The self storage industry is posting returns that are whetting investor appetites for the property type. Yet building portfolios in what remains a highly fragmented industry is no easy task.
“There are a number of players that are kicking the tires and trying to get into it, but it is a matter of how to do it, because it is very hard to amass scale,” says Anne Coolidge Taylor, managing director at W. P. Carey Inc. Since 2006, the company has acquired 79 self storage properties spanning about 5.7 million sq. ft. W. P. Carey, which typically invests in net lease properties, likes self storage because of the steady cash flow and high margins, as well as the fact that the property type is fairly counter-cyclical.
But Taylor adds that growing that portfolio remains very challenging as more investors target the self storage sector. “There are a lot of interested buyers, and it has gotten quite competitive,” she says. The REITs and large buyers that already have a foothold in the industry are steadily working to expand their holdings. Self storage investment sales surged in 2012 to reach $2.1 billion—the largest volume since 2007 and well above the $1.5 billion in sales the industry has averaged over the last five years, according to Cushman & Wakefield.
“We’re seeing more investors at a time when there is less product,” adds R. Christian Sonne, executive managing director of Cushman & Wakefield’s self storage industry group in Irvine, Calif. The challenge is magnified by the fact that more than 80 percent of the nearly 51,000 self storage facilities in the U.S. are dominated by mom and pop owners.
Self storage company Storage Post and real estate investment management firm Heitman LLC recently made a splash with the purchase of 14 self storage properties in the New York metro area from Acadia Realty Trust for a reported $300 million. However, deals of that size are rare. One of the limitations of the self storage sector is that it is very difficult for an investor who has $500 million to invest to come in and quickly establish a position.
For example, Ladera Ranch, Calif.-based Strategic Storage Trust Inc., a nontraded REIT, has been very successful with its disciplined approach. But, even so, it took the company about five years to amass a portfolio of more than 100 properties. Strategic Storage Trust purchased two facilities in Mississippi in January for $10.7 million. Currently, the REIT owns 110 facilities in 17 states and Canada that are branded as SmartStop Self Storage.
Beth Mattson-Teig, National Real Estate Investor.
