Just go to the Inside Self Storage new website, or go to the Radius Plus home page, and look at the headlines.
Here are some headlines the day I write this:
- Argus Affiliate Brokers Announce Sale Of Multiple Georgia Self Storage Facilities.
- Southeast Florida Storage Asset Trades For $ 14 Million.
- Bill Gates Become Owner in One Of The World’s Largest Self Storage Operators.
- Pogoda Adds Six Properties To Its Self Storage Portfolio.
This isn’t the new home page of just one site. Let’s go to some others.
- Blackstone Agrees To Acquire Simply Self Storage For $1.2 B.
- Moorefield Group Partners With Storage King To Amass UK Storage Portfolio.
- International Storage Operator StorageMart Receives Partnership Investment From Bill Gates.
This is just today as I write this. And there were more.
Yes, no doubt about it, there is a lot of money flowing into self storage.
At first glance, small investors like us cringe at having to try to compete with buyers like this. I know I do.
The Context
Let’s take a look at the overall context of what is going on now. Remember, the context is everything in really understanding what’s going on. Or at least, that is what I have been taught.
Self storage is still a young industry, and self storage performs well under stress.
If you look at the self storage industry in terms of a life cycle and compare it to a human life cycle, I would say we are reaching late adolescence or young adulthood.
Compared to other real estate sectors, self storage is the youngest.
However, as a real estate sector, it fared much better than most in the last “Great Recession.” That is where it caught the eye of wall street, and as the recovery hit full steam, lots of money flowed into self storage.
These strong points of self storage kept prices high for existing facilities on the market and forced many to build as they were chasing returns unavailable through the acquisition of existing facilities. Ourselves included.
Although self storage has been affected in the recent pandemic, it is still fairing better than any other real estate sector except perhaps large box industrial and logistical centers distributing online purchases.
The headline in the investment circles is self storage has strong performance during this crisis.
Hence you see titans like Bill Gates and Warren Buffet entering the self storage space.
How do you compete with them?
Well, in my opinion, you don’t.
Perhaps There Is A Silver Lining
I suggest letting the big players battle it out on the field as they go for the larger, stabilized self storage facilities.
In a recent article on the ISS website called “Competition Lines Up To Buy Self Storage Properties” by Bendix Anderson, Anderson explains how Brokers are receiving multiple offers on a property (up to 17 in some instances).
“For cash flowing self storage properties, a wave of buyers are entering the space…”.
Well, let them.
Often in life, the key to success is how well one implements plan B.
Look, I can’t control interest rates, I can’t control how much money is flowing into the self storage space, I can’t control CAP rates. I certainly can’t control my wife or my children, or even my grandchildren.
I can barely control when I get up in the morning (today, I couldn’t even do that).
The reality is I do not influence the market or the world. I have to react and adjust to what is going on.
To some extent, I can create the mental context in which I hold the information I am getting about the self storage space.
In other words, my training is to reframe the context in which I hold what is going on in the market.
I refuse to be a victim, and in my opinion, if one looks slightly differently at what is happening now in the self storage space, you can see the silver lining. Said another way, what is going on now can create some real opportunities for small investors like us.
Most of these players can outbid us on buying existing self storage. Also, given where we are in the self storage real estate cycle (i.e., oversupply), it is doubtful we will construct many new facilities for a while.
But there is still opportunity.
What is all the money chasing? Look at what they are buying.
If you read the article by Anderson, that will point to it. “Cash flowing self storage properties.”
So, if they can outbid us and want cash flowing self storage properties, why don’t we buy noncash flowing properties, turn them into cash-flowing properties, sell it to them, and let them battle it out pay us the highest price?
Said another way, you can buy mom and pop projects, expand and upgrade them to be something these guys will fight over.
We have done this multiple times.
This is certainly not the only way for a small investor to get in self storage today, but I hold it up as an example.
The stat I have from the SSA (Self Storage Association) is that 62% of all self storage facilities are still owned by someone who just owns one facility. The REITs own approximately 20% of all self storage facilities.
Remember, the industry is still young, and there will be a lot of consolidation over the next decade because more and more institutional money flows into the self storage space.
Don’t fight it. Be like water and flow with it. That is where so much of the upside is.
On some properties, we will expand and upgrade, then sell. On some, we will expand, upgrade, then hold. I bet there will still be demand for “cash flowing self storage facilities…” in the upcoming years.
Typically, the institutional money is not competing for smaller, mom and pop projects.
We found a small 32,000 square foot project in the Houston MSA a few years back. No big players were bidding on it. Yes, we paid more than I would have liked to, but we doubled its size, upgraded the management, then we sold it to a REIT and doubled our money in four years.
We could have just as easily kept it for the more than double cash flow we were getting, but we decided to sell in this instance.
This is just one example of how to take what the market is at the moment, not resist it, and use it to advance your goals.
I think the next decade in the self storage industry is going to be great for us. If that 62% of mom and pop facilities out there, what percentage do you think will hit the market in the next decade?
Population growth will create more demand and a larger percentage of the population using self storage as it becomes widely accepted.
I truly believe anyone with just a little training can reframe any existing context into an opportunity.
Let’s take advantage of all the new money flowing into the self storage space and not be afraid of it.
