Forum Asset Management has moved into the self-storage market because it sees the sector as highly underserved in Canada and ripe for consolidation, says Aly Damji, the firm's managing partner, real estate.
The Toronto-based company has acquired a 50 per cent interest in 20-year-old, B.C.-based self-storage firm Make Space to create a new entity called Forum Make Space and has launched Forum Make Space Storage Fund (MSSF), a $200 million-plus open-ended private REIT that now owns and operates 28 self-storage facilities and 1.4 million rentable square feet of storage in five provinces.
The deal combines Forum’s real estate development and capital-raising experience with Make Space’s operating expertise in self-storage, Damji says.
“We see a long-term growth opportunity for consolidation of self-storage, so the idea was, 'Let’s move these assets from closed-ended vehicles into an open-ended vehicle so we can continue to grow the platform',” he says of the fund.
Make Space shifting focus, seeks large co-investor
Make Space has traditionally focused on secondary and tertiary markets in B.C., Ontario, Alberta, Saskatchewan, and Manitoba, but Damji sees potential for self-storage growth in major cities like Toronto, Vancouver and Montreal.
Several Make Space sites have excess land where more fixed or portable storage can be added to increase revenues, he says. “Having the eye of an operator, we’re always looking at every square foot of every property that we can intensify and add and create more income.”
Damji says the Canadian self-storage sector is closely held by private players, leaving few venues until now for people seeking to invest in the Canadian storage sector.
Institutions have been looking to make a push into alternative real estate sectors such as self-storage, he adds. “We’re looking for a large institutional co-investor to invest alongside MSFF so we can grow this platform in a big way.”
Real estate is Forum’s largest business and the company has an almost $1.5 billion housing pipeline primarily focused on the GTA and Greater Golden Horseshoe. Forum’s investment focus also includes private equity and infrastructure.
Forum acquires Fredericton office buildings
In a sales leaseback transaction, Forum recently also purchased the two head office buildings of NB Power at 515 and 527 King St. in downtown Fredericton for $39 million from the New Brunswick crown corporation.
Built in 1983, 515 King has about 158,000 square feet of space, while 527 King, built from the 1940s to 1960s, has 50,000 square feet.
NB Power was seeking to sell, free up its balance sheet and sign a 20-year lease, something that “was really appealing to us because of (its) strong credit-worthiness.”
The electric utility will occupy 515 King, which will undergo major renovations. “All building systems are to be overhauled and façade upgrades will be made to make sure the building is operating at peak efficiency,” Damji says.
NB Power will vacate 527 King and Forum will either lease the building to another office tenant, dispose of it or convert it to residential.
Forum's development pipeline
Damji notes Forum has a history of converting buildings, including last year’s conversion near the University of Guelph of a former Holiday Inn to Alma@Guelph student housing.
The conversion came with four acres of excess land and Forum is looking to build about 600 units of student housing at the site, with groundbreaking slated for early next year.
Forum’s most near-term project is a $110 million development at 307 Sherbourne Street and Gerrard Street in Toronto. It plans to build what Damji says will be the smallest average unit size residential development ever launched in Toronto, with an average unit size of less than 400 square feet.
Eighty per cent of the building’s 190 furnished units will average between 200 and 250 square feet.
Construction at what is now a vacant site should begin within several months and be completed by the end of 2026.
“Affordability is getting out of control in urban centres” and micro units, which are popular in Europe and other more mature markets, represent a way to deliver affordable housing to people, he says.
Forum owns several micro units in Vancouver and Ottawa and rents are usually pegged to a 20 per cent discount compared to a traditional one-bedroom after factoring in furniture and utilities.
307 Sherbourne will be positioned either as micro unit apartment rentals for students and young professionals, or purely as student housing.
Forum is also exploring the possibility of offering the micro units as condos.
“If you take the average unit size from 500 square feet to 250 square feet you open up the market for potential buyers of (new build) units,” Damji says.
Partnership with Slate Asset Management
Elsewhere, Forum has partnered with Slate Asset Management for a proposed high-density mixed-use development at 100 Lombard St. in downtown Toronto.
It could include residential condos and rental apartments, “but we're contemplating that given the current market conditions, that’s not for certain.”
Damji says the focus is to get the site, acquired from Allied and once the city’s first morgue, rezoned from its current use as a brick-and-beam office building.
In addition, Forum is working on the third phase of its Quad Student Residences at York University in Toronto which could start construction late this year. Forum and Campus Suites already own 1,500 student housing beds and are looking to build another 800.
Damji says there is a significant shortfall of purpose-built student housing in Canada.
“Every unit of student housing (frees) up existing housing stock,” he says, “so we think it’s a great policy tool that various levels of government can help endorse” to restore a semblance of affordability to the housing market.
He likes the high turnover/transitional nature of student housing compared to the low turnover and rent controls seen with traditional multifamily.
Damji notes student housing in mature markets like the U.S. and Europe is a very sophisticated asset class with minimal spreads between multifamily cap rates and student housing cap rates. “As that market matures (in Canada), we see tremendous value growth potential through cap rate compression.”
EDITOR'S NOTE: This article was edited after being publish to correct a reference to Forum creating a "merger" with Make Space. Forum management now states it has acquired Make Space. During the interview, it had been referred to as a "merger". The article was also updated to clarify the reasons student housing are attractive to Forum.