I just started diligencing a 200+ unit storage facility on the Nebraska / Iowa border. It's a fascinating rental model --> some wear & tear advantages since no live-in tenants compared to MFUs, but also some mgmt challenges due to larger client base per sq ft. Documenting my research below to (1) flesh out my thinking and (2) guage any input from you smarties.

WHY APPEALING:

MINIMAL INFRASTRUCTURE - No toilets to fix, no carpet to tear out.
SIMPLER EVICTION - Not paying rent? Resolution can occur within 30 days.
SCALE - Diversified & smoother income stream from larger tenant base.
STICKINESS - Once stuff is stored, not fun / easy to move it.

UPSIDE POTENTIAL:

LOW OCCUPANCY - Low variable cost structure means occupancy increases primarily flow straight to bottom line.
MIS-MANAGEMENT - Mgr only there a few hrs a wk? Bad customer service causing churn or slowing down signups? No marketing acumen? No mgmt sales incentive to drive new sign-ups?
BAD MARKETING - Storage is not an emotional decision. If you're not listed where clients are looking, you're sh*t out of luck.
WONKY RATE CARD - Chance to raise legacy rates from existing tenants? Overly-high rates depressing occupancy? Are your units the sizes people need?
OVERALL DEMAND - Baby Boomer generation is going to increasingly downsize, and they've accumulated lots of stuff. Storage could be a smart LT bet.

WHAT SCARES ME:

COMPETITION - If many other local operators, means price may be only meaningful differentiator. Price wars are lose-lose.
NEW BUILDS - If storage demand is strong, & lots of open land avail, could be easy for another co to build new facilities = downward price pressure, customer churn.
BAD LOCATION - Unattractive demos, remote location will materially limit new sign-ups.
HIGH # OF TENANTS - Many more tenants per sq ft than a multi family. Need to have a strong systems-based customer service program. The phone will ring...

QUESTIONS I'M ASKING / DILIGENCE I'M DOING:

Is the current annual rent per sq ft par to market?
Why is the owner selling? Retirement or re-deploying capital vs unloading undesireable asset.
What's driving the local economy?
How many other storage operators are in area?
Calling up other local operators to research rates, sales pitch, systems, etc.
How many unit sign-ups in past year? Unsustainable mktg / incentives? Is lots of churn coming?
Is facility already at steady-state occupancy? How much upside & what's the cost to get it there?
What are the current processes for tenant sign-ups, payment, collections, turnover prep, etc? Are they manual (resource-intensive) or systems-based (resource lite)? Manual = upside opportunity. Systems = need to ensure proper hand-off.
Presence of security systems? Vandalism & unit theft are common.
Who will manage & what's the plan? Do professional for-hire mgmt co's exist?
What are the "unknown unknowns"?

LINKS & REFERENCES: