Introduction...If you live in an urban area, you’ve probably noticed the 200,000 square foot to 300,000 square foot gigantic storage properties being built by one of the self-storage Real Estate Investment Trusts (REITs). You might even believe the REITs are taking over the self-storage market.
The market…Actually, the REITs account for just 13% of the 41,879 storage properties in the U.S. according to the 2017 Self-Storage Almanac. The remaining top 100 owners account for another 11%. This means 76% of the storage properties are held by smaller owners with the vast majority, mom & pops, owning only one.
What prevents the REITs from taking over the market? The REITs business model based on their capitalization and high overhead costs mean they look for properties that are at least 80,000 square feet in urbanized area with a minimum population of 50,000. The U.S. Census Bureau reports show that there are fewer than 500 of these markets in the U.S. Many of these markets don’t have enough density to support the larger properties required to be economical.
However, there are 18,571 towns and villages with populations under 50,000 according to 2015 statista.com These markets are not suitable for the REITs, but the smaller operators with lower overhead thrive there.
In summary…These smaller secondary and tertiary population centers are where we target to both buy and build self-storage properties. You might think that these markets are not profitable enough to meet our investment goals. Not so! Our goal is to accumulate at least 20 of these properties that could later be sold in bulk to a highly capitalized buyer. One such owner I know did just that.
Another group that specialized in buying and building self-storage in these secondary and tertiary markets recently sold out for $200,000,000. That should be enough.
If you are intrigued by this model, drop me a note at firstname.lastname@example.org for more details.