Self-Storage – Overcoming a COVID-19 World
July 13, 2020 | Bill Leitner | Leitbox Portfolio Partners
I once asked a forty-year self-storage executive what drives self-storage demand. Without hesitation, he responded “Life!” Simply put, the constant change in our lives triggers a demand for storage. Those changes span a wide spectrum: college, military, congregate care, job relocation, retirement; effectively touching all of us. In today’s world, I think the proper description for what drives storage demand is simply “disruption and dislocation”.
So, how will storage perform in a COVID-19 world of disruption and dislocation? Fortunately, if social distancing remains our primary mandate, storage should navigate these waters successfully. Storage has very few customers per day (averaging 6-8 per day on average) and leasing a storage unit can be facilitated without human interaction. The technology associated with iPhone apps and rental kiosks allows the customer to rent, enter, and load the unit with little to no human contact. Operationally, it seems self-storage may overcome the operational limitations on leasing and customer interface caused by COVID 19. Currently, the rent collections data supports this thought. For the larger REITs, during the April 2020 timeframe, Life Storage, Inc. reported 94% collections, with Extra Space Storage, Inc. and Cubesmart, Inc. collections slightly lower at 93%, well within their historical standards.
How will the investment community view storage in the midst of COVID-19? While certainly not a statement that can represent the broader market, an anecdote worth mentioning is a recent disposition of our mixed-use, self-storage asset in Tennessee on March 12, 2020. That same day the stock market went down 2,300 points. We sold the asset at certificate of occupancy, after 24 months of ownership, and garnered a 36% IRR at the project level. The bigger question will be the banking communities’ willingness to provide debt in the future. In a recent discussion with a banker in Birmingham, given the alternatives in the market space, he supported the self-storage option due to its smaller, average loan size (less than $10M), its low, historical foreclosure rate, and demand in the market to own the asset class by varying investor types (HNW, REIT, Institutions).
In a time wherein we hope and pray for a return to normalcy, maybe self-storage will be a shining light – an asset that needs change to thrive. For further information about Self-Storage, feel free to contact Amy Garrett, Managing Director of Finance, for Leitbox Portfolio Partners Self Storage Fund II, a $50M Reg D Private Placement (admin@leitbox.com).
