Tim Alpe, CEO of Redbox Storage Interview on RTHK Money Talk

Tim Alpe, CEO of Redbox Storage has been invited to discuss sector investment in Hong Kong, who are the players, what’s going on and why institutional capital is leading the charge locally.

Listen to the full interview below.

Money Talk, December 9, 2022 (edited for clarity)

Andrew Work: All right, we are back on RTHK Radio three. This is Money Talk. I'm Andrew Work. And today, Thursday, sometimes we can get different kinds of guests in addition to our superstar regulars. Today we are going to have a talk about a hot sector: self storage.

You might know some of the big names in the industry, like Storefriendly, Hongkong Storage, and StorHub. Also smaller, family style businesses like Mr. Storage. But today we have one of the heavyweights of the industry in Hong Kong: Tim Alpe, the CEO of Redbox Storage.

Good morning, Tim!

Tim Alpe: Morning Andrew. Thanks for having me.

Andrew Work: Thanks for coming on. [To start,] just give us a quick bit of your background. I've got here that you're originally from New Zealand, built up a bit of a career in the hotel industry - a lot of property investment savvy on that side - but you made the switch to self storage, why?

Tim Alpe: Yes, I am originally from New Zealand and then Hong Kong for the last 18 or so years.

I think there was a bit of interesting synergy between looking at how to get the best return out of hospitality assets [compared to self storage]. And when you are looking at how [both are] programmed, looking at key counts (ed note: number of rooms per category/per property), diversity in your inventory, the customer acquisition journey and similar strategies that apply.

Looking at self storage as a specific industry sector, I think there has probably been a bit of a lack of innovation in the space in Hong Kong over the last decade or so. There are opportunities there to drive some real professionalism and establish the sector. So that was a little bit of the fuel behind the thoughts of stepping into industrial assets and self storage in Hong Kong.

Andrew Work: Industrial assets have been hot in Hong Kong, but in this sector [self storage] in particular, I know there have been some big deals done. Can you talk about what's happening with the industry in Hong Kong and how it did under Covid?

Tim Alpe: Self storage is a very resilient industry and somewhat countercyclical in terms of [reacting to] disruption and dislocation, especially caused by Covid. Whether it's downsizing businesses, freeing up space for work from home, moving out of the country, or moving into the country [self storage gets more business].

2022 has certainly been a little more challenging than 2021. I think that's predominantly due to the [growing] supply in the market as the sector has certainly received a lot of attention over the last 12 to 24 months [bringing new supply onto the market].

But [self storage] has also benefited from a boost in awareness because of those aforementioned factors. Self storage was not at the top of the mind of most [investment] people, and probably still isn't. But it's certainly come across the radar of a lot more individuals of late. Industrial assets in Hong Kong have performed well; industrial itself [not self storage specific] during covid by maintaining pretty typical yields and growing rents in those verticals that are monitored such as “warehouses”. As an asset class, it [self storage] is still in its infancy in Hong Kong.

…

Abroad, if you look at North America, Europe, Australasia, [the industry is] very well established. It falls into the alternative asset sector in [the minds of] a lot of institutional invest[ors]. But in Hong Kong, it's really just simply ‘industrial’. And we fight it out a lot of the time with data centres, cold storage, warehouse, logistics, and those kinds of [similar] businesses [to secure industrial property to operate in].

So, over the last couple of years, you've seen people coming in from Heitman… Angelo Gordon has dabbled around; obviously, Blackstone got their business and buildings. They had an operating platform pre-covid (ed. note: reference to MiniBox Storage, which Blackstone exited some years ago). They [Blackstone] have returned recently with four en bloc, full buildings, which are being operated with Storefriendly.

They’ve invested just over a couple of billion Hong Kong dollars according to reports. That's in excess of $250 million US dollars. It's certainly a significant investment versus what the market had seen prior to that.

Warburg Pincus (WP) certainly has entered the market; they have an existing presence in Singapore. They've quickly racked up, probably around 400,000 square feet of GFA (Gross floor area) across the city, with their operator StorHub. And they've also got few [buildings] in China. They acquired Locker Locker just over a year or so back.

WP have joint ventures in Thailand and things like that.

And Brookfield, since earlier this year [invested] in our platform RedBox. So, when you look at it globally, you're seeing a lot of very large specific self storage investment vehicles popping up. [One example is] GLP Capital Partners [launched a] North American specific fund, 1.5 billion USD.

Andrew Work: The biggest ever dedicated fund for the self storage sector! Full disclosure: I'm the Executive Director of the Self Storage Association. I better know that kind of stuff. It seems like the big deals are being done by overseas, private equity groups and asset managers, like you mentioned; Canadian [asset manager] Brookfield is in, as are American [investors]. Why [are there more international] than local developers (who are not lacking in cash!)?

Tim Alpe: I think it's the manner in which the strategy is viewed, in my opinion. Although local developers are essentially creating their own demand and, in a lot of cases, are best suited to be in the mix. It's the way they would look at it. It's an ongoing, operating business, right? Long term hold. It's a yield play basis. [Self storage is] less exposed to market fluctuations. It's also less of an IRR (Internal Rate of Return) driven investment strategy. There is a bit of a perception that there's an element of distress or value to be had at present, which attracts those opportunistic investors.

Obviously, I just mentioned that [the] industrial [property sector] has performed quite well during covid and that [distress] less translated here [in Asia] than it has elsewhere. But those that are perhaps slightly less aggressive plying their trade in those value added strategies, and they're both IRR focused and they're quite well suited to the Hong Kong market.

So, I would say, potentially, local developers are more likely candidates as potential exit parties for platforms that are under development. They would look at it as a way to maximize their returns on some of the existing industrial portfolios that they've got floating around. [They can] drive new revenues through their new residential developments and just view it as an operational yield basis.

And self storage does take time to ramp up, right? We all know that, so those that have longer hold periods and a bit more flexibility can benefit from the current investment cycles in the longer term.

Andrew Work: Gotcha. We’ve got like 30 seconds left. Very quickly, what is attracting investors to some operators but not others?

Tim Alpe: In Hong Kong, it’s a very fragmented market. Three to four operators make up circa 45-50% of the available space. After that, there's another hundred or so. So, you can see there are a lot of smaller mom-and-pop type shops too. So, size and scale. Remember most of these investors are in it for the real estate and most of the current operators here don't own any. So, when you're looking at a potential deployment over a very typical investment period, it could be challenging for some larger players to come in.

And look at existing levels of institutional-grade target organizations. Do they comply [with government regulations]? Do they have any form of government certification? Off the back of that, a lot of operators have a lot of strata (strata title) assets too, and then some investors view that as risky [given the risk of] [revitalisation and] redevelopment schemes as well.

Redbox has been very well placed to capitalize on that with obviously having most of our sites SAFE certified, under the Self Storage Association Asia embedded by Knight Frank. Increasing investment in technology [means] there are still opportunities to scale platforms in Hong Kong.

Andrew Work: Well Tim, we'll look forward to hearing more about that in the future. Thank you very much. That's Tim, the CEO of Redbox on Money Talk.