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Tuesday, Nov 29, 2022
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Real Estate Quarterly: Self-Storage Surge

Local companies are meeting the demand for extra space by betting big on self-storage. 

Tarzana-based Gelt invested $41 million to buy eight self-storage facilities in the Memphis, Tennessee, area two years ago. Last year, Glendale-based Public Storage Inc. paid developer All Storage $1.5 billion for 56 self-storage facilities located in the Midwest. The portfolio, which covers 7.5 million square feet, spans high-growth submarkets in Dallas-Fort Worth and Killeen, Texas, and in Oklahoma City. The big bite brings 60,000 new customers into the Public Storage fold.

Growing demand for self-storage continues to surge during and after the pandemic as more people working from home and an increase in multigenerational living add to the more traditional reasons that people need to store belongings offsite, such as moving and downsizing, growing families and living with roommates, according to RentCafe.

“I’ve been in storage for 22 years, and I’ve never seen demand be so strong as in the second half of 2020,” said Brett Henry, co-founder of Torrance-based Trojan Storage. “And then it’s been very strong again in 2021 and 2022. It just continued.”

Companies are addressing the growing market by constructing more and more self-storage units. Gregg Buskett, who operates Buskett Development Group, intends to expand a self-storage site already under construction in Van Nuys by 80,000 square feet. In total, the three-story facility will comprise 220,000 square feet. Located in the 6000 block of Woodley Avenue a couple of blocks east of the Van Nuys Airport, the facility, Buskett said, will provide a “buffer between the nearby residential zones and the more intensive industrial and manufacturing uses to the west.” 

Century City-based developer LaTerra Development has formed a joint venture with a fund managed by Macquarie Asset Management to launch a self-storage development platform. The partnership plans to deploy as much as $300 million to develop ground-up self-storage facilities in Los Angeles and other Southern California markets.

Three projects are underway, including 55,000 square feet in Mar Vista, 63,000 square feet in Van Nuys, and 77,000 square feet in the North Hollywood/Burbank area. The companies are actively seeking additional sites for development.

“Self-storage is complementary to our core apartment development business,” Chris Tourtellotte, managing director at LaTerra Development, said in a statement. “Self-storage is part of the neighborhood ecosystem and supports housing density and small businesses, a primary goal for LaTerra.”

Henry and his partner John Koudsi co-founded Trojan Storage, which has sites in locations including Sun Valley and Colton. 

“We opened one in Glendale, and we’ve opened one in the city of Commerce,” Henry said. “We’ve got one in Camarillo and two in the Valley that will start construction next year.”

One of those Valley sites will be in Sylmar, where Trojan plans to build 27 apartment units atop a self-storage complex that will be 200,000 square feet in size.

Under construction

The company has 40 active storage facilities and 10 under construction, plus two more sites on the East Coast.

“We use a combination of bank debt for 75% of the funds we need, and we inject 25% with our money and our investors base’s money,” Henry said.

Driving Trojan’s expansion has been the increase in demand for self-storage units over the past 30 months.

“Covid definitely accelerated demand (March through May 2020),” Henry said. “After that, you started to see a lot of demand in the bigger cities, where you’ve got all these lockdowns and not only are the parents at home working but you’ve got the kids at home. Frankly, we found a whole new wave of customers.”

According to RentCafe, 20% of renters living in apartments utilize self-storage, while 25 % of renters living in single-family homes rely on self-storage. 

The group also found that 44% of self-storage users are Gen X renters, followed by baby boomers with 38% and millennial renters with 30%.

Self-storage had seen steady growth even before the pandemic.

“Storage has grown in demand over the years because people really have been using us as that extra closet,” Henry said.

“Self-storage continues to demonstrate its resiliency across the cycle,” Tourtellotte said. “The pandemic accelerated demand as people relocated and cleared rooms to make way for home offices, while small businesses stored inventory, excess furnishings and other items.”

LaTerra Development recently hired industry veteran John Wilson as vice president of asset management. Wilson previously served at Storage West for 12 years and at Public Storage for 13 years.  

At an average of $220 a month, the Los Angeles-Long Beach-Santa Ana axis has the most expensive self-storage rates in the country, according to Neighbor.com. Compare this to Oklahoma City, which averages $79 a month — the lowest rate in the country.

There’s a reason L.A. prices are highest: there aren’t enough self-storage units available to meet demand. Part of the reason why may be the high cost of land.

Low supply

“Los Angeles has the lowest existing supply of self-storage per capita of almost any city in the U.S.,” Tourtellotte said. “We think it’s an ideal time to launch this new platform.”

Public Storage, the self-storage real estate investment trust that pioneered the industry, celebrated its 50th anniversary on Sept. 30 by having Chief Executive Joe Russell ring the New York Stock Exchange opening bell.

Entrepreneurs Wayne Hughes and Ken Volk founded Public Storage in 1972 with its first location in El Cajon. Today, the REIT owns or manages more than 2,900 self-storage properties nationwide totaling approximately 200 million net rentable square feet. As the self-storage industry’s largest operator, it has more than 5,000 employees and serves about 1.7 million customers.

Public Storage also holds a 35% interest in Shurgard Self Storage SA, which has 256 facilities in seven European countries, covering approximately 14 million net rentable square feet. 

Its recent investments reflect a growing interest in an industry that is seeing demand globally.

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