Construction has begun on Carefree Crossings, a new self-storage facility in Phoenix that once faced opposition due to its location on a flood plain and a scenic area. The 17.25-acre lot on the northeast corner of 7th Street and Carefree Highway is in the New River Desert Hills community and along the Carefree Highway Scenic Corridor. In addition, the Desert Lake Wash runs through it. The property is owned by Catherine, Jim and Pat Mahoney, according to the source.

The plans include constructing several single-story buildings that will contain 467 units total. The facility will also feature 82 vehicle-parking spaces, half of which will be covered, and a two-story office and manager’s residence.

An 8.9-acre portion of the property was rezoned in 2016 by the Maricopa County Planning and Zoning Department. At the time, the New River Desert Hills Community Association (NRDHCA) opposed the development and filed an appeal. The association claimed the facility had safety issues and the development wasn’t in accordance with a study for the Carefree Scenic Corridor. Created by county officials and community members, the study and its resulting guidelines aim to enhance the area’s characteristics.

“Any new access on Carefree Highway would be a major safety hazard, especially since it is near a very major intersection,” the appeal stated. “Concern that ‘Existing Wash to be rerouted into new channel’ will not address concerns raised in the September 2004 Adobe Dann/Desert Hills Area Drainage Master Plan.”

Under the original plan, the wash would need to be rerouted through channelized drainage on the property’s north and east sides. A storm-water site plan would also need to be approved before building permits would be issued.

“The applicant does not seem to understand the Carefree Scenic Highway Study post-dates the 1999 New River Area Plan. Care was take to mention only those that would affect their application in a positive manner,” the appeal stated.

NRDHCA also objected to the 18-foot sign proposed for the facility, which it claimed wasn’t in accordance with corridor rules. The zoning board addressed the concerns from residents and the association, and drafted four versions of the special-use permit before it was unanimously approved. The final version contained several stipulations, such as addressing the drainage of the wash and reducing the signage by two feet.

“This will be a low-intensity, minimal traffic-generating, attractively designed low-height and well-screened facility that will serve the needs of the community,” county officials said.

Source:
The Foothills Focus, Self-Storage Facility Construction Begins in Desert Hills

Real estate firm Merit Hill Capital LP has purchased Safe Keeping Self Storage in Baytown, Texas, a suburb of Houston. The seller was Weiss Realty Group Inc., a Houston-based real estate firm, according to a press release from JLL Capital Markets, the commercial real estate and finance firm that helped broker the deal.

The single-story property at 120 S. Alexander Drive comprises 76,485 square feet of storage space in 782 units. It also contains eight office/warehouse units for lease. Property features include climate control, electronic access, covered loading area and video cameras.

JLL Managing Directors Steve Mellon and Brian Somoza led their team in the deal. “This property provides a value-add opportunity in a growing city with a strong local economy,” Mellon said. “As such, it is a perfect fit for Merit Hill Capital’s portfolio.”

Based in Brooklyn, N.Y., Merit Hill is focused on acquiring, developing and managing self-storage facilities nationwide. Last year, it launched a $300 million fund with private capital to pursue single-property and small-portfolio acquisitions in markets with at least 25,000 residents and demonstrating population growth.

JLL is a full-service global provider of capital solutions for real estate investors and occupiers. The firm completed $170 billion in investment sale and debt and equity transactions globally in 2017. The firm’s Capital Markets team comprises more than 2,000 specialists globally.

RT Julian & Son Ltd., an England-based company that operates three Newquay Self Storage facilities, has secured a multi-million pound financial package from Lloyds Bank Commercial Banking to fund portfolio expansion. The company intends to develop 21,000 square feet of new self-storage to meet demand in Newquay, England, as well as acquire and refurbish a commercial property next to one of its existing sites, according to the source.

Baylor Julian, founder and managing director of RT, credits the company’s changing business model as the driving force for growth. The firm has expanded from offering its containers for strict storage use to renting them as offices and warehouse space, creating a new niche in the local market.

The company noticed a growing demand for these offerings in the area, Julian told the source. "We quickly developed our new business strategy and have helped many local businesses start up. We also supported a German film crew to film episodes of ‘Rosamunde Pilcher,’ which led to a tourism boost for the area. This and the start-ups have generated an estimated £30 million of income to Cornwall,” he said.

The company expects revenue to increase by 40 percent during the next five years, the source reported.

"RT Julian & Son is a great example of a business that has grown organically after changing its business model to meet local demand,” said Michael Tonkin, relationship manager at Lloyds Bank. "Its containers enable hundreds of businesses to operate locally and have helped create hundreds of jobs for the area.”

Newquay Self Storage locations offer storage containers for commercial and residential use, as well as document storage.

Source:
Insider Media, Storage and Office Space Firm Expands With Bank Backing

Shurgard Self Storage Europe SARL, the European affiliate of U.S.-based real estate investment trust (REIT) Public Storage Inc., has agreed to by five Pelican Self Storage facilities in Sweden. The deal is expected to close tomorrow, with Shurgard taking over the properties on July 1. All five assets will be rebranded under the Shurgard name, increasing the operator’s presence in Sweden to 36 locations. Two of the facilities are in Östergötland, with one each in Örebro, Stockholm and Västmanland, according to a press release.

“Sweden has always been a strong and stable market for Shurgard,” said Marc Oursin, CEO. “We are pleased to reinforce our presence and coverage in this country, which allows us to offer convenient, accessible and cost-efficient storage solutions to more people.”

The acquisitions are the first this year for Shurgard. The company acquired one storage property last year in Paris. It expects to add another Stockholm location this year through development, and has two facilities under construction in Berlin, the release stated.

The company announced earlier this month that it’s considering an initial public offering. Public Storage acquired Shurgard Storage Centers Inc. in August 2006. In March 2008, the REIT sold 51 percent of its interest to an institutional investor and now acts as the managing member of the joint venture.

Once the deal is complete, Shurgard will own and operate 227 self-storage facilities with more than 12 million net rentable square feet in Belgium, Denmark, France, Germany, The Netherlands, Sweden and in the United Kingdom.

Based in Glendale, Calif., Public Storage also has interests in 2,392 self-storage facilities in 38 states, with approximately 159 million net rentable square feet.

“Irrational exuberance is when investors are so confident that the price of an asset will keep going up, they lose sight of its underlying value. They overlook deteriorating economic fundamentals in the pursuit of ever-higher returns. Instead, they get into a bidding war and send prices up even higher. Irrational exuberance drives the peak phase of the business cycle.”

—The Balance, “Irrational Exuberance, Its Quotes, Dangers, and Examples”

Former Federal Reserve Chairman Alan Greenspan used the term “irrational exuberance” in a televised speech he gave in 1996. There’s some controversy about whether he was the original source of the phrase. Maybe he coined it; maybe he had some help. I do know this: Those of us who’ve been around for a while understand the gravity of it. We’ve seen real estate bubbles and suffered through the fallout. 

At a recent self-storage conference, I heard some chatter about industry development, with scary terms like “overbuilding,” “lower rents” and “negative reports.” New storage projects are never easy, regardless of the economic climate. The ambitious developer must secure a site, determine the best investment strategies, deal with escalating political red tape, hire busy design professionals, gain entitlements, price materials and labor amidst rising costs, satisfy lenders and investors, and then lease-up empty space while bleeding cash. It’s not for the faint of heart.

There are plenty of unanswered questions on the horizon regarding self-storage growth. What factors continue to drive it? How can we quantify risk moving forward? And how can developers prepare for whatever the future holds? Let’s look at some key dynamics to see how we can capitalize on industry development without falling prey to irrational exuberance.

Driving Forces

I often find myself in déjà vu discussions with first-time self-storage investors. The neophyte will say something like, “I’ve seen these things going up for years, and they all seem to be doing really well,” or “I have a friend who’s in the business. He says they are killing it, and he just keeps building.”

Anecdotally, store-level managers often report they have a significant percentage of long-term tenants. As an owner, I see the number of long-time renters rising steadily with facility age. Why? Once the decision to store has been made and belongings are locked, the customer often issues a sigh of relief. Using self-storage can be stressful. It’s often associated with unpleasant life events like death, a failed marriage, a lost job or a move—big, emotional issues.

For a nominal monthly fee, self-storage is the alternative to revisiting the anxieties related to whatever life event triggered a need for its use. Making a storage payment becomes a lifestyle choice for many. It’s less painful than renting a truck, borrowing or paying for labor, risking a sore back, and making room for the stuff somewhere else. By comparison, paying the rent is easy. Some percentage—maybe only 10 percent—of every monthly move-in will turn into a long-term renter, but those tenants add up after years of operation.

Meanwhile, those life events that create self-storage demand continue. People still get divorced. Residents change their address. Kids go to college or move back home. Parents age. People die. Businesses start or fail. All these happenings generate the seemingly magical but very explainable demand that we track every month as move-ins. Sure, people move out, too; but a percentage of your tenants is going to store with you for more than a year or two or even 10.

This dynamic is favorable for new development. Older facilities stabilize and remain stable because an ever-growing percentage of their tenancy is made up of these long-term customers. Unit sizes become scarce, prices go up, and BAM! We need more storage.

Measuring Demand

The self-storage industry sometimes errantly uses statistics like “7 square feet per person” as a reasonable measuring stick for gauging supply and demand. Benchmarks like these, however, are as dependable as fairy dust because they only represent an average across all markets, and every market is unique. Some areas will absorb 20 square feet per person, while others are overbuilt at 3 square feet. Demand indicators, though, can be specifically measured and accurately interpreted in small submarkets.

Aside from measuring supply, occupancy and rental-rate trends, we can quantify demand by measuring the regular “churn” in a specific market via move-ins per month. Relative to population, some markets see more than others due to different dynamics. For example, a population with a relatively high percentage of household renters probably demands more storage than one with more home owners. Areas of low income may see more turnover but less long-term tenancy. A military or vacation area may see more seasonality.

The point? Every population is different, and the wise developer will work to understand the opportunities and risks associated with unique demand profiles.

Competitive Landscape Shifts

Industry reports differ on the number of new self-storage facilities our industry has absorbed in the past 24 months as well as what the future pipeline looks like. It’s a lot. Thousands of new stores are competing across the country, or soon will be, for that constant flow of demand. However, each new location is competing in a small submarket, and understanding those unique demand forces and pressures is of utmost importance to developers.

Across the markets in which I operate, I’ve seen high occupancies and climbing rental rates for several years. I’ve seen lease-ups that have gone more quickly than I would ever have predicted. However, we’re now seeing more instances of average performance from brand-new facilities—even those in strong markets—because of the level of competition.

Industry growth continues because self-storage remains a sound real estate investment. Developers know profit can still be strong if occupancy stabilizes at 85 percent vs. 92 percent, or lease-up takes three or five years. Most of the projects I’ve underwritten have broken even inside of 70 percent occupancy. Rarely have I seen a market with average occupancies below 80 percent. That speaks to the overall profitability of the industry.

Sensible Success Strategies

Shoring up your investment amidst competitive landscape shifts requires simple, sensible expectations and strategies. Here are a few:

Don’t build too much! If a 600-unit project won’t work for your investment model, it’s unlikely an 800-unit project will. Push rentable square feet with large units; the other guy may be shrinking his average unit sizes to make numbers work. Quantify market demand. Manage risk by building to the optimal size, not the average or the extreme.

Use professional management. The absolute best management in the country can be had for 5 percent to 6 percent of gross income. Don’t try to recreate the wheel. Those who have mastered operation can absolutely, without a doubt, do it better than you. Weaker operators are losing. Be strong.

Budget for contingency. In markets where your new store will compete with other new facilities, give yourself enough working capital to take the asset from 0 percent to 70 percent occupancy while covering all your cash outflows. Budget for slower lease-up or depressed rental rates.

Be the best. Self-storage operators don’t market or sell a commodity. We deliver real solutions for real people who are in stressful, real-life situations. You’ll be competing with operators who have adopted this principle. Make your new facility stand out by offering what the other guys don’t—covered/drive-through access, convenient automation, prominent security and manicured grounds.

The self-storage industry is facing lots of new competitors coming online to serve an ever-growing demand. New properties will probably be more attractive than older ones, but existing stores will still benefit from the sticky demand of long-term tenants and prevailing market share.

We still live in the Land of Plenty of Stuff. At a time when convenience rules supreme, industry growth will continue. Avoid irrational exuberance by quantifying demand and risks, and investing sensibly.

Benjamin Burkhart is owner of StorageStudy.com, which provides feasibility studies and development consulting to self-storage developers and owners nationwide. He can be reached at 804.598.8742 or [email protected].