September 15, 2023
This white paper explores the complexities surrounding the ‘availability of desired assets’ for institutional, large corporate and private equity investors in the real estate sector, particularly self-storage investments. Amidst a turbulent market backdrop, the paper identifies three distinct solutions to this challenge while reinforcing StorSafe Self-Storage’s capabilities as a bastion of stability and as an answer to these challenges. The paper also draws attention to StorSafe’s recent recognition by Inside Self Storage’s (ISS) 2023 Top 100 Operators List1, which stands as a testament to the firm’s resilience, growth and strategic focus.
The real estate investment landscape is undergoing a seismic shift, amplified by social, economic and market forces that include the global COVID-19 pandemic and resultant market volatility. While traditional real estate categories such as residential and commercial face headwinds, alternative sectors like self-storage have emerged as beacons of stability. Yet, for institutional, large corporate and private equity investors, one obstacle remains pronounced—the availability of desired assets in this category.
John Worth, executive vice-president of research and investment outreach at the National Association of Real Estate Investment Trusts (NAREIT), notes that while there is a considerable drive towards diversifying portfolios with self-storage assets, “the challenge for institutional investors lies in the availability of the desired assets” (NAREIT, 20232).
Therefore, even if institutional, large corporate and private equity investors put money into a private fund, asset allocation could be protracted. The issue is further compounded by the fact that many quality assets in desirable categories like self-storage are already held.
This challenge essentially arises from three critical factors:
Over Subscription: High-quality assets are limited, and the demand often outstrips the supply, especially from other institutional, large corporate and private equity investors seeking to diversify their portfolio.
Regulatory Hurdles: The regulations around acquiring storage facilities can often be cumbersome, especially in communities where local officials are reacting to vocal opposition to development of self-storage facilities. Together, this further narrows the availability of ‘investible’ assets.
Competitive Pricing: The surge in demand naturally inflates asset prices, making the cost of acquisition a vital concern for investors looking at profitability and ROI.
StorSafe, with its proven track record in providing exceptional returns, aims to directly address this challenge. The recent acknowledgment from Inside Self Storage1, where StorSafe secured the third position in year-over-year facility owner growth at 48.9%, further substantiates the company’s ability to strategically grow through acquisitions, facility expansions and new developments, thereby offering investors the desired asset availability.
#1: Strategic Acquisitions and Partnerships
Institutional, large corporate and private equity investors look for an investment partner with a proven track record of converting underperforming assets into profitable ventures. Collaborating with or investing in StorSafe provides a ready platform for asset acquisition without the standard roadblocks. It is also a way to circumvent the often complicated and drawn-out public auction process.
Solution 2: Facility Expansions and New Developments
Where acquisition opportunities are limited, StorSafe has demonstrated exceptional capability in expanding existing facilities and developing new ones. This approach does not just serve to increase the asset base but allows for the customization of facilities to meet specific investment criteria, a critical requirement for investors.
Solution 3: Technological Advancements and Data Analytics
Leveraging state-of-the-art technology and data analytics to identify emerging markets and growth opportunities, StorSafe’s data-driven approach ensures that investments are targeted and optimized for long-term gains, essentially mitigating the risk associated with market volatility. With this data and analytical capability, StorSafe presents a solution to the asset availability challenge.
Addressing Market Dynamics and Risk Mitigation
A volatile market generally induces institutional, large corporate and private equity investors to seek asset classes that can withstand market fluctuations. Self-storage, as an alternative real estate category, has demonstrated resilience in terms of returns and stability (PricewaterhouseCoopers Canada, 20233). However, the increased interest in self-storage assets has consequently led to a scarcity of available, high-quality assets, hindering investment strategies.
In most instances, institutional investors rely on private funds to acquire these assets. The process can be protracted, as Worth notes, “Even if you put money into a private fund, it could take quite some time for that money [to] be deployed. This delay exacerbates the challenges of investment reallocation, portfolio diversification, and return optimization, especially in volatile markets.” (NAREIT, 20232).
Before diving into the heart of the availability of desired assets, it’s essential to understand the current market dynamics influencing self-storage investments. Several factors contribute to the robustness and resilience of this particular asset class:
· Recession-Proof Nature: Self-storage REITs benefit from steadily rising demand for storage space. The sector’s demand drivers include relocation, decluttering, disasters, changing life circumstances, and business purposes. These factors tend to keep occupancy levels high while steadily pushing rental rates higher. Self-storage properties are also one of the lowest-cost real estate investments since they’re typically inexpensive to build and operate. As a result, they tend to have relatively low occupancy break-even rates. These factors enable self-storage investments to generate high margins and investment returns. Because of that, self-storage REITs have historically been among the best-performing investments in the REIT sector. (The Motley Fool, 20234).
Plus, the self-storage industry has proven that it’s less sensitive to economic shifts than other real estate sectors, not only during the pandemic but throughout multiple economic contractions over the past few decades. During the great financial crisis of 2008 and 2009, for example, loan defaults were virtually non-existent in self-storage and among the lowest of all commercial real estate asset classes. (Inside Self Storage, 20235).
Lastly, self-storage real estate investment trusts (REITs) reported total returns of more than 23% year-to date at the end of April, based on an index maintained by the National Association of Real Estate Investment Trusts. That number made self-storage REITs the best performing of all REIT sectors, easily outperforming retail REITs, which generated returns of 10% over the same period that multifamily REITs brought in 15%. (Wealth Management, 20236)
Consumer Trends: Due to the rapid urbanization in the United States, the demand for self-storage facilities is increasing. With 82.66% of the population living in urban areas in 2020 and the expectation that this will rise to 89.16% by 2050, the need for storage solutions is becoming more pressing. Self-storage market vendors are taking advantage of this trend by constructing facilities in densely populated areas. This demand is driven by a variety of factors, including smaller living spaces in highly populated areas, as well as people downsizing to smaller homes (Mordor Intelligence, 20237).
· E-commerce Surge: The rise of e-commerce businesses that require storage for inventory also enhances the attractiveness of self-storage investments. With more people shopping online, there is an increased demand for storage space to store goods and products. As a result, these businesses need more storage space now than ever. That’s where self-storage facilities come in. Self-storage units can be a reliable and effective solution for E-Commerce businesses while streamlining mutual growth for both. (Xtended Space, 20238).
Understanding these dynamics not only makes self-storage investments appealing but also less risky compared to other real estate investments. In a highly volatile market, knowledge is power, and investors who partner with StorSafe rely on a team of professionals with an acute understanding of market dynamics and they are better equipped to navigate the scarcity of available, high-quality assets and invest in facilities that promise higher returns and profitability.
While self-storage investments are generally stable, no investment is entirely without risk. Considering this, StorSafe takes several measures to mitigate potential hazards:
· Due Diligence: Success hinges on meticulous attention to detail. StorSafe’s in-house team conducts meticulous due diligence before any acquisition, examining factors like building specifications, zoning norms, local codes and topography, location, projected growth, and current property conditions.
· Technology: In an age of digitization, StorSafe leverages automation and self-service options, minimizing costs while amplifying customer autonomy. Plus, the latest technology serves to ensure high levels of security and efficiency, thereby adding another layer of risk mitigation for investors.
· Demographics: We understand that location is paramount, and studying population growth patterns, disposable income metrics and housing churn rates before zeroing in on an area.
· Cost Reduction: Efficiency is key. Over 90% of StorSafe units are ground-level for customer ease of use, and eliminating the costs tied to elevators, stairways and other non-essentials that could negatively impact investor ROI.
· Operations: StorSafe is synonymous with streamlined operations. Improved communication, efficient collaboration and optimal performance help to ensure that every dollar is well-spent.
Outlook and Projections
The self-storage market size is estimated at USD 58.26 billion in 2023, and is expected to reach USD 72.15 billion by 2028, growing at a CAGR of 4.37% during the forecast period (2023-2028). (Mordor Intelligence, 20237).
Recognizing this potential, StorSafe is primarily targeting value-add, single-story self-storage properties, with an emphasis on expanding its footprint in the Midwest and Southeast. These initiatives are aligned with economic trends, further diversifying the investment opportunities while mitigating risks associated with domestic market saturation.
The StorSafe Solution
As a key player in the self-storage sector and a recognized name in the realm of real estate investment, StorSafe has effectively devised strategies to tackle the ‘availability of desired assets’ challenge head-on. These strategies are:
· Strategic Acquisitions: StorSafe has been focusing on acquiring high value, underperforming assets and converting them into profitable ventures. This strategy not only provides StorSafe with a diverse portfolio but also offers institutional, large corporate and private equity investors a wide array of investment options.
· Facility Expansions: StorSafe leverages its existing assets to create additional storage units, thereby optimizing its properties’ revenue potential. These facility expansions come with high-tech security and state-of-the-art amenities, ensuring they meet discerning customer needs and its investors.
· New Developments: Strategic geographical expansion is another cornerstone of StorSafe’s growth strategy. By identifying regions with high demand for self-storage but low supply, StorSafe is filling a market gap, thereby providing more asset choices for its investors.
The Financial Aspect: Return on Investment (ROI)
A critical measure for institutional, large corporate and private equity investors is the return on investment. According to an article from Matthews Real Estate Investment Services9, quoting Real Estate Daily News, “Over a recent nine-year span, self-storage facility owners across the United States saw an annual return on their investments of almost 17%” which by all accounts significantly outperformed other real estate categories.
StorSafe aims to maintain or exceed ROI industry standards by continually optimizing its operations and scaling its portfolio. The financial track record demonstrates not only high returns but also a consistency that is invaluable in a turbulent market environment.
Reaffirming StorSafe as a Bastion of Stability
The recent recognition by Inside Self Storage’s 2023 Top 100 Operators List1 is an indicator of StorSafe’s capabilities. The 48.9% year-over-year facility owner growth underlines the company’s resilience, operational efficiency, technological advancements, and focus on security and safety. In a market environment characterized by the flux, institutional, large corporate and private equity investors are not just looking for available assets; they are seeking quality, stability and growth potential, all which StorSafe consistently delivers.
While the ‘availability of desired assets’ remains a key challenge for institutional, large corporate and private equity investors keen on diversifying their real estate portfolios with self-storage investments, solutions are within reach. StorSafe’s multi-pronged approach, grounded in understanding market dynamics, risk mitigation, and focus on ROI, provides a comprehensive solution to the asset availability problem in self-storage investments.
For institutional, large corporate, and private equity investors, the question is not whether desirable assets are available but whether they are looking in the right places and partnering with the right firms. And for those who are in search of stability, growth, and profitability, the answer is increasingly becoming StorSafe.
With a year-over-year facility owner growth rate of 48.9%, as recognized by Inside Self Storage, StorSafe has cemented its position as a dependable partner for its investor partners. The firm’s consistent focus on operational efficiency, tech advancements, and security makes it an attractive asset holder in a volatile market.
1 -- Inside Self Storage (ISS). (2023). Top 100 Operators List.
2 -- National Association of Real Estate Investment Trusts (NAREIT). (2023). Real Estate Investment Data.
3 – PwC. Emerging Trends in Real Estate 2023.
4 – The Motley Fool. (2023) Investing in Self-Storage REITs: Why Self Storage REITs are Recession-Proof.
5 – Inside Self Storage (2023). Self-Storage Real Estate in 2023: Where We Are Now and Likely Headed This Year.
6 – Wealth Management. (2023). Is Self-Storage Recession Proof?
7 – Mordor Intelligence. (2023). United States Self-Storage Trends.
8 – Xtended Space. (2023). Reasons to Use Self-Storage for E-Commerce Business.
9 – Matthews Real Estate Investment Services. 2023 Self-Storage Update.
Our journey wouldn’t be as impactful without the continual support from investors who trust our vision and strategy. We extend our heartfelt gratitude to each one of you for making StorSafe a symbol of stability and growth in the real estate sector.
We would also like to express our gratitude to the team at Inside Self Storage for their recognition, which inspires us to continuously innovate and excel in providing exceptional value to our investors.