A 721 exchange swaps your facility for fund units instead of cash, and defers the tax on your gain. Investors in nine StorQuest stores just made that trade, rolling about 80% of their equity into William Warren Group's Self Storage Income Fund.
For your facility, the question is what you'd hand over besides the deed. In a fund, the sponsor usually sets street rates and decides when to sell. You'd keep a share of the outcome, not the controls.
What the fund did
The fund took in nine operating StorQuest facilities in a $110.9 million contribution, which brought it to 17 properties. Its gross asset value is now $196 million.
The sponsor also has a $200 million credit facility from Wells Fargo. The article describes it as room for future growth, not money already spent.
Here's how the CEO described the roll:
"Our investors chose to stay invested rather than cash out because they believe in what we're building."
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Bill Hobin, CEO of William Warren Group, via Modern Storage Media
What it means for your facility
Read this deal narrowly. The nine were StorQuest stores, and William Warren Group is StorQuest's parent. The investors who rolled were already inside the sponsor's own stores. That tells you the sponsor's existing investors chose to stay in. It doesn't tell you an outside owner will get an offer, or at what price.
The same goes for the price. Divide the contribution by the square footage and you get $270.49 per NRSF, because the nine stores carry about 410,000 rentable square feet. On a 50,000 NRSF facility, that comes to $13,524,500. The nine average about 45,556 NRSF, so that size is a fair stand-in.
Don't price your store off it. The article doesn't say how the sponsor set the value, and it gives no occupancy or street rates for the nine. It wasn't a sale to a third party, so it says nothing about what a buyer would pay for yours.
What the roll does to your equity
The source gives 80% for these investors. Your terms would be negotiated and could differ.
Say you hold $5,000,000 of equity in a facility and roll 80%. That puts $4,000,000 into fund units. The other $1,000,000 isn't rolled, so ask your tax advisor how it's treated before you agree.
Units aren't cash. You can't pay down a loan with them, and whether you can sell them depends on the fund's redemption terms.
What to check this week
- Pull your facility's equity, loan balance and basis, so you know what an exchange would roll.
- Ask your tax advisor how a 721 exchange would apply to your ownership structure.
- Write down trailing occupancy in percent and street rates for the last 12 months. Any sponsor will ask for both, and our post on physical versus economic occupancy covers which occupancy lenders and buyers underwrite.
- If a sponsor approaches you, ask in writing for the fee schedule, the redemption terms, and how much of its credit line is drawn. The article gives the size of the facility, not the balance. Our capital stack explainer shows why debt ahead of your units matters.
- Get one broker opinion of value, so you have a number that isn't the sponsor's.
Whether you roll, sell or hold, the store is worth more with higher occupancy and rent, and self-storage marketing is how you build both.