Good said.
In addition to Extra Space’s involvement, JPMorgan Chase Bank, N.A. provided approximately $512 million of financing for the acquisition of Jernigan Capital and future growth of the new company through two separate secured credit facilities.
“I cannot be more optimistic,” Good said of NexPoint Storage’s backing by heavy-hitter investors.
Building a Dedicated Storage Portfolio
In announcing the launch of NexPoint Storage, Matt McGraner, NexPoint’s chief investment officer, said in a statement on Tuesday that he’s also optimistic with Good and other former Jernigan personnel running NexPoint Storage.
For NexPoint, a diversified real estate investment company based in Dallas, the acquisition of Jernigan Capital represents a slight change in its business strategy. Though it had been a long-term investor in Jernigan, it will now effectively have its own “dedicated self-storage” portfolio.
The “Corona” Effect
For Jernigan Capital, Good said its takeover by investors led by NexPoint was a necessary move as a result of last spring’s outbreak of the coronavirus pandemic.
Since its founding in 2014, the Tennessee-based Jernigan was highly successful in financing about 72 self-storage development projects across the country, outperforming investment piers of its same size, said Good.
But there was just too much financial uncertainty last spring as a result of the pandemic-tied economic downturn, he said.
‘We were kind of in no-man’s land,” Good said of the “micro-cap” Jernigan Capital’s plight. “It was a tough spring. We were in a good spot, but we were not sure if we had the size to keep growing.”
Enter NexPoint – and the August announcement that Jernigan, previously a publicly-listed REIT, was being purchased and taken private. The deal closed last month.
Now NexPoint Storage Partners is looking at effectively expanding by exercising its right-of-first-refusal purchase options on 20 to 25 self-storage facilities that Jernigan had previously financed, Good said. That should happen over the next 12 to 18 months, he said.
Jernigan’s 72 total development investments over the years tended to focus on geographic areas east of the Mississippi River, but it did have investments in projects in Denver, Los Angeles and other western metro markets.
As for future development and other acquisition deals, NexPoint Storage plans to be “very selective” in coming years, sticking to top MSA markets and making sure they’re making the right moves in the right places. The company is committed to investing in newly built, multi-story, climate controlled, Class-A self-storage facilities— known as “Generation V” facilities, Good said
“There’s not as much low-hanging fruit out there,” Good said of development-and-acquisition opportunities around the country, echoing the sentiments of other industry players after years of intense investment activity within the self-storage space. “But the opportunities are there.”
NexPoint Storage will look for deals across the country, but Good said it’s likely the company will closely eye building and buying assets in “fast-growing Sunbelt states,” such as Texas.