The competition for Hong Kong self-storage assets is heating up, with a Blackstone joint venture on Thursday closing on the purchase of a Kowloon industrial building for HK$850 million ($108.2 million), according to sources familiar with the deal.
A Blackstone joint venture with with self-storage operator Storefriendly acquired the 150,000 square foot (13,935 square metre) Novel Industrial Building in Cheung Sha Wan from the family of the late “Wool Magnate” Chao Kuang Piu, marking the partners’ fourth en-bloc purchase in Hong Kong since April of last year. Representatives from Blackstone and Storefriendly declined to comment on the reported deal when contacted by Mingtiandi.
The transaction, which brings the joint venture’s acquisitions in the city to more than HK$2 billion in 18 months, sees the partners acquiring the property at a unit rate of HK$5,666 per square foot, or around 30 percent less than the seller’s asking price when the Novel Industrial Building had previously been marketed in 2020, the sources added.
The purchase came just weeks after Warburg-Pincus-backed StorHub acquired a floor in the nearby Precious Industrial Centre in a HK$66.27 million ($8.4 million) deal, with Brookfield also expanding its self-storage acquisitions in the region.
Safety in Storage Lockers
The Novel Industrial Building stands 12 storeys tall at the intersection of Kwai Chung Road, a major thoroughfare in the area, and Cheung Mou Street, and carries 850 to 870 Lai Chi Kok Road as its official address. Each floor in the building covers about 12,000 square feet.
The Novel Industrial Building is located next to four private residential estates, known locally as “Four Little Dragons,” said Alex Leung, senior director at CHFT Advisory and Appraisal. These estates contain 8,827 flats and could provide steady demand for self-storage due to high flat prices in Hong Kong, he said, noting that self-storage services in aging industrial buildings serve both residents in the area and office users.
The building is positioned in a good location, said those familiar with the deal, who attribute the growth in Hong Kong’s self-storage sector to the city’s “living density,” with recent lockdowns accelerating demand for more storage space. James Siu from Savills is understood to have represented both parties in the transaction, with the property slated to be fully converted for self-storage use.
The partners’ latest purchase came as self-storage deals provided one of the few bright spots in Hong Kong’s property market as trades of industrial assets in the third quarter fell 73 percent from the previous three months, according to a recent report by Colliers Hong Kong.
“While interest rate rises have deterred local investors and developers, private equity was still keen to acquire en-bloc and whole floor warehouses for investment,” Savills said in a report this month.
Amid ongoing Covid-19 restrictions and rate hikes, investment funds have honed their focus on high-yielding industrial assets with that search for returns bringing top players like Blackstone into the mini-storage sector.
Blackstone formed a joint venture with Storefriendly in 2019, with the private equity group’s capital support having enabled the self-storage provider co-founded by Kevin Chan and Arthur Law to buy en-bloc properties and convert them into dedicated storage facilities dubbed Storefriendly Towers.
Blackstone’s latest purchase follows the fund manager’s HK$500 million purchase of an industrial building in Shau Kei Wan last November on behalf of its Storefriendly JV, after it picked up a 10-storey tower in Kwun Tong in April of last year. Both properties have since been converted for use by Storefriendly.
In September of last year the company also acquired a six-storey building in the Fanling area for HK$282.6 million, with Storefriendly’s website now listing that property at 13 Yip Cheong Street among its locations in the city.
Storefriendly’s self-storage assets achieve an estimated 8 to 12 percent yield per annum before leveraging, according to a report by M&A intelligence provider Mergermarket in March, citing chairman Kevin Chan and managing partner Arthur Law.
The mini storage company founded in 2002 now calls itself the largest self-storage service in Hong Kong with a 25 percent market share. It also has branches in Singapore, Taiwan, and Macau.
Global Storage Strategy
Just this past week, Blackstone announced in its third quarter results presentation that its Blackstone Real Estate Partners Asia III strategy had gained nearly $8.07 billion in commitments, on its way to a goal of $9 billion. With that total set to add to Blackstone’s $319 billion in property assets under management globally, the firm has shown an interest in self-storage opportunities in multiple markets.
In November last year, the New York-based firm acquired Fort Knox Storage in Australia, along with the company’s 11 Melbourne-area assets, after purchasing the KeepSafe self-storage in Perth earlier in 2021.
In December 2020 Blackstone Real Estate Income Trust, a private REIT managed by the firm closed on its $1.2 billion purchase of Simply Self Storage and its eight million square feet of US self storage facilities from Brookfield Asset Management.
Race for Yield
Besides Blackstone, Warburg Pincus and Brookfield have also expanded their self-storage efforts in Asia.
Storhub’s Cheung Sha Wan deal earlier this month brought its holdings in the Precious Industrial Centre to eight of the 11 floors in the aging building, which is around five minutes’ walk from Storefriendly’s Novel Industrial Building.
Warburg Pincus acquired Storhub and its 12 facilities – 11 in Singapore and one in Shanghai – from Capitaland for S$185 million ($129 million) in 2019. StorHub has since expanded its footprint across Asia, setting up six branches in Hong Kong and 12 additional locations in mainland China. So far this year, the company has spent HK$948 million on four reported asset acquisitions in Hong Kong.
Blackstone’s archrivals from the north have also been pursuing self-storage strategies in Greater China, with Brookfield in March acquiring RedBox Storage from InfraRed NF, a joint venture of local developer Nan Fung Group and British investment firm InfraRed Capital Partners.
In May the Toronto-based investment firm spent HK$211 million to pick up a floor in the Shatin Industrial Centre in the New Territories and spent HK$55 million last month for a pair of units in the Chai Wan Industrial Centre. RedBox now has six branches in the city.