Inside Self-Storage

SEP 2018

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Some developers have taken notice of this shift when seeking land for new builds. SurePoint Self Storage, which operates in Kansas and Texas, has always developed in areas with high barriers to entry. However, it's becoming more difficult to find these locations, says Robert Loeb, a company partner. "We like to build where we feel unmet demand is double what we are building, and we want to build on the best site," he says. Texas cities such as Austin and Dallas as well as pockets of Houston and San Antonio are flirting with oversupply, Loeb says. "But any market can get overbuilt. If we put too much supply in a market, occupancy and price will suffer. This is double whammy-down," he says. Life Storage Inc., a self-storage real estate investment trust (REIT) that operates 700 facilities, including 161 in Texas, has felt some impact on its properties in the state, notably in the cities Loeb mentions. Other markets the company is watching include Atlanta, Miami and Raleigh, N.C. "But these are strong and growing markets that will absorb the supply and will be fine in the long run," says Diane Piegza, vice president of corporate communication and community affairs. Even so, the company is more focused on buying than building. "We believe there are excellent opportunities to improve the operations of existing facilities; therefore, our concentration remains on acquisitions," Piegza says. Life Storage recently joined forces with research firm Union Realtime LLC in a partnership that will inform development choices for the REIT and other industry developers. "What began as a means for us to monitor rates and specials at our competitors turned into a more collaborative relationship to share data on new development," Piegza says. "Life Storage focuses on development within a five-mile radius of our existing locations; Union Realtime will bring additional intel on markets where we don't operate but are considering entering. Likewise, we can provide validation of their results in the markets in which we do business." Conscious Choices Another company making a concerted effort to avoid overbuilding is Bitterroot Holdings, a privately held enterprise that owns and operates 10 Keylock Storage facilities in Northwest. Bitterroot has turned its focus to second-tier markets. "We choose our markets based upon continually healthy growth and where we feel we can outperform the other facilities in those markets," says co-founder AJ Osborne. As such, the company recently walked away from several potential development sites. "We are extremely concerned and have passed up several opportunities and blacklisted a lot of markets due to overbuilding," Osborne says. "We had several projects we were entertaining in Boise, Idaho, that we ran away from. We are in that market, and it's not just being overbuilt; the operators don't seem to be doing their numbers or are OK [with] having very poor performing assets." Bee Safe Storage and Wine Cellar announced last fall that it would scale back on its development in the Southeast due to oversupply in some markets. The company operates seven facilities in the Carolinas, and planned to invest about $250 million in more than 30 projects in the region. Owner Roy Carroll told "News & Record" he was beginning to see market saturation. "We are long-term players and will deploy our capital when the market fundamentals dictate; but we are pumping the brakes on areas in the Southeast where the development pipeline just doesn't make sense," he says. Moratoriums Worried about an abundance of self-storage facilities in their region, some government officials are enacting moratoriums to stop or slow development. Although many of the freezes have been temporary while officials evaluate zoning laws and plans, some have passed permanent bans. This spring, the Arvada, Colo., City Council unanimously approved a 180-day moratorium to temporarily block self-storage applications. Officials in Denver also approved a ban on self-storage in some areas. Earlier this year, New York City Council members overwhelmingly voted in favor of banning self-storage development within industrial business zones without a special-use permit. The city also created a two-year application process, which includes a uniform land-use review procedure. Other cities to establish development barriers include Margate, Fla., Poulsbo, Wash., and Woodland, Calif. Self-storage professionals have mixed views on this legislation. While some agree new regulations could keep overzealous or uninformed developers from building Self-Storage Construction Spending 2015-2017 Source: STR Sector Analysis LLC 2017 2016 2015 3.98 BILLION 1.91 BILLION 955 MILLION Sel f-S torage Construction Spending 201 5-2 017 Source: STR Sector Analysis LLC 2017 2016 2015 3.98 BILLION 1.91 BILLION 955 MILLION Worried about an abundance of self-storage facilities in their region, some government of cials are enacting moratoriums to stop or slow development. 20 ISS I September 2018

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