Self-Storage Attracts New Investor Types
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LOS ANGELES-Long regarded as a recession-resistant asset class, self-storage is now attracting non-traditional investors in addition to traditional ones. Touted as a very safe investment dominated by private ownership, the sector is being eyed by new money looking to get into the space, Doug McCarron, recently appointed managing director for Jones Lang LaSalle’s capital markets platform, tells GlobeSt.com.
“In 2005-2007, the majority of the offers we saw were made up of 90% traditional and 10% new money looking to get into the space,” says McCarron. “Now, that has completely flip-flopped: 60% of the investors are traditional self-storage buyers and 40% are new money. Whether it’s equity or people looking to find their way into the space, there are new capital sources for this sector.”
Why the sudden interest in self-storage? McCarron says, “I think you need to look at how well the asset class has performed. We typically benchmark to multifamily performance, and that asset class is trading at significantly less than what storage is trading for. Fannie and Freddie have unbelievable yields, but in core urban markets, you will continue to see yields for this asset class decrease.”
During the economic downturn years of 2009-2010, self-storage vacancy was in the single-digit percentage. “It’s a very strong asset class, yet it has not gained a lot of institutional interest,” says McCarron. “The top players in the industry control less than 10% of the storage space, but consolidation is taking place.”
McCarron knows this asset class intimately, having been involved in more than $2 billion of self-storage transactions nationwide. He was brought on board at JLL in September to partner with managing directors Steve Mellon and Pete Williams to broaden the firm’s offerings of self-storage facility sales, and he specializes in the acquisitions and dispositions of self-storage portfolios, structured financings and commercial equities. Earlier in his career, McCarron was a partner at Storage Investment Advisors LLP.
According to Mellon in a prepared statement, “The sector withstood the recession well and is expected to continue to improve and stabilize well into 2013.” He added that the addition of McCarron puts “in place a national self-storage team that has 40-plus years of comprehensive experience and coverage from coast to coast.”
McCarron adds that it’s hard to focus on one singular market in the self-storage space, which is why JLL decided to launch a new self-storage platform on the West Coast to partner with its Southwest and East Coast platforms. “You need a national market and a national team to focus on this asset class. We’re seeing the best performance rent and occupancy in San Francisco, Seattle, West L.A. and San Diego. The core urban areas are performing exceptionally well and continue to do so year over year.”
As GlobeSt.com reported earlier this month, a Florida-based financial institution acquired US 41 Self Storage, a 76,903-square foot self-storage facility in Ft. Myers, FL. Michael Mele, a first VP investments and senior director of Marcus & Millichap’s National Self-Storage Group in the Tampa office, which exclusively represented the seller, told GlobeSt.com at the time that the velocity of self-storage trades has picked up over the last year. He recently listed a three-property Central Florida self-storage portfolio for Safeguard Self Storage at $25 million.
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