Direct Investment In Self-Storage: Few Public REITs, No Waiting
When H. Michael Schwartz, CEO of Strategic Storage Holdings, spoke in San Diego at the recent REISA Spring Symposium, the head of one of the top ten operators of self-storage said something interesting about the state of the marketplace in self-storage.
The role of self-storage with regard to multifamily has long been assumed – apartment dwellers on the whole occupy less space individually than homeowners yet display similar consumption patterns leading to a demand for space for their stuff.
But what’s interesting about self-storage as a sector today is the financing for such projects is not as institutionally available as with other sectors such as health care property, retail and office. Few publicly traded real estate investment trusts (REITs) exist for self-storage while other sectors are well-represented by the dividend-throwing securities offerings.
Meanwhile, the self-storage market is “drafting off the success of multifamily,” according to H. Michael Schwartz of Strategic Storage Holdings. “We’ve been buying self-storage every year since 2005 and have seen traditional cap-rate compression, but also development opportunities. The lease-up opportunities from 2008-2011 are gone. We are now in a five-year phase of development.”
Schwartz adds that his firm is looking for retail locations in which to develop self-storage properties, and it looks at a 3- to 5-mile band to determine who its competition is. “We make sure we understand the market—what are people looking for in each market? What size unit? What features?”
The panelists also said the time is right for direct investing over REIT investing. “We’re not subject to the vagaries of the market the way a publicly traded vehicle would be,” said Lehew.
Schwartz added, “Public self-storage REITs are not developing, and this creates a nice alternative for investors in self-storage.”
For the $34 billion sector of real estate, there are only four publicly-traded REITs. The four include Public Storage (PSA), CubeSmart (CUBE), Extra Space (EXR), and Sovran Self Storage (SSS).
The path that capital takes to get to a self-storage development is a short one these days — and is mainly routed around Wall Street.
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