Let’s be honest – self-storage investing doesn’t exactly have the most attractive ring to it. It doesn’t have the panache that senior living, retail, or office has, but what it does seem to have is consistent performance. In today’s post, we’ll discuss a couple of reasons why self-storage offers great potential.
Attractive in all types of economies
Self-storage has the unique ability to perform consistently in both up and down economies, which is a rarity. If the economy starts tanking, businesses are forced to downsize and need space for their equipment, inventory, and files, while individuals need space for their furniture, tools, houseware, and cars. Likewise, in a bustling economy, businesses and individuals need additional space for the same. The National Association of REITs (NAREIT) reported that during the 2008 financial crisis, self-storage was the only REIT sector to post a positive total return (5%, including dividends). This is a pretty incredible statistic when you think about the thousands of businesses that went bankrupt during that same time frame.
Dynamic pricing
Self-storage is one of the more unique real estate investments that can adjust their pricing in near real-time depending on market demand. Because most leases are month to month, the operator has the ability to raise and lower rates multiple times in a given year as opposed to other real estate asset classes that are typically locked in for 3-10 year lease terms.
Location
When it comes to real estate, brokers love the phrase “Location, location, location!” – self-storage takes a vastly different approach. Whereas, retail, office, and multifamily uses desire cool, hip areas, self-storage facilities simply need convenient and quick access to high density and/or recreation areas. Self-storage can use land that not many other asset types want to use, but a hidden and often overlooked benefit of self-storage is that it’s a great way to cheaply generate income and act as a land bank in areas expected to grow or gentrify.
Low construction and operating cost
All things being relative, self-storage is relatively inexpensive to build and operate. Whether it is a single-story metal building with thin walls and roll-up doors, to a “fancy” multi-story air-conditioned facility they have very limited plumbing, no fancy flooring, little to no glass, very little parking, and so on. The interior build-outs are simple with the same doors, walls, and lighting. Modern self-storage facilities do not even need full time managers, as everything can be done online and with electronic access codes. All they really need is someone to regularly clean and repair.
Self-storage is a growing part of the Northstar portfolio, and one of our latest opportunities southwest of Denver, Colorado is a prime example. This investment is projecting a 33% IRR to investors. Before putting your money into self-storage investing, be sure to run your own due diligence on the company, self-storage operator, location, and any prior track record that you can get your hands on.
Today’s post was written by Danny Mulcahy, the Director of Equity at Northstar Commercial Partners. If you’d like to discuss self-storage investing, or other potential opportunities, please contact Danny at danny@northstarcp.com.