02 Mar 2020
This article was provided to us by Hilary Daninhirsch of CPExecutive.
Kris Bennett earned his real estate license in 2007 with the intention of entering the residential sector. Then, the Great Recession of 2008 happened, which was a less-than-ideal time to be in real estate, to say the least. But after going back to school, Bennett landed an internship with a private equity real estate firm and the world of commercial real estate investment opened before his eyes. As his career grew, Bennett became intrigued by self storage, having pivoted from strictly multifamily investing. He recently left a job with a capital investment firm and entered into a new partnership called Landis, based in Charlotte, N.C., and intends to continue his journey into the self storage world, one facility at a time.
Commercial Property Executive spoke with Bennett about the ins and outs of self storage investing as well as its future outlook.
What are some facts and figures regarding the self storage industry?
Bennett: The U.S. is by far the country that has the most self storage facilities per capita. There is a debate as to what constitutes a self storage facility, but let’s say there are 40,000-50,000 facilities that are purely self storage. That is more than all the McDonalds’ plus Starbucks’ combined square footage. On average, there is seven to eight feet of self storage square footage that exists per person in the U.S.
A lot of self storage is still owned by mom and pop (companies). There is more opportunity here versus multifamily. About 75 percent are owned by the sophisticated investor, while in storage, 25 percent are owned by the sophisticated investor.
The rule of thumb is that about half the tenant base will stay 12 months or more, the other half, about 30-60 days. In that sense, storage is kind of a retail business. People come in and out and you have to have good customer service and treat people well.
Is it easier to develop than multifamily?
Bennett: Yes, it’s easier to develop because it’s a metal building on a concrete slab. There isn’t as much to build compared to a three-story apartment (community) across 10 acres. The developer is more concerned with the width of the drive aisles and if there are enough bollards to protect the buildings than if the clubhouse is painted pretty, the furniture matches, or if the gym has the right equipment. There are some firms that have pivoted from multifamily to self storage. Several cities are pushing back on self storage development by implementing moratoriums. Miami being the latest. It seems we are our own worst enemy.
What can we expect from the industry going forward in 2020?
Bennett: On the investment side, the storage industry is no longer an investment “secret.” In the last few years, more education has hit the market, more operators have jumped in and more small investors want a piece of the pie. I think pricing for facilities will remain high. If a facility is not leasing up well, but it’s marketed by a storage broker, that facility will still sell on future potential income (i.e. higher than it should) because there are groups that want in on the action and they think they will be able to fix the problems and lease it up.
No doubt there are smart operators that will be successful at fixing those problems. But a lot of groups should just stay out of storage for now. On the consumer side, the general public knows there are too many facilities because they see it everywhere. People still need it during their personal life changes, or for their businesses. But they might get a better rate for a unit than they could have just a year ago.
Thumbnail: Photo by Valeria Boltneva from Pexels
