Does anyone have experience or even a primer for investing in this space? Thinking more at the owner-operator level and less at the REPE/Institutional Investor level.
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In terms of owner/operator, it's one of the easiest asset types in real estate to own. At least in my market, rent PSF is approximately the same as with apartments but operating expenses are way lower. This is actually why I think returns in self-storage are so good--in many cases, a self-storage facility is built on a location that could have otherwise been an apartment building, so it's sold as apartment land (or projected apartment land) but gets converted to self-storage, which has better NOI PSF as a result of lower operating costs. The REITs dominate the industry, so the best exit is to build numerous self-storage facilities for, say, a 10% return on cost and flip out your portfolio to a REIT at a 4.5% cap. F*cking disgusting.
These new, modern facilities look really nice (sometimes the best-looking building in a neighborhood) and they've got these cool electronic access pads that basically allow you to keep the place open without having any personnel on site (after hours). However, because "vintage" self-storage facilities look like such garbage, there is generally stiff neighborhood resistance to construction of self-storage facilities. It's a HUGE growth industry and will take awhile to replace the poor older product with the shiny new facilities.
I've done some self-storage research in my market as my company was looking at this class, and still is. I think part of the reason the market is growing is because how accessible they are these days. When you are living in a major market and your 600sf apartment doesn't have all the room for your stuff, it's very easy to go online, price check and rent a unit without any human interaction. Once you have a storage space, you are not likely to fill it and remove everything from it in the next year.
With millennials graduating college and moving into more urban areas,, and their parents not wanting to keep their belongings at their houses, this has increased demand for units. Conversely with baby boomers downsizing they need somewhere to put their stuff.
In the suburbs self storage can be a good play if it's easily accessible from a highway or busy street. In the suburb market we've also looked at RV/Boat storage. Many neighborhoods have CCRs against RVs and boats not in a garage, and people don't have space for them, so people are paying $100-200/month for uncovered outdoor parking.
The main market research with storage is population density within 2-5 miles depending on the city. People are not likely to drive more than 10 minutes to get to their unit.
I work on a portfolio of about 15 self storage facilities in several major markets (NYC, Miami, Boston, Dallas, Chicago, etc.). We are looking to expand our portfolio through additional developments.
In my opinion, there are a couple factors that are driving demand for self storage space:
1.) The size of the living space most people choose to live in had consistently gotten smaller in a lot of target markets. People are still continuing to buy stuff, but they don't have as much space to keep it. From my experience this drives a lot of demand for storage space (people renting lockers to keep their Xmas decorations, renting space to keep their mountain bike/kayak, renting space to keep their random junk)
2.) Baby boomers are starting to sell their family homes and downsize or move into age restricted rentals where they have considerably less space. They don't want to get rid of all the stuff they have accumulated and we have seen strong demand near independent living and active adult multifamily properties.
3.) Our analysis has shown that about 20% - 30% of self storage rentals are actually small business/commercial customers. These are business that need raw space, but aren't big enough to need an industrial condo/flex space/a small warehouse (law firms, contractors, pharma sales reps, small eCommerce businesses, etc.).
The tenants at new self storage facilities (climate controlled, controlled entry, all indoors) are very sticky. Our average stay is above 3 years now. This is very different than the average stay for older mainly outdoor properties.
I agree with most of @Dances with Dachshunds" points. These are really easy assets to manage with very consistent cash flows. Most municipalities are receptive to self storage facilities as they don't place much of a burden on existing infrastructure. The demand for these facilities is tried pretty closely to population within a certain radius so there is a threat of oversupply in some markets.
Happy to answer more questions.
Has anyone been following the on-demand self-storage start-up Clutter? They're being led by three large VCs. Wonder what people have to say.
https://techcrunch.com/2017/06/13/clutter-raises-64-million-to-store-wh…
Very interesting. Thought this was key:
"Plus, since they are bringing their items to you, they can rent facilities in less desirable locations. That saves a lot of wasted real estate money."
It's a great point because rent PSF does track closely to other commercial uses in a neighborhood, so you can imagine self-storage is fairly expensive in expensive urban neighborhoods. And yes, getting your stuff there can be a big hassle.
Another point:
"Everyone involved with Clutter believes they have what it takes to challenge Public Storage, a $35 billion public company. When asked if they might IPO someday, Mir didn’t hold back. '100%. there’s no way in hell we’ll ever sell this company.'"
Everyone's got a price. If anything, Public Storage, with its obscenely low cost of capital, will have no problem picking it up for the price needed. However, REITs do have some interesting restrictions on business operations, so I'm not sure if a REIT can actually purchase a "business". Question for the attorney.