“Is now the time to get in self storage?”

I get asked that multiple times a week.

Unfortunately, there is no simple answer to that question.

I have an opinion. But my opinion is based on my experiences and history in the space, as well as my history in commercial real estate.

I am also sure there are a lot of other factors involved, in my opinion, such as family or origin, relationship to money and risk, or even past life experiences (possibly). Who knows.

I am saying there is probably a lot behind my opinion that I am not even aware of.

But for good or bad, I am often in a position where people are paying me for my opinion, so I feel bound to give it for the most part.

So here is my answer:

“It depends.” 

Depends on What?

Ultimately, it depends on the deal.

If you are new to self-storage, it has never been more critical than ever to figure out what corner of the space you will master, to dominate, to stake your flag in.

I won’t even begin to give you my opinion on whether you should or should not until I know that answer.

If you are new, have no construction experience, and tell me you want to build new, larger projects and syndicate them because you can’t figure out how to buy existing properties, I will most likely tell you now is not the time. 

That doesn’t mean you can’t enter the industry; now is not the time for that type of project, in my opinion, if you are new.

Why?

1. You will have a hard time raising capital because there are a lot of people who have vastly more experience than you struggling to raise capital to do the same thing.
2. Interest rates and construction costs are high, making realistic underwriting challenging.
3. If the lease-up slows, you better have a large pile of cash buried. And…
4. There are, or will be, a lot of newly constructed projects by people just like you that will, or soon will be, for sale because banks have a new term these days, something called “Cash-In Refis.”

 My coaching would be to (1) If you are bound and determined to build large, find an experienced partner and be willing to give a larger part of the deal away, or (2) buy one of these newly constructed “distressed” properties. 

Existing Projects With No Expansion

Always an option…if you can find them.

The reality for me is it has been since 2012 that I last purchased a facility where I could actually did not have to expand or add units and create enough return and value to meet our benchmark numbers.

I am not saying they are not out there, but I will say 99% of listed properties won’t work.

So, for the most part, you will have to set up your procedure for finding off-market properties if this is your plan. 

Expansions and Conversions

I am still bullish on these today.

Even though there has been a lot of consolidation in the storage space, the vast majority of properties in the US today are still Mom & Pop type of projects.

One could make a living buying these and expanding and upgrading them.

One could also make a living converting vacant buildings into storage as well.

Like all projects, make sure your trade area is healthy and there is demand for more storage, but there are still lots of opportunities in that corner of the self-storage space out there. 

Smaller New Construction

I am bullish on this as well today.

It is harder to make the numbers work in many cases, but there are a lot of places where new construction for, let’s say, 25,000 to 45,000 square feet can and does pencil out.

I am looking at some myself.

I make sure rents are strong in the trade area with your competitors, multifamily and housing costs are high in the trade area, and the other drives, such as population growth, etc., are strong.

One could utilize SBA financing for these and get built and leased up faster than someone doing a large, multi-story, 100% climate-controlled building.

Speed to profitability and stabilization is the name of the game when the economy is uncertain and there are a lot of products on the market.

So, it is not an easy question, “Is Now The Time To Get In Self Storage?”

However, if you can figure out a way to get in when it appears hard to or a bad time to be getting in the business, that is when many create real value for themselves.

Just be smart and have a clear strategy.

Be willing to pivot as you get real data from your efforts, but if not now, when?

When everyone else is trying to get in?