by Marc Goodin.
There are so many things going on at this moment we are at a point where there is no immediate consensus or one size fits all. Come to think of it this has been true since I started in self-storage in the 80s. Presently we are looking at high inflation, bank failures, war the stock market at an all-time high, and recession in the air. It is times like these that separate the entrepreneurs from the wannabes. Not everyone can be an entrepreneur.
Certainly, at first blush, it sounds like it may be time to let our fear take over and stop us in our tracks for a year or two or forever. And for many, this will be the route they will take. This is nothing new.
Several factors point to a great future of self-storage.
The resale value of our self-storage continues to look bright. Just look at Public Storage recent announcement that they will buy Simple Self Storage for $2.2 Billion. Simple Self Storage has 127 consisting of 9.4 million square feet. That’s $230 per sf!! And the purchase will be paid for with unsecured notes at 5.2%+_.
But that’s not the only expansion Public Storage is making. In the last 3-month quarter they also:
Acquired 11 facilities for $144 million.
Contracted to purchase an additional 11 facilities for $118 Million.
Completed $19 Million in expansions.
And have $1 Billion of expansions in progress.
And in the last quarter, they record move-ins and their NOI increased 6%.
Let’s not forget about Extra Space who agreed to buy Life Storages 1,150 self-storage for $12.7 Billion in a stock trade. With this purchase, Extra Space has taken over Public Self Storage as the largest self-storage REIT with 3,500 facilities.
Simply put the people with money are continuing to buy self-storages There are not enough self-storages for sale to meet the demand. This will keep the (resale) self-storage values constantly great compared to other real estate options.
The present below-peak development is also a positive long-term factor for those who are building now or in the next couple of years. And for the first time, we are seeing land prices coming down vs going up. Construction costs have stabilized and due to the slowdown in construction contractors are starting to sharpen their bid pencils. There are more shovel-ready projects for sale another great opportunity for the investor moving forward with self-storage.
While there has been a dip in some self-storage stats since the peak covid, it is a positive sign the rental rates, growth, and vacancies are holding up to pre-pandemic levels.
Self-storage is a resilient sector through economic down cycles for 4 reasons: 1) low tenant turnover, 2) minimal maintenance, 3) few employees, and 4) stable cash flows.
The growing Milliman households, retirement downsizing, work at home trends will continue the need for self-storage and high occupancy rates.
There are several factors why not everyone will participate in the self-storage opportunity.
Some individuals will have problems REITs do not have such are obtaining financing because they can issue stocks, notes or can get money from large Funds like the REITs do Individuals always have to be nimble to adjust to current situations. Individuals can take time to find the single property that fits their needs and build a team to help them save money at every turn and make more profits per sf.
It is clear the self-storage business will continue to consolidate. Given that the larger players only own 30%+_ of the market and the owners of 1 – 3 facilities have been reluctant to sell the goose that lays golden eggs. But no matter how smart an individual owner is he will lose out to a good team. And that is why you are seeing more self-storage coops, franchises, and small players expanding to more facilities.
While self-storage developers have a significant advantage compared to most other businesses during these unique financial times they do have to plan for high-interest rates and obtain acceptable loans. I built 2 self-storage facilities during similar times, the great recession back in 2008/2009. (8.5% interest rate with a huge prepayment clause) It was tough but now it is easy to say it was the best finical move of my life.
Of course, you need to start by putting your best foot forward with a complete lending request package including an executive summary cover letter, detailed plans, profit and loss statement. If you have an extra $300,000 in the bank after your down payment for your new project, you are going to get more loan offers at better terms.
There are dozens of ways to save on construction costs without sacrificing quality. You will need to take the time to research and implement them. They do not happen on their own.
You are going to be prepared to make less profits initially and refinance when rates are lower. Refinance loan clauses have suddenly become more important.
There are many more ideas and concepts you must explore if you want to get into the self-storage business. If you want to have a 15-minute call to learn how Storage Authority helps improve systems, sales, marketing, and profits at your existing facility? If you are building from the ground up let's also review how we help you find land and get your facility designed, approved, and built. Please send me an email or call me – no appointment is needed: marc@StorageAuthorityFranchise.com or 860-830-6764
Get more information on Storage Authority Franchise at www.storageauthorityfranchise.com/opportunity3
Marc Goodin is the President of Storage Authority Franchising. www.StorageAuthorityFranchise.com He owns 3 self-storages he designed, built, and manages. He has been helping others in the self-storage industry for over 30 years. He can be reached at marc@StorageAuthority.com or directly at 860-830-6764 to answer your franchising, development, marketing, sales, and operations questions. His best-selling self-storage books are available on Amazon.