Jernigan Capital, founded by former CEO of CubeSmart and Storage USA, is aiming to refinance riskier loans and tendered $5 million in shares this week in a initial public offering (IPO). The mortgage based REIT is focused on lending to self storage facilities and at $19 - $21 per share, it is expected to raise about $100 million in capital. The risk involved with this investment is expected to generate better than average returns. The prospectus issued by Jernigan has a long list of risk factors on page 16.
Going public may lead to an increase in revenue for the company along with giving the founding individuals a good exit strategy, if needed. Some venture capitalists have even used IPOs to cash in on successful startup companies.
According to the Jernigan brief’s bio, "Jernigan founded Storage USA in 1984 and grew the portfolio from a single facility to 570 assets in 35 states, eventually taking the company public in 1994 as one of the first exchange listed self storage REITs. Storage USA under Mr. Jernigan's leadership dedicated approximately $200 million of its capital to the same strategies that we will pursue.
In 2006, Mr. Jernigan was recruited to replace the founder-chief executive officer of U-Store-It Trust. Under his leadership, U-Store-It successfully executed a business model shift, refinanced its balance sheet after the recession and rebranded as CubeSmart."
According the JCAP prospectus, "We intend to originate a diversified portfolio of development, acquisition and refinance loans secured by self-storage facilities primarily in the top 50 United States metropolitan statistical areas, or MSAs… We believe these attractive opportunities exist due to excellent long-term self-storage industry fundamentals, significant demand for loans secured by self-storage facilities, and reluctance of commercial banks and other traditional lenders to loan money on acceptable terms to finance self-storage facilities."
As the company goes public, we’ll see in the upcoming weeks whether or not this stated business model is worth the risk.