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Morningstar Properties makes its move

By Eric Frazier
Eric Frazier
Eric Frazier covers economic development. He has been reporting and editing at the Observer for more than 15 years. If you have a story idea or news tip to share, contact him at:
  • http://media.charlotteobserver.com/smedia/2013/12/14/01/34/1cy53B.Em.138.jpeg|201
    Photos by Diedra Laird - dlaird@charlotteobserver.com
    Morningstar President David Benson, here at the company’s Fort Mill, S.C., location, said the storage facility business is using its own private equity fund to buy storage facilities around the Southeast.
  • http://media.charlotteobserver.com/smedia/2013/12/14/01/34/Bn2yh.Em.138.jpeg|190
    Diedra Laird - dlaird@charlotteobserver.com
    Morningstar has bought six storage facilities this year and has seven more under contract.
  • http://media.charlotteobserver.com/smedia/2013/12/14/01/35/aYolv.Em.138.jpeg|222
    Diedra Laird - dlaird@charlotteobserver.com
    Morningstar owns 26 storage centers in nine states, mostly in the South.

It’s the end of the year, which means in the business world that it’s time for our local business experts to tell us what they think we’ll see next year.

All around Charlotte for the past week or two, bankers, lawyers, accountants, real estate developers and others have been gathering to scope out the business landscape for 2014.

After attending several such events, I feel like I heard the same general forecast each time: Look for Charlotte’s economic recovery to continue next year, albeit with tepid growth of around 2 percent.

Things are getting better, speaker after speaker said. They’re just getting better slowly. Very slowly. Run your business accordingly.

So it was an interesting change of pace to meet with Dave Benson, president of Matthews-based Morningstar Properties, which oversees Morningstar Mini-Storage centers.

While everybody else seems to be tapping their brakes heading into 2014, Benson’s charging ahead in aggressive expansion mode. The company launched its own private equity fund to buy up storage facilities around the country.

Backed by institutional investors, Morningstar’s Blue Doors Storage Fund I has $52 million on hand, which Benson figures is about enough to buy about 20-25 storage facilities.

The company has bought six this year, and has seven more under contract. The company now owns 26 storage centers in nine states, concentrated mostly in the South.

Benson’s dad started the business in 1981, back when far fewer people knew what to make of storage facilities, or what to put in them.

Morningstar rose to the top 10 nationally in the industry, but in 2006 sold off most of its properties to a competitor just before the recession hit.

They began rebuilding and were ranked No. 17 on Inside Self Storage magazine’s list of top storage operators for 2013, with 66 facilities in eight states. Then came a blockbuster sale announced in October in which the Public Storage chain bought 43 of Morningstar’s centers for $315 million.

Benson expressed satisfaction with how well his staff had increased the value of those properties. And Morningstar set out to buy more, concentrating on buying from smaller operators.

“The fund is our latest approach to it,” Benson said. “We’ve always been a little bit contrarian on how we approach the industry. … We are to our knowledge the only (storage facility) operator-sponsored fund in the sector right now.

“I assume someone will follow us quickly, but I hope not.”

He said his company is making the move because institutional investors and pension funds are showing increased interest in the $24 billion-a-year self-storage industry.

He flipped to a chart tracking the various growth of several classes of real estate assets from 1994-2012.

“This is the trajectory of the (storage) business,” he said, pointing to an orange line shooting steeply upward from late 2008 onward. The lines for office, retail and even apartments putter along beneath it.

“Storage did really well in the downturn,” Benson said. “What drives people to us are transitions. When the economy’s good, that drives people to us because it’s new homes, it’s renovations, it’s a new job. … And people also need storage on the way back down.”

In the past, Morningstar worked with private equity firms that linked it with capital from insurance companies, pension funds or other institutional investors.

But Morningstar has decided to cut out the private equity guys, figuring that the downturn showed the investment professional types don’t necessarily know it all. Earlier this year, Blue Doors I launched with several regional institutional investors.

“We’ve been brash enough to call it Fund I with the idea that there will be a Fund II after that,” Benson said. “Hopefully, it’s (swallowing) the elephant, one bite at a time.”

So as interesting as 2013 has been for Morningstar, he’s expecting more excitement – if you can use that word for the storage industry – for 2014.

Expect to see one of the company’s more novel projects begin construction near the South End early next year. It’s a $9 million, five-story facility, slated to go in at South Tryon and Griffith streets.

It looks more like a suburban office building.

“I don’t know if that qualifies as edgy in the South End, but it certainly does in the storage world,” Benson said. “For a pretty mundane topic, it’s been a changing industry for us.”

Eric Frazier writes about development, jobs and the economy. Got a story tip? Contact him at 704-358-5145, efrazier@charlotteobserver.com or @Ericfraz on Twitter.
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