Comments (42)

Aug 2, 2017

I do. The family real estate company I work for has recently invested in 4 or 5 self-storage developments. I'm no expert in the field, but as a result of these transactions, I can provide a bit of insight. Did you have any specific questions?

Aug 11, 2017

What State/ Region is your company focused on? I work for a real estate investment firm in Charleston, SC and we broker and acquire deals throughout the Southeast. If this is of interest, I could send off-market opportunities your way.

Aug 11, 2017

Unable to PM you. Can you PM me?

Aug 2, 2017

There are a ton of people trying to get into it right now, I know a few of the storage brokers in my town and they said there's a ton of competition in the buying space. Lots of unsophisticated investors who would have bought a garden style apartment now want mini storage.

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Aug 2, 2017

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.

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Aug 2, 2017

Storage vacancy during the recession was really high even in top markets in SoCal. People getting out of MF and chasing higher Cap's in storage may have a rude awakening a few years from now. There are clearly very successful people and firms in the Self Storage game. Most storage facilities I see built here in San Diego are in commercial or industrial districts immediately off a major highway. Definitely not where an apartment building would get built.

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Aug 2, 2017
PacNumber:

Storage vacancy during the recession was really high even in top markets in SoCal. People getting out of MF and chasing higher Cap's in storage may have a rude awakening a few years from now. There are clearly very successful people and firms in the Self Storage game. Most storage facilities I see built here in San Diego are in commercial or industrial districts immediately off a major highway. Definitely not where an apartment building would get built.

I'm almost certain we've had this discussion before, but I'll re-state what I said before. The San Diego market is not the Mid-Atlantic U.S. market. The self-storage space is booming in my area, and the comprehensive plans of most of our communities call for mixed-used developments, which means in many cases normal commercial real estate land is interchangeable with self-storage land (in effect, not necessarily in by-right zoning).

Aug 2, 2017

in your opinion, why is self storage a huge growth industry right now? Same reasons as industrial?, I know with the growth of e commerce, industrial facilities are in demand as on demand deliveries are becoming more popular.

Best Response
Aug 2, 2017

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.

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Aug 2, 2017

@pacificnor pretty much hit on most of it, but I'll keep it even more simple--there is under-served demand in many areas. The really good self-storage developers have precise metrics they use to determine if a neighborhood is under-served. If it is, the deal will probably work.

Aug 2, 2017

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.

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Aug 15, 2017
Dances with Dachshunds:

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

good morning reading, gets the juices flowing

Sep 19, 2017

Would you happen to know why operating expenses are less than multifamily?

What would be the biggest expense(s) owning a self storage property? Thanks.

Sep 19, 2017
yayaa:

Would you happen to know why operating expenses are less than multifamily?

What would be the biggest expense(s) owning a self storage property? Thanks.

Turnover is a lot less expensive with storage, and there is a lot less than can break or need replacement in a given unit. At the most involved, a unit might have electrical when the owners aren't concerned about tenants cooking (because they are living there or cooking other products), but the doors are the only other thing that needs maintenance, while the carpet, counters, fixtures, cabinets and appliances in multi-family need to be cared for. Utilities are also lower as it only needs to be climate controlled to the level of stuff, vs the water and sewer needs of residents.

Your big expense will probably be property taxes, followed by maintenance, administrative expenses and payroll if it is a big enough facility. Management fees in the sector are typically 5-6% of EGI as well.

Edit: and utilities in fully climatized properties.

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Aug 2, 2017

I watched Storage Wars once, does that count?

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Aug 2, 2017

Pretty much

Aug 2, 2017

Sticky tenants and the pure hassle of relocating stuff also makes rent increases easier. Tenants can put it on autopay and probably won't move when they get hit for a few bucks every month 5 months in, and then again a few months later, and again a few months after that...

Then if they stop paying, you can lien the contents of the unit and don't have to worry about a tenant trashing the unit before they move out.

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Aug 2, 2017

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-6...

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Aug 2, 2017

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.

Aug 8, 2017

Interesting adaptation of that packrat company who would drop off a box that you would fill up then they would pick it back up and store it at their location.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 2, 2017

I am a partner in one on the outskirts of DFW in a small town. It took us a year to fill our smaller spaces, 5X8 and 10X20, but our 30X40s are always full and have a wait list. The bigger spaces are a mix of people looking for a covered place to put their RV, semi truck boat, or toys, or to have a little shop to work on their cars, or a place for a small business. I cant speak on any other market, but the one I am in seems oversaturated with the smaller spaces, or perhaps there wasnt much of a demand for small space where land is cheap.

Land was 30K/acre and the metal buildings were $22/sq ft to build. Large spaces rent for $450/month, $100 for medium and $60 for small.

This probably isnt helpful to your market, but it is what is going on in my small corner of the world.

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Aug 2, 2017

1 year really isn't that bad considering that you're probably building at a 10+% stabilized yield to cost.

Aug 2, 2017

It isnt, and the bigger units have made sure that the numbers were right, but empty units bother me.

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Aug 8, 2017

Uh, I would question your sense if you are building self storage in the DFW area where land is 30k an acre. I own two in that market and the land value isn't anywhere close to that high and mine are in city limits.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 8, 2017

I would rather not give too many details about the location, but it was a good price. I can understand why you would think that as I recently bought 40 acres in wise county for 2.5K an acre. Land prices vary widely in the DFW area.

Aug 3, 2017

Very interesting thread, at least for someone who knows nothing about real estate. Thanks everyone for sharing.

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Aug 8, 2017

I own 2, location is your #1 concern. You wan't to be close to businesses, target industry is fast food. Of my two locations something like 35% of the space are rented to local fast food companies.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 8, 2017

Fast food? Really? First time I heard that. I guess it makes sense if they have a lot of non-perishable goods.

Aug 9, 2017

Cups, bags, boxes etc. Plus they have to store business records for X years as well just like any other company. Plus when you are dealing with a business where every sqft of dining space brings in X dollars a year you don't want to waste space on anything you don't need.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Aug 9, 2017

I've closed a few storage facilities in Colorado, Arizona and Oregon.. Ground up construction. They are cheap 4 walls with maybe multiple floors and doors with returns that are absolutely astounding. I think the ownership structure is really what is integral to the success of these facilities. Work out a contract between someone like Public or SelfStorage while letting them manage the operations is the simplest thing I've been apart of in RE.

Something else that is up and coming in major MSAs is art self storage. It comes at a premium price tag, with insurance being arguably the highest expense. The newer shiny facilities are offering seasonal services which will bring your rotational pieces to your office/home/yacht/hotel/whatever. Many companies as well as wealthy individuals are using these facilities (which can be additions to the self storage facility). $$$$$$$$.

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Aug 10, 2017

The concierge model adds some operational risk, especially with expensive stuff. A family friend worked for a developer that did wine storage, but the employees started getting good at knowing which wines were worth lifting. With something like that, it could be years before the client notices, at which point the employee may be long gone, but you and your liability could still be very present.

My personal preference would have the client manage their allowed users, because I don't want to touch anything that could result in that kind of liability.

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Aug 10, 2017

If you want to look at deals that are on market, I'd follow Nick Walker's inventory-he's definitely the top self-storage broker at CBRE.

See here: http://www.selfstorageadvisory.com/listings/

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Aug 10, 2017
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Nov 6, 2017