Michael Schwartz Uses Cash to Unlock Values in Self-Storage

In 1991, Michael Schwartz bought his first piece of real estate — his house — from the Resolution Trust Corp. He sold the New York home years later at a hefty profit. “That exposed me to some of the real estate values that you can potentially buy in a down market, and how that market improves and value improves over time,” Schwartz says.

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Nearly 20 years later, Schwartz finds himself in another real estate recession with a similar acquisition strategy to buy properties where there is opportunity to boost values. The key difference is that Schwartz now has a much larger appetite for commercial real estate. Schwartz is president of Ladera Ranch, Calif.-based Strategic Capital Holdings, which manages a growing portfolio of roughly 5.8 million sq. ft. of commercial properties valued at more than $628 million.

The top focus for Schwartz right now is buying self-storage properties to grow the fledgling Strategic Storage Trust Inc. (SSTI), where he serves as chairman and CEO. The company he founded in March 2008 has already surged to include 14 properties in 20 states. “We have gone through a tremendous shock to our economy, but we see it is a significant opportunity,” Schwartz says. “If you have capital to deploy, we're finding some of the better values than we have seen in probably seven to 10 years.”

SSTI is leveraging an all-cash acquisition strategy to fuel its ambitious growth plan. The publicly registered, non-traded REIT is sitting on $30 million thanks to its ongoing equity raise. That access to capital helped the company acquire $152.3 million in property in 2009 with $52.3 million in direct property acquisitions and another $100 million in assets from the merger of two existing funds. In 2010, the company expects to acquire between $100 million and $200 million in additional property.

Schwartz hopes that the all-cash strategy will carry the REIT through the current difficult financing climate. The overall loan-to-value ratio on SSTI's portfolio is 38% and dropping as the company continues to acquire properties. “When debt financing improves, then we can potentially rebalance our portfolio and put up to 50% leverage on it,” Schwartz explains, “which we can then use to create our next wave of growth.”


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