Question #
How have large funds contributed to overbuilding in the self-storage market?
Answer #
That’s when the money started flowing and funds were coming out of the woodwork.
People started seeing large, sometimes unnecessary facilities going up everywhere.
I am sure you have heard this from others as well, thought it, or said it yourself.
If you have been attempting to buy self-storage at all over the last fifteen years, you know how hard it is to find a good deal that generates a return.
Now imagine having $30 million, $50 million, or $100 million you have got to move out the door into storage deals.
Many funds raise that kind of money, and there is a cost owed on that raised capital, so fund managers have a problem called “I’ve got to deploy a lot of money.”
Given how hard it is to find good deals on existing projects, they started building.
And if you are going to build, why not build big.
If you can move $20 to $35 million out the door on a single project, that is better for them than, let’s say, $3 to $10 million per deal on expansions or conversions, even if the smaller ones cash flow better.
I have learned in life every problem one has today was the solution to an earlier problem they had in the past.
But you see, this doesn’t really apply to many funds.
Because often, getting cash out the door is a way bigger problem than having a great asset generating a great return.
For many managers of these large funds, that is a problem they will “fix” later.
