“Self-storage rents have dropped 20% to 30% since the start of the year.” 

“Sales transactions are down 57%.”

“Interest rates are rising.”

“Construction costs are up 40%.”

These are just some of the headlines we see today in much of the self-storage news.

And all of these are true. However, there is usually a lot more to each story not being talked about.

Sales transactions are down, but so is listing inventory.

Storage rates are down, but that is driven mostly by REIT pricing strategies creating lower street rates, which get jacked up after tenants move in. In some cases, by 100%.

But few of us really do the deep thinking and research to see what is really happening and how we can take advantage of it. 

I love what Tony Robbins says:

“Good times create weak people. Weak people create bad times.”

Bad times create strong people. Strong people create good times.”

If you think about it, that is another twist on the real estate cycle. I can sure see it in the self-storage real estate cycle.

In 2008, the recession hit. Self-storage occupancy dropped. Only by 8% or so on average, but it dropped.

Credit tightened up, and it was hard to do a deal.

Then, slowly, the recession was over. I remember being told we were in a recovery period in 2010, but it sure didn’t feel like a recovery.

Slowly, people stepped out and began doing more self-storage projects.

Then, after Wall Street started realizing how well self-storage performed during the recession, lots of press started happening.

People who had never considered self-storage realized, “wow, this could be a good sector to invest in.”

And invest they did. 

From about 2012 through 2015 or 2016, all you had to do was open the door and turn on the lights, and you would stay full.

And money poured in. Prices went very high. We were getting sub-5 % CAP rate offers on our portfolios, and we ended up selling.

I can remember watching all the development happening and saying, “There is no reason to overbuild today with all the data we have. We can determine in each and every trade area what is equilibrium, and there is no need to overbuild.”

Boy, was I wrong.

The times were good. People were weak.

Good times created weak people, and weak people created many large facilities and massive amounts of storage. We see them now having to drive street rates down just to fill their spaces.

Remember, they are going to raise the rents between 50% and 100% after people move in, creating a host of new issues for us to deal with, but that is another episode.

So, times got “bad.”

Interest rates are up. Construction costs are up.

However, now is when some real opportunities can happen for the “strong people.”

The last stat I heard was that 68% of all Fortune 1,000 Companies were created during a recession or depression.

Both brands I sold off in 2019-2021 were created during the 08 recession.

Strong people not only create good times, as Tony says, but they take advantage of what the market has to offer at any given moment.

Here are some examples of what I am talking about: 

• If you have a seller who underwrote the deal when interest rates were 4% and started construction, now rates are 8%, the building is built, and they listed the property (most likely because the bank said sell or put more money in), negotiate with the bank to get the property at YOUR price, and buy another property they have taken back off their hands (with them putting the loan on it of course).

You get your storage deal, and the bank can move a bank-owned property off their books.

• I have found what a seller wants to buy once they sell their facility. I put that property under contract, then closed on the seller’s replacement property and immediately did a two-way 1031 exchange with them, getting their replacement property at a value that works for them. I get the facility at a value that works for me. 
• Owner financing for a portion of the deal with no payments until the value-add portion is complete.

• Focusing on markets where there are no REITs driving down street rates.

• Focusing on markets where the bigger players are not looking but have strong rents.

There are a host of strategies one can employ today to get into or grow a self-storage business. But if all one knows how to do is to look for listed property and compete in the “call for offers” time period, yes, these times can be bad.

We are only limited by our creativity and willingness to think through and peruse a new and different strategy today.

“Bad times make strong people.”

Next week, I will do a case study on a way I was able to close on a facility in 2008 after my loan went away and my investors went away.

Let’s muscle up and take advantage of all the opportunities “bad times” offer us smaller investors.