28 Oct 2024
The self-storage market is shifting as institutional investors increase their presence, moving beyond traditional “mom and pop” ownership. Eric from BSMGRP explains how capital-backed groups are developing strategically, focusing on prime locations and pacing projects with market rate trends. Despite the challenges of oversupply, the demand for self-storage remains strong, and with larger players leading development, the future looks promising for those who stay informed.
James: All right, this is James with Radius+. I'm here with Eric from BSMGRP, Self Storage Consulting. So Eric, you've done such an amazing job for this industry, being almost like a liaison for these capital market groups. They're trying to get into self storage development, but just don't have the industry knowledge to make informed decisions. What are you seeing on your front for newcomers pouring money into this asset class?
Eric: I’ve seen a lot less mom and pops, which is what the industry kind of was 10, 15 years ago. It's more hedge fund capital market money coming in, being able to develop land maybe at a slower pace. They'll get the more expensive sites in better markets and then be able to develop it at a process that they open up when those rates in the markets are looking stronger. New growth has come in. They're also smarter investors as well with those larger markets.
James: You touched on something so important, which is self storage in a way is a get rich slow asset class where the demand drivers are there, but the biggest risk is oversupply. And those core markets you kind of mentioned right now have just gotten hammered with new facilities opening up. So with time, that demand will catch back up and the rates will be there as well. Can you speak to that a little bit? And what does that timeframe look like in most cases?
Eric: Well, the timeframe is anybody's guess. You know, you have it depending on what's going on with interest rates, people moving. You are going to see more facilities popping up, a lot of facilities not moving forward because they can't handle that growth, which again allows for the larger players to come in, take them over, fill them up, which essentially will bring higher rental rates, stronger demand down the line. What that timeline is, is anyone's guess.
James: Well, if you don't know and no one does. So Eric, to conclude this, what is your number one point for due diligence that you wish people would pay attention to more when doing a feasibility study or just checking all their boxes? What's your number one point?
Eric: Number one point is going to be rate trends, rental rate trends, knowing exactly where the market's going. Again, that's looking into which ties into people, what's the demand in the market, what new facilities have come online in terms of, is there more coming while you're looking at your land? All that's going to drive your rental rates, which at the end of the day are going to affect your business.
James: 100%. Eric, thank you so much for your time and thank you for everything you do.
Eric: Appreciate it, man.
