Leitbox Commentary on the National Self Storage Association Conference
June 8, 2021 | Leitbox Storage Partners
BIRMINGHAM, AL – June 8, 2021 – Our entire development team attended the National SSA Conference last week in Nashville, Tennessee. With a packed house of industry participants, Leitbox held 27 meetings over 2 days with REITS, storage contractors, national brokers, and large operators. Below are our findings worth sharing:
INFLATION: Joe Margolis, CEO of Extra Space Storage, provided commentary that bodes well for storage performance in an inflationary environment. Self-storage leases are typically 30-day durations, so storage operators will be better suited to adjust rates, if needed. Takeaway: Short term leases allow operators to adjust to inflationary upticks.
RENTERS: Questions: Has the renter profile changed? Where are renters currently coming from? Answers: Utilization is growing year-over-year with 2019 showing 1 in 11 Americans are renters. Of the typical “three bucket” pool of renters (those with too much stuff, those who are moving/renovating, and those storing boats/rv/equipment), the sector is benefiting from Americans on the move and Americans organizing their homes utilizing storage at higher rates than the historical averages. It is also worth noting that the trend line for “those with too much stuff” and “those who are moving/renovating” are moving upward at the same rate while historically these two segments have run somewhat counter to one another. Takeaway: these dynamics are driving consistent rent growth and occupancies higher and higher.
FINANCIAL RISK: Our favorite slide shared by CEO Joe Margolis spoke volumes about self-storage operational resilience and durability of its cash flow. Leitbox believes this data point has brought new institutional entrants into the sector. According to Trepp (a leading provider of information, analytics, and services to the Structured Finance, CRE and Banking markets), as loan delinquencies were soaring from April – December 2020, only 3 self-storage loans in a commercial mortgage pool of 1,700 loans were delinquent. Takeaway: Yes, only 0.2% of loans from self-storage were delinquent. Wow!
FINANCIAL RETURNS: We constantly assess our risk-adjusted returns in self-storage versus other asset classes. It is a prerequisite for our institutional partner – be constantly vigilant. Data points we asked for from every national self-storage broker we met with were, “What is the lowest cap rate you have closed in the last 2 years and what is your median cap rate estimate for Class A self-storage?” The lowest cap rate was in the low 4% range; the median was a 5% cap rate. That excites Leitbox as our model assumes a 6% exit cap rate. On our typical build, assuming all goes as planned, that 100 bps spread (6% – 5% = 100 bps), is worth approximately $1,000,000 in additional gain – we’ll take that! Takeaway: Compressing cap rates are creating greater than anticipated gain potential for both the market and Leitbox due to a limited supply of product.
While the above is certainly anecdotal and non-published, we always seek information to assess the future. We love data. Numbers drive our decisions. The above is worthy of consideration. If we can share any additional feedback about our conference meetings, please let us know. At Leitbox, We Do Storage Differently.
About Leitbox Storage Partners
Leitbox Storage Partners (“Leitbox”) is a real estate investment company that develops and acquires selfstorage (often with mixed use & retail integration) in primary and secondary markets throughout the United States. In addition to programmatic, greenfield development of vertical self-storage, Leitbox utilizes its 30+ year history in the retail and mixed-use sectors to identify and acquire retail, big-box conversion opportunities and income-producing, storage facilities presenting value-add upside potential.
Contact:
Laurie Levassar
llevassar@leitbox.com
