Why should investors be excited about investing in self-storage going forward?
- Self Storage has been and will continue to be an appealing investment vehicle for decades due to its inherent nature as a business. It has a countercyclical nature compared to the stock market: Self Storage is a defensive play with attractive upside potential.
- It has historically proven to be a sound vehicle to hold capital during a recession
- The short leasing structure allows for the ability to reset rents and offset inflation
- Record-setting returns are driven by operating fundamentals
- Self Storage beneficiary of both demand and supply side:
- Demand-side: moving states *(move-in rate growth to unprecedented levels), businesses packed up, downsizing, Work From Home flexibility (folks simply want more space at home), supply chain increasing need for in “Just In Case” inventory
- Supply-side: looks to be generally contained but like all Real Estate is it hyper-local. It is critical to assess the local economics before investing
What risks should investors be aware of before investing in self-storage?
- Supply is the biggest risk now and going forward (new development) is attractive to builders which looks to be favorable in the next few years
- However, new build permits getting delayed which is slowly new development (constraining supply)
- Moratoriums can negatively impact landlords – rent restrictions/rent control in LA for example
Why growth in self-storage supply in the coming years is likely not what you’d expect
- Building permits are getting delayed which is slowly new development (constraining supply)
What the most current operational trends and advancements are that are being used by REITs that can be used by private syndicators
- 50% of new customers come from online avenues
- Continually growth of ancillary revenue streams
- Use of Kiosks leveraging a ‘face time’ functionality
- Renting empty office space to employees
What kind of wisdom main street investors can glean from studying publicly traded REITs?
- Work From Home trend continues to be sticky
- REIT consumer data is countering the previously held belief that younger generations will demand fewer self-storage products versus prior generations. “Experiences over things” was the main premise behind the belief.
- However, the data is saying these generations are more willing to continue using self-storage with the new implementation of technology, ease of use, and smaller living spaces.
- Problem: Experience over things
- Which markets are more desirable for the end consumer? Follow larger MSAs where WFH flexibility is a real possibility and those markets which have an aging population (although this can be seen as morbid, we attempt to take emotion out of the equation. It’s business. Someone else will benefit if we don’t).
Who are the biggest REITs?
Hot tip: Read publicly available supplementary reports and transcripts using the “control f” function
How do our Self Storage investments differ from a REIT?
- Investing with FCG means you know the property, business plan, and operating sponsors of a specific deal. With a REIT, shareholders do not have visibility of these details.
- Income generated from a REIT is classified as Ordinary Dividend Income and taxed accordingly (~10 to 37%). However, the gains/losses and depreciation generated from FCG investments pass through to the investor which can partially offset active income.