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REITs Gobble Up Self-Storage Assets

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Sales of self-storage properties in the U.S. hit $10 billion in 2022 – outstripping prior years, with the exception of 2021, when a single $3 billion sale in New York pushed the year’s total to $12.3 billion. Nationally, transactions involving 73.4 million square feet of space were completed in 2022, and the sector is drawing close attention from REITs and other investors.

“The U.S. self-storage sector demonstrated familiar vigor and confidence in 2022,” commented StorageCafe, which produced the report and provides storage unit listings across the U.S.

New York City led the nation with over $565 million in sales generated by 16 transactions involving 1.6 million square feet. The Bronx was the biggest contributor to this total, followed by Brooklyn, Queens and Staten Island, while Westchester County’s Mount Vernon also fared well.

Phoenix ranked second nationally, closing $195 million in 11 transactions. The wider metro Phoenix market also performed well.

The biggest surprise was the city of Ocala, FL, with a population of 60,000, that saw sales totaling $166 million for 23 transactions. “The fact that Ocala is reported to be the U.S.’s sixth fastest growing city will surely be stimulating the storage sector there,” the report noted.

Other cities in the top 10 for sales value were Brooklyn, Alexandria, VA, San Jose, Miami, Denver, Houston and Baltimore.

Houston led the state of Texas and the nation in terms of self-storage square footage bought and sold. The transactions involved 73.4 million square feet of space, with a total of 3.8 million square feet acquired in the city – “way more than in any other U.S. city,” the report commented. Austin and Dallas also made the top 10 list for square footage traded, as did two Oklahoma towns, Oklahoma City and Tulsa.

Cities in Florida also performed well, especially Miami, where a 69,000 square foot facility sold for $33 million, or $474 per square foot, followed by a $422 per square foot sale near Jacksonville.

In the rest of the country, Alexandria scored a top-five spot with a total sales volume of $114 million spread across four deals with a high of $331 per square foot. In Kensington, MD a 225,000 square foot facility was sold for $76 million or $339 per square foot.

Who is doing the buying? REITs took the top three spots among investors, StorageCafe noted. By amounts paid, Utah’s Extra Space Storage, New York’s Life Storage, California’s Public Storage, and Colorado’s National Storage Affiliates headed the list.

“Self storage is ranked as one of the best performing risk-averse sectors of commercial real estate, but suitable land for building new stores is now increasingly hard to find,” Doug Ressler, business intelligence manager at Yardi Matrix, says in prepared remarks. “The attention this real estate segment received from these companies [REITs] demonstrates how highly appreciated it has become, both to clients and to investors, a situation that is likely to continue.”

 

Source:  GlobeSt.

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Public Storage Chair: Self-Storage Sector Will Be ‘Recession Resistant’

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Public Storage Chair Ron Havner received an award as a REIT Visionary at NYU SPS Schack Institute of Real Estate’s annual REIT Symposium, held in NYC this week.

Havner has spent the past 25 years building Public Storage—the company’s first self-storage outlet was called Private Storage—into a leading self-storage sector REIT.

Public Storage (PSA), based in Glendale, CA, develops, owns and operates more than 2,800 self-storage facilities in the US, encompassing more than 200M SF in 38 states. The REIT also owns 35% of Shurgard Self-Storage SA, a European company it is preparing to spin off. PSA has a market cap estimated at more than $54B.

Last year, PSA acquired more than 44 self-storage facilities—primarily in one- to two-property deals—encompassing more than $500M in purchases, according to a regulatory filing. The REIT has been executing an acquisitions strategy of growing economies of scale from areas including third-party property management.

Before the award presentation, Havner, in a conversation with Adam Emmerich, a partner at Wachtel, Lipton, Rosen & Katz, described the development of the self-storage sector, which was originally highly fragmented and dominated by mom-and-pop shops.

“It doesn’t take a rocket scientist to build a self-storage facility. They’re easy to build and easy to operate—although it’s much harder to operate more than 2,000 of them,” Havner said.

“Our margins are 82% and maybe a mom-and-pop is 62%. Even at 62% it’s a great business,” he said. “There are no tenant improvements. You sweep up the floor and change the light bulbs. It just pukes cash.”

When Public Service first began accumulating self-storage properties two decades ago, the company had plans to adapt those facilities to other uses that were thought to be more profitable, including offices, apartments and parking garages.

“It turns out the cash flow from self-storage has outpaced all of those alternative uses, even apartments,” Havner said. “Self-storage and manufactured housing are the two best food groups in real estate.”

Havner said the self-storage sector is “ripe” for technology. Technical initiatives PSA introduced during the pandemic have slashed nearly a quarter of the company’s operating expenses, he said.

“We pioneered a lease online concept called e-rental. Now, 50% of our business is e-rental,” Havner said. “You don’t have to talk to anyone, you’re given an access code.”

“You go online, give us a credit card number, show up at your unit, open the door and the lease agreement, insurance agreement and lock are waiting for you,” he explained.

PSA also introduced a Public Service app that lets you access the property by holding up a smartphone.

When Havner stepped down from the dais with his award, we asked him how the self-storage sector will fare in the developing economic slowdown. Can he reassure investors that self-storage is recession-proof?

“I don’t think self-storage is recession-proof, I think it’s recession-resistant,” Havner told Globe St.

During the Great Recession that followed the GFC, the sector did not see a significant drop in the number of people leasing storage units, he said.

“During the GFC, we saw a reduction in demand of 2% to 3%. Look at the operator yields for the Great Recession and you’ll see that it had a di minimus impact on their profit,” he said.

If we have a recession this year, Havner told us he expects moving activity to slow down but does not expect a lot of people to give up their storage space—and many may increase it.

Havner suggested people may opt for smaller apartment units as they tighten budgets, ending up requiring more storage space.

“They may downsize their apartments and put more stuff in the storage units. If you go to a two-bedroom apartment and you need three [bedrooms], people typically put more stuff in storage,” he said.

“Self-storage is a space substitute. If you think of the decision, it’s about I need space,” Havner said. “It’s about, I need to put my stuff somewhere. I need to rotate my clothes, to store my winter clothes, then my summer clothes.”

Public Storage was the largest player in the self-storage sector, with an estimated 9% market share, in February when it made an unsolicited $11B takeover bid for Life Storage (LSI).

LSI rejected the bid and instead agreed to be acquired this month by Extra Space Storage for $12.4B. The deal creates a new industry leader with an estimated $47B in assets, including more than 3,500 self-storage facilities encompassing more than 264M SF.

 

Source:  GlobeSt.

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Ten Commonly Overlooked Investment Opportunities In Commercial Real Estate

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As the stock market continues to show volatility, many people are looking into other types of investment opportunities.

Compared to stock investing, commercial real estate has the potential to provide tax advantages and serve as a safeguard against inflation and market fluctuations.

Fortunately, there are many ways to invest in commercial real estate, and you can tailor your approach to fit your comfort level, budget and lifestyle—all while creating a dynamic portfolio.

Let’s look at 10 of the most commonly overlooked investment opportunities in commercial real estate.

1. Flex Warehouses

Industrial commercial real estate currently offers some of the best returns on the market. As organizations continue to work out complex supply chain issues, flex warehouses are becoming a crucial tool.

This type of warehousing offers a combination of storage and office space. It’s a way to deliver versatility for companies that need to store inventory and have a customer-facing area.

2. Parking Lots

With more than 282 million cars on U.S. roads, finding a parking spot is often a challenge. Parking lots are a low-maintenance commercial investment, and you can choose to operate the lot or lease it to a third-party operator. Dynamic pricing can capture the ebb and flow of demand to increase the return on investment.

3. Real Estate Investment Trusts

Real estate investment trusts, or REITs, are a great way to start off in commercial real estate investing. They allow you to skip the hands-on approach of dealing with a property.

Investing in a real estate investment trust (REIT) can offer a reliable source of income. Similar to real estate stocks, investors can buy and sell REITs on the market.

4. Self-Storage

Self-storage has outperformed other commercial real estate sectors for many years. Yet I see many people still overlooking self-storage. These properties can offer consistent, good returns even during downturns and recessions.

Remember to think strategically about the location, for this is critical when opting for this type of investment. In some areas, investors have seen some retraction due to oversaturation.

5. Cell Towers

Many people, especially those new to commercial investing, don’t realize that cell towers are a prime opportunity. They can become a source of steady income over time. As cell service expands into rural areas, investors can provide a much-needed service and a long-term return to their portfolios.

6. Senior Living Facilities

Senior living facilities are another commonly overlooked commercial property. As the number of U.S. adults 65 and older increases, more people are looking for long-term living in senior-specific residences. This creates a great investment opportunity for senior living facilities.

7. Mobile Home Parks

A growing number of homeowners are turning to flexible and budget-friendly mobile homes. And mobile homeowners have to park them somewhere. These areas can become a reliable source of passive income for investors. Lot rates have also increased in many markets recently, so now may be the perfect time to invest.

8. Commercial Multifamily Units

While residential multifamily properties only include two to four units, commercial multifamily properties include five or more. The increase in units can provide a larger stream of income, which could make this real estate opportunity a star performer in your portfolio.

Before investing in a commercial multifamily property, remember to do your due diligence. For instance, check the financial audit and property market reports, determine how the property will be managed and review service contracts, such as trash removal and lawn care.

9. Coin-Operated Laundry Shops

Getting into commercial real estate doesn’t always mean financing six-figure properties immediately. I find that coin-operated laundries are a simple way of investing in real estate for beginners.

One option is to convert an unused or overlooked space into an existing property. With this option, you can start small and even finance or lease equipment to avoid high out-of-pocket costs.

10. Undeveloped Land

All commercial real estate properties involve land. But sometimes, the investment opportunity is undeveloped land.

Investing in undeveloped land can be a little daunting if you’re unsure what your next step will be. Many commercial brokerages offer consulting or development partnerships to help you get the most out of your commercial land investment.

Adding Depth To Your Investment Portfolio

Investing in one or more forms of commercial real estate is an excellent way to improve your portfolio, and it can provide you with the versatility to withstand market and economic volatility.

A good tip is to explore commonly overlooked investment prospects, as they can offer entry points and create the right mix for your portfolio. One of the best ways to help you connect with these types of opportunities is by partnering with a brokerage.

 

Source:  Forbes

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