@Petro B.
I'm going to go with you are in Philadelphia proper. Take all of the info above which is good, and apply it as follows. Your going to get "dirty" and get into the Micro the folks above are discussing.
Pull up Google and type in "Self Storage Philadelphia pa". Then click on the "Map". This is not all storage sites but is a true reflection of the market. As you move around on the map, to new areas, more storage will pop up. Do the same thing using "Sparefoot" and use their map.
Now a couple things to note, that aren't obvious.
a. A lot of the locations are in the same location due to easy zoning. Not customer service.
b. A lot of locations are along major highways, not in the neighborhoods.
c. Now start looking at the areas with many cross streets, this is where your population is.
d. Then look at the "holes" where you see very few storage locations if any. This is due to zoning and availability/price of land.
e. In a highly dense population like Philadelphia your competition is only within 1 to 3 miles. If that area has 50,000 people in it, it needs roughly 3,000 storage units, minimum. You just have to drive around and count the units. If there are 1,000 then build or buy; if there are 4,000 look somewhere else.
f. Lets say you see a location that has 5 National or Large local, climate controlled units all within 3 miles. I would love to build there. Even if they are all at 75% occupancy. I'm pointing out there are two markets in the same area. Say a 10 x 15 unit for $200 climate controlled. 10 x15 unit for $130 drive up. The drive up will win hands down. There are more people at the $130 market and who want to do drive up; versus buggy/elevator/hallway. The key is land availability/zoning/price.
g. Business approach. Most big box companies rely on an onsite manager. This forces them to stay at a minimum size location and also reduces their break even point and increases their unit price points. Like all big companies/industries you have two objectives in life. 1. Grow sales every year XX%., 2. Grow profitability % every year x% points. This puts a premium on making deals and expansion. Although these people are very smart, this pressure can make some stupid decisions. Even if all of their spreadsheets and market analysis are correct, 5 companies may pick the same local market in the same years and build, not factoring each other in. Don't play their business approach. They are playing averages over maybe 100's locations, you might only have one. Also they have greater SEO power than you ever will.
Takeaways:
1. As mentioned several times above, your market is micro.
2. Not only is your market micro, it is really micro within 1 to 3 miles in major cities.
3. Stupid Money. Finding a spot or evaluating a location for sale. Do a stupid money test. Assume you are trying to build in that 3 mile area. How hard is it to find land zoned, rezone, large enough, valued correctly, to hilly, rivers divide your territory, etc. The harder it is to find a spot, the more valuable your spot becomes. Stupid Money can't just walk in.
4. You mentioned syndication and passive income. Looks like you want to invest in the stock market approach, put your money down and have someone else do the work. Here's the rub. Do you want a AAA or B investment? For the AAA investment in storage you will need to do 6 hours hands on work per week at your storage location. You might have to do a lot of work up front developing; and go through a learning process. For the B investment you just read your quarterly report.
5. Where is the self storage industry going. There is only one Casket maker in the US. There used to be about 15,000. Economy of scale, distribution and marketing got rid of all the rest. The same thing will apply to Self Storage. Remember there are two markets in Self Storage, the above story only applies to locations above xxx units, with a Big Box business model. The other smaller locations will also tend to consolidate, but at a small town level within 40 to 60 miles.
So your final question of last stage market cycle or is the end near. Again, there are two different markets and they could be just across the street from each other.
Big Box- End is near- they work off of averages. They may hurt each other in some markets. But there are cities out there of 500,000 people that there is not a single Big Box located there. Even once they fill all their potential areas; then the consolidation process begins. They start to make money off of streamlined corporate, computer systems, financing cutting 1% point off, advertising they do away with Sparefoot since they own the market, they buy their own maintenance and construction companies- which I say stay in your lane, they control pricing, etc. Yes they will hit a dip, but then their profits will increase and streamline until they have reached maturity as an industry. That's about 20 years out. Buy them, there is still an increase profit stream in front of them, versus other mature industries. Like a SFH, make sure their numbers work for them to either Sale out, or to stay for the long run.
Little Guy strategy- same as the big guys. Or are they the same as US. Take advantage of the Baby Boom generation, all of these will be for sale. Most of their kids wont live there anymore and don't want to do storage, it is boring.
1. When I go into a town I look to both buy and build. Which ever is the most beneficial is the one I do first. Prefer to buy, since this takes out competition and gets me faster to price control.;
2. Price control- Once I reach 60% of the market, I raise the unit price $10. Doesn't sound like much, but this is about a 30% increase in profit, with no cost.
3. Now that I have consolidated several towns and locations in an area, if/when we go to sale; we will offer a multiple package deal versus one location. This is more valuable than just one location. All of the consolidation and acquisition work has been done. All of the systems, contracts, maintenance have been consolidated. Back office efficiency. We are in 5 towns. Have 7 locations and building an 8th. Last two locations are in large metro. Location 1: 230 phase 1/ 200 phase 2/ Contractor buildings phase 3; Location 2: 330 units in one phase. All done on one phone. We never meet our customers- self service.
4. Same as big boys, go back and refinance, and pick up 2% points on financing.
5. Do away with Sparefoot. We own 60% of the market. Increase our profit by 15% points.
My advice is for you to build your own syndicate. Go out and pick smaller (30,000 or less) towns and sit on them, hammer them, grow them, consolidate them.
Start small and make your Big Mistakes Early.
