Ernst & Young: Self-Storage is Lucrative

NEW YORK CITY—Karen Ward probably hears about all sorts of investment opportunities in all sorts of sectors as the co-head of real estate capital markets in the Americas for Ernst & Young Capital Advisors.

But at the moment, she’s bullish on a misundstood one: self-storage. It’s not a very sexy segment, she admits, but it has lots to offer and several unique characteristics. She tells GlobeSt.com’s Rayna Katz all about the space in this EXCLUSIVE Q&A.

GlobeSt.com: EY reports that self-storage is a great sector for private equity. Why is that?

Ward: It’s lucrative because these buildings cash flow like crazy and deliver a high yield. There’s high year-over-year growth in rent because there are only so many places to store things. Average asking monthly rent in 2013 for an average 10-foot-by-10-foot unit in the US was $115 a month. Now, some of our clients are getting 6% to 15% higher than that. Also, several years ago occupancy was 70% to 80%. Now the public REITs are seeing 80% to 90% occupancy.

The growing economy, increased consumer spending and the increasingly mobile population are all macro drivers of this space.  Also, life issues such as death and divorce play into storage needs.

GlobeSt.com: Can you elaborate on who’s in the space?

Ward: From a capital markets point of view, we’re seeing significant demand from private equity, REITs and private players, However, there are very few sizeable, quality opportunities in the sector where people can place money so we expect to see consolidation of the smaller players and their portfolios.

We are seeing a lot more new entrants too. This has been more of a niche market and we are seeing interest from major private players; it’s not just private equity firms. Even high net worth families who are seeking yield and want diversification, thy want to invest in assets that are cash flowing to get the yield and that have return. A number of family offices have approached us about these private co’s to finance their acquisitions. Most of who we’re talking to are the re operators of these facilities, how do we go out and sign that capital.

GlobeSt.com: What are the challenges of the industry?

Ward: It’s a highly fragmented industry. There are only five major public players and then there are 30,000 to 35,000 private firms that operate storage facilities in the US and they have to be willing to sell. The major players only have a 10% to 12% share so they’re looking to go out and buy larger portfolios but they don’t exist because most of the firms are mom-and-pop operations. Many of them have just one store.

GlobeSt.com: What’s ahead for the self-storage space?

Ward: Looking forward, we expect to see a lot more technological sophistication in the industry. Investors want to see places that look professional, have computers and are clean so we’re going to see more  automation to drive profitability.

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