Self Storage Market: Thoughts?

Question

I wanted to find out from self storage facility investors about the current market.

How is it currently? Is there money to be made in this sector?

Any thoughts would be appreciated!   Thanks!

Mike Dymski · Answer

• Recession resistant asset class (people downsize, move in together, move back home, etc. during recessions)
• Cash flowing asset (not dependent on market appreciation)
• People buy a lot of crap and toys during good economic times (and need a place to put it)
• 75% of the facilities in the country are owned by non-institutional owners (opportunity for adding value)
• Small ($10-30) rental increases create large increases in NOI and property valuation
• Sticky tenant base
• Units are easy to maintain (brick and metal, no amenities, little landscaping)

Location, population growth, and barriers to entry matter.  I like MHPs, SS, and MF...and like MHPs the best right now, but my SS investments will likely outperform the others.

Michael Wagner · Answer

Self Storage is a phenomenal industry.  It certainly has its nuances though so you would be wise to get smart on how it differs from other investment niches.  Its very difficult to answer your question succinctly though because self storage is a very MICRO market investing niche...meaning it matters very little what the "national" trends are.

Generally speaking, every 5 mile circle in the country represents a "market" for storage and what happens in one is of little consequence to the others (even those very nearby).  As an example, generally speaking right now Storage is a "Hot" market where sellers are getting a premium for properties in many markets.  Hearing that, many investors would decide to wait for the market to cool off. After all we are taught to buy low and sell high...Despite all that, I just bought a facility for .50 cents on the dollar ($19 per square foot) and have doubled its value in under 105 days...from $465,000 to $1,000,000.....in under 4 months...in a "seller's market"....The point here is that every facility will have its own "market" and savvy investors can make money throughout the market's cycle.

Michael Bishop · Answer

@Mike Dymski hit the nail on the head. If you look at the 2008-2009 downturn, it was one of the best performing asset classes so that supports it's recession resistance. There is definitely money to made in SS, and plenty of people are doing it.

I'll also add to Mike's comments that small increases are easily attainable as (1) tenants typically aren't talking to each other about price (i.e. comparing their rent), etc and (2) most tenants don't find a small increase in price motivation enough to spend money on a moving truck and spend a weekend or more moving their belongings to a new facility.

Brad L. · Answer

There's definitely still money to be made, but are you considering new build or purchasing an existing facility? There are a ton of value-add opportunities out there for self storage, which makes purchasing an existing facility a much better option in my opinion. Obviously a lot of facilities are overpriced right now, but finding absentee owners with dilapidated facilities isn't super difficult. The main advantage purchasing an existing facility provides is some income while you are stabilizing the property; even if the owner only has 30% occupancy, that's better than starting from scratch with debt service payments. I know others may disagree, and that's fine.

I own one facility locally, and am looking to purchase another locally within the next 6-8 months. I am only interested in investing in facilities within a 20 minute drive from me, but I know there are a lot of self-storage operators making good money remotely by having kiosk systems in place. I just need to be more hands-on with my investments. I cut the grass, plow the snow, etc.

Michael Wagner · Answer

Small World! I used to live in White Plains.  NOw I'm in Western NY.  I used to think that local was the only way to do it and while that certainly has its advantages, sometimes its just not possible.  I've developed a pretty good remote management system over the years so I now buy nationwide.  Currently we have 2 in NY, 1 in Florida and are in negotiations for one in NC.  You might find my webinar and case studies valuable as I discuss the "evolution" of my investing from newbie to today.  The web address should be in my signature below. Happy to connect after you explore that page a bit more as I think it will answer a lot of your "initial" questions like the one above!

Kris Benson · Answer

Good Morning,

@Ilona Kovacs let me preface my statement by saying I am a partner in Reliant Real Estate Mangement which is a vertically integrated self storage operator so my opinion is biased.  BUT  Self Storage in my opinion can be a tremendous asset class to participate in right now.  I would want to know more about what your goals are and specific risk tolerances but feel free to reach out to me directly and I would be happy to discuss my thoughts.

@Ian Ippolito  and @Ronak Shah I appreciate the thoughts around our lack of web branding.  We are in the midst of a revamping of our entire online presence at both the individual site level and at the Reliant Real Estate/Investments level.  If you have any questions about our business or our investing track record please reach out to me directly and I would be happy to share with you our investor presentation.

Have a great day.

Kris

Ian Ippolito · Answer

@Ronak Shah,

Some of the old-school (and sometimes most succesful) syndicators before crowdfunding did not need websites to get that way. 2017 Inside Self Storage "Top 100 Operators List" ranks Reliant as #28 in the U.S.. ( http://buyersguide.insideselfstorage.com/guides/top-ops/default.aspx?ft=1 ) I haven't looked at their website, because I found them through personal introduction. If you would like an introduction to them, p.m. me and I'll connect you.

10 Federal: sorry, I created them into a bank: 10 First Federal LOL. Yes you have the name right. But storEdge is just one piece of the larger hardware, software and call-center package that they have put together (including customized programming that they have done on their own).So far I have not found a syndication sponsor that is more innovative at automating facilities and removing manual/human management.

Steve Cheslock · Answer

@Mike Dymski do you have any investments in the Greenville area.  I'm currently in the North East (Fairfield County CT) but was just in Greenville last week for a few days.  Great city.  I have a friend that just moved to Spartanburg.

@Ilona Kovacs I'm currently in Norwalk CT and was working on a project in Norwalk for 4 months before it fell through.  As mentioned the SS industry has so many nuances but I'm sure Port Chester and Norwalk have some similarities seeing that they are about 15 miles apart.

I'd also give a strong endorsement to @Scott Meyers as well.  He has been part of the SS community for sometime here on BP and has always been helpful and insightful with me on every dealing I've had with him.

Brandon Hobbs · Answer

Agree with all of the previous comments.  We have been able to purchase a couple of facilities in Texas where we still have very compressed cap rates in storage.  That said we might look at 6 deals a week, and have only purchased 2 over the last 2 years.  So it takes a lot of work to find a deal worth pursuing.  The biggest headwind the industry faces is over supply.  Most of the major MSA's are already oversupplied with more inventory scheduled to be delivered over the next 12-18 months.  So, like @Michael Wagner previously mentioned you really have to do a deep dive on the local market of any facility you are looking at purchasing.  Yes there is money to be made, but it takes hustle and creativity to find deals that make sense.  IMO, there will be somewhat of a shopping spree to take advantage of in approx. 12-24 months.  We are getting things in order to take advantage of those opportunities when they come, while "sticking to our guns" on the deals we are looking at now by staying conservative.

Take a look at Scott Meyers program for some good education.

Scott Krone · Answer

@Ronak Shah  We convert warehouse and/or office into self storage.  Apartments into self storage would not work well.

Self Storage Market: Thoughts?

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