Extra Space, Life Storage to Form $47B Juggernaut

Good morning. Extra Space and Life Storage have agreed to a whopping $12.7B merger that will create the largest storage operator in the nation. Meanwhile, Major Food Group is taking its talents to the Miami residential market in an effort to attract high-end tenants to its luxury condo.

Extra Space and Life Storage Merge in $12.7B Deal to Dominate Storage Industry

On Monday, Extra Space Storage (EXR) and Life Storage (LSI) announced their merger agreement, in which Extra Space will acquire Life Storage for $12.7 billion in an all-stock deal to form the largest storage operation in the US.

By the numbers: Extra Space stated that the deal prices Life Storage stocks at around $145.82 per share, which is 11.2% higher than their closing price on Friday. Upon completion of the acquisition, Extra Space shareholders will own 65% of the company, while Life Storage shareholders will own the remaining 35%.

Some background: Public Storage offered to acquire Life Storage late last year but was rejected privately. When the offer was made public in February, it was rejected again. This led Life Storage to look for other options, resulting in a $12.7 billion merger with Extra Space Storage.

From the horse’s mouth: “We had two final bidders on Friday, and the board chose the bidder that provided the most immediate value today, and for the shareholders in the long run,” said Joseph Saffire, Life Storage’s chief executive officer. “We are confident it represents the best path forward for our business,” Saffire said. “This transaction is about long-term value creation.”

➥ THE TAKEAWAY

Big picture: Extra Space's acquisition of Life Storage will create the largest storage operator in the US with over 3,500 locations and 264 million square feet. The deal will increase Extra Space's portfolio by over 50% with the addition of 1,200 Life Storage properties. The merger is expected to generate $100 million in annual savings and increased property revenue.

📖 Read about five strategies real estate investors can use to defer capital gains, but don’t forget to consult your tax professional.

🖥️ Watch as Adam Coons from Winthrop Capital discusses how stress in CRE could trickle down to other markets.

🎧 Listen to this episode of The Fort where Chris Powers and his team discuss all things Investor Relations.

Major Food Group is Taking Its Talents to Miami Beach

NY-based Major Food Group (MFG), renowned for its restaurants—like Dirty French, The Grill, and Carbone, to name a few—is doing like Lebron and bringing its talents to the Miami residential market.

Luxury living: MFG is joining forces with 2 Miami developers to build The Villa, a 58-story luxury condo in Miami’s Edgewater neighborhood, making this the first residential building on MFG’s resume. The $500M development will include 60 units starting at $4.5M, with 360-degree views of Biscayne Bay and 20 KSF in restaurants, including resident-only dining and entertainment.

Cooking up collaborations: MFG is not the first to expand its offerings to real estate. Landlords have been collaborating with high-end restauranteurs to drive up demand for their assets, be it luxury condos, office rents, or more foot traffic at retail properties. Simon Property Group (SPG) and SL Green Realty Corp (SLG) have recently partnered with high-end chefs to open restaurants at their properties to attract shoppers and tenants. The Howard Hughes Corp (HHC) has partnered with French chef Jean-Georges Vongerichten, Momofuku’s David Chang, and Andrew Carmellini of NoHo Hospitality Group.

The Magic City: While prices are falling across the country, MFG is capitalizing on Miami’s expansion. The city experienced the fastest annual home-price growth in the country at 13.5%, according to S&P. MFG has opened 7 restaurants and private clubs in Miami over the past 2 years, so moving to residential felt natural.

➥ THE TAKEAWAY

Competitive advantage: Despite high inflation, Americans still enjoy dining out, as spending at bars and restaurants rose over 15% YoY in February. With dining options becoming a standard amenity at many residential properties, restaurant partnerships with luxury brands are just one more way developers are trying their hardest to distinguish themselves in increasingly competitive markets.

• Request denied: Blackstone’s BREIT received $4.5B of withdrawal requests in March but allowed just $666M to be withdrawn.

• Keep it in the family: Although holding onto cash in the near term, family offices expect to increase their investments in real estate over the next 2 years.

• Grace period: Office landlords are petitioning the Fed to step in and help prevent a “tsunami of office foreclosures” in the face of looming maturities and at least one more rate hike.

• Missed opportunities: Opportunity Zone (OZ) fundraising continues to decline, with 2023 projections around $458M, which is over 60% less than 2022’s $763M.

• East Coast expansion: Ryan Serhant’s 2-year-old brokerage has expanded to 6 new markets across the East Coast after growing its headcount by over 150% last year.

• Debt defaults: JPM discusses what the impact of a possible (but unlikely) US debt default would have on the multifamily sector.

• This time is different: MSCI’s Jim Costello and Alexis Maltin talk about the state of the banking industry and its impacts on CRE, as well as where investors might find opportunities.

• Taxing the rich: As tax cuts from the Tax Cuts and Jobs Act are set to expire in 2025, the Biden administration is working on proposals to increase taxes on the wealthy.

• Get in the zone: Blackstone’s Link Logistics acquired an AutoZone distribution center for $125M in SoCal from a REIT managed by JPM.

• Rental regulations: Philly has subpoenaed Airbnb (ABNB) hosts to ensure short-term rental owners are following permitting laws.

• Path to affordability: LA developer Path Ventures plans to build 94 affordable apartments in West San Jose near Westfield Valley Fair mall and Santana Row.

• There’s no place like home: As incomes have risen, more millennials are homeowners than renters, leaving Gen Z’ers as the only group with more renters.

• Georgia on my mind: Rockefeller has started demolition on the site where its 60-story trophy tower is planned for Atlanta’s Midtown.

• Affordability crisis: Data from the U.S. Census Bureau shows that Los Angeles County is no longer as popular as it used to be, as it has the highest number of people leaving due to its affordability crisis.

Annual net absorption for the 10 largest US office markets, which accounts for about 54% of the total US market, is falling quickly due to 20 MSF of negative absorption per year.