A View from the News


We were all nervous, weren’t we?

No one had experienced a global pandemic before, and no one knew what would happen. What would transpire with our families? Our jobs and businesses? Our investments?

Wall Street was nervous. The market dropped about 30% before it later rocketed back to dizzying heights.

I was nervous. As a commercial real estate fund manager, I wondered what would happen to our investments. We invest heavily in self-storage and mobile home parks, which are known to be recession-resistant. But would they be pandemic-proof?

Self-storage during adverse conditions

Self-storage thrives under adverse conditions. People in challenging situations often undergo transition, and some of these transitions lead to more self-storage rentals.

Storage companies often refer to the four D’s: Downsizing, Death, Dislocation, and Divorce. Of course, these are terrible situations, and none of us are happy about them. But they are a reality.

(Note that self-storage typically thrives in a strong economy as well. People filling up their Amazon and Walmart carts need excess storage – often indefinitely.)

The whole economy was awash in fear in the Spring of 2020. It was a major heartbreak for college students when they were sent home in March. But this event led to surprising good news for self-storage operators. College students flooded self-storage facilities to store their stuff until the uncertain date of their return.

A second bonus followed over the past year. With employees effectively working from home, thousands of companies realized they could maintain productivity and potentially reduce office expenses. Many Americans, facing their own mortality, recognized their freedom moment and pulled their future relocation dreams into the present.

We have witnessed a massive relocation boom across the U.S. Many are leaving places like New York and Chicago for the lakefront or mountain retreats they dreamed they would retire to someday. Areas like Smith Mountain Lake, in my backyard, have seen a boom in home sales. There are many other issues involved, and these are beyond the scope of this post. But this relocation craze has certainly benefited the self-storage industry.

Note that this “office space dislocation” has also resulted in increased demand for storage as companies seek temporary storage for furniture and equipment. I predict this “temporary” situation will become a long-term situation for many.

Unfortunately, Covid also resulted in the abrupt closures of businesses like retail, bars, restaurants, and event facilities. The result was a need to store furnishings, equipment, and merchandise.

Sadly, the other two D’s, divorce and death, have reared their ugly heads during this pandemic as well. So we’ve seen all four in play.

The performance of self-storage since the pandemic

Three recent headlines tell the tale…

A Pandemic Space Race: Self-Storage Roars Back – New York Times

Self-Storage Bounces Back Ahead of Others as Covid-19 Eases – Wall Street Journal

Why Self-Storage Endured Through Covid-19 and is Well Positioned for the Future – ArborCrowd

Here are a few highlights from these articles…

From the New York Times article:

The sub-headline to the article states: “Occupancy rates are at record highs, drawing investors and entrepreneurs looking for growth opportunities.”

“After a drop in the first half of 2020, self-storage has roared back, buoyed by Americans carving out space for home offices or classrooms, as well as those who left urban centers to ride out the pandemic at their parents’ homes. Occupancy rates and rents are at record highs.”

“When the pandemic began, ‘there were questions as to what the future of storage would look like,’ said Tyler Henritze, who heads the investment firm Blackstone’s real estate acquisitions for the Americas. ‘I think the market has been caught off guard and surprised at how strong the fundamentals are.’”

“…with home prices escalating nationwide, so-called starter homes have become more expensive and some new homeowners are opting for smaller spaces. That, Mr. Morales said, could translate into a steady demand for storage.”

The article reports on Blackstone’s acquisition of Simply Self Storage for $1.2 billion, expanding their investment in the sector. Public Storage, the industry’s giant, also recently acquired ezStorage for $1.8 billion, which added 48 assets comprised of 4.2 million net rentable square feet.

From the Wall Street Journal article:

The sub-headline here is: “Uncertainty about whether to stay put, move, or just clear out the junk motivated new customers.”

“Self-storage pulled ahead of other property types in the reopening trade as the real-estate business rebounded this year during the easing of pandemic restrictions.”

“The storage facilities around the country have brought the biggest returns to investors in public real-estate stocks this year. Many people moved, and for those who stayed put, a desire to have more space in their homes because of remote learning and working also spurred demand for self-storage.”

From the ArborCrowd Post…

“Many people find it difficult to part ways with their personal possessions and turn to self-storage as a way to hold on to these items while freeing space in their homes. Where this asset class really shines, however, is during periods of financial turmoil. By offering extra space at mostly affordable rates, when people need to adjust their living situations due to financial constraints, but want to keep their possessions, self-storage comes to the rescue.

That’s how the self-storage sector became the only real estate investment trust (REIT) category to emerge from the Great Recession with a positive return in 2008. During that year, publicly listed self-storage REITs had collectively produced annual returns above 5%, while the overall equity REIT market dropped more than 37%, according to historical data from the National Association of Real Estate Investment Trusts (NAREIT).

Twelve years later, while the recent financial disruption caused by the COVID-19 pandemic resulted in historic job losses and widespread economic damages, the $39 billion self-storage industry is one of the top performing real estate asset classes, experiencing just minor scratches compared to many other property types – and it is well positioned for growth as the recovery ensues.”

The post reports on the long list of eager buyers for self-storage facilities, a fact to which I can personally attest.

Speaking of the future, what are the growth prospects for the self-storage industry?

Future prospects for self-storage

Green Street is one of America’s premier commercial property analysts. They recently did a webinar highlighting their updated projections for net operating income growth about four years out. As you’ll see below, self-storage is the big winner at almost double the closest competitor.

From the Commercial Property Outlook Webinar in September 2021…

Screen Shot 2021 11 22 at 2.54.28 PM

To be clear, this only reports the change in their beliefs about future income. But this reflects the powerful reality of the pandemic’s impact on the profitability of the self-storage sector.

Industry insiders and investors are quite optimistic about the future. But it’s not without risks. In particular, it is critical to understand how to analyze a specific submarket before investing. That’s one of the topics covered in my new book (see below).

The ArborCrowd post closes with this comment:

“The self-storage industry’s reputation of resiliency during financially disruptive periods, such as the Great Recession, has so far proven to be true once more. While there are many challenges still ahead for the U.S. economy, as the nation recovers, the need for extra space is expected to increase again, and that may fuel the industry’s continued growth.”

Next steps

Are you interested in investing in self-storage? Like many who want to invest in large commercial real estate projects, the path seems unclear. Where are the on-ramps? How can you get involved?

I once had these questions myself, and I realized many BiggerPockets readers did, too. That’s one of the reasons I partnered with BiggerPockets Publishing to release a new book on self-storage. It’s called Storing Up Profits – Capitalize on America’s Obsession with STUFF by Investing in Self-Storage.

The last one-third of the book details seven unique paths for you to own, operate, or invest in the self-storage business. The first two-thirds gives an overview of the industry and provides lots of details and strategies you’ll need to know to jump in.

You can order your paperback or digital copy from the BiggerPockets Bookstore at BiggerPockets.com/storage.

With the popularity of real estate investing causing an unprecedented stampede to the housing market, smart investors are now turning to self-storage. There are more than 54,000 self-storage facilities in the United States and a large percentage of these can be profitably upgraded to operate or sell. 

Pick up the book, Storing Up Profits, today to learn the steps toward accelerating your profits!

With the popularity of real estate investing causing an unprecedented stampede to the housing market, smart investors are now turning to self-storage. There are more than 54,000 self-storage facilities in the United States and a large percentage of these can be profitably upgraded to operate or sell. 

Pick up the book, Storing Up Profits, today to learn the steps toward accelerating your profits!

Storing Up Profits 3d 1 1

Self-storage can be a profit center!

Are you tired of overpaying for single and multifamily properties in an overheated market? Investing in self-storage is an overlooked alternative that can accelerate your income and compound your wealth.

 



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