Industry Consolidation is inevitable - 90% of industry are "Mom-and-Pop" Operations
REITs have acquisition appetite for industrial quality Urban Assets
Absent New Construction
Absence of significant New Construction especially in the Urban Cores
Result is REITs reliance on entrepreneurial developers for acquisition pipeline
Intrinsic value in portfolio generation 1 + 1 > 2
Urban Storage Fund focuses on creating storage product in urban markets which consistently perform best from rental rate, occupancy and valuation perspectives.
The self-storage industry is highly fragmented with publicly traded self-storage companies comprise only 10% of the industry and the remaining 90% made up of private “mom-and pop” operators. Additionally, urban markets are characterized by smaller housing units and increasing population densities which has lead to a huge uptick in demand for urban core storage facilities.
Yet, despite these demand drivers, a disproportionately low supply of self-storage product exists in these markets leading to significantly higher storage rents and occupancies in urban markets. In fact, urban operators have been raising rents at levels of 5% or more over the past two years.
These desirable urban core markets are characterized by:
- Higher population densities
- Higher rents
- Higher occupancy levels
- Higher entry barriers – to preserve investment value
- Higher exit valuations
Key Drivers for Opportunity
- Small, regional operators lack the resources and expertise to develop urban infill self-storage product.
- Large, publicly traded self-storage companies lack the agility and entrepreneurial vigor to execute new urban development.
- REIT financial structure represents an added disincentive to development as new project construction and rent-up periods are not accretive to REIT balance sheets.
- High demand for multi-property portfolios has lead to a pricing premium with a cap rate gap as wide as 100 basis points between portfolio sales and single-property sales.
- Over the past year total U.S. self-storage acquisitions have approached $2.5 billion, the largest volume since 2007, and far in excess of the annual average of $1.5 billion over the past 5 years.