In more ways than one, 2020 was one for the record books. And it was a record-setting year for self-storage acquisitions, too.
Investors sought shelter from battered asset classes like office and commercial, and dislocated consumers helped drive demand higher. These forces and more combined to launch self-storage sales tallies for 2020 to an all-time high.
The self-storage industry executed a record-breaking $7.7 billion in self-storage deals, according to a March 11 report from commercial real estate research and analysis company Real Capital Analytics. That dollar total was one-third higher than the sector witnessed in 2019, the report says.
Shelter from the storm
Mike Mele, leader of the national self-storage group at commercial real estate services company Cushman & Wakefield, said the buyer pool for self-storage facilities continues to expand.
“Buyers are chasing yield,” Mele said, “but more importantly are looking for security, and many are finding it with the success of the storage sector.”
The safety and performance of the sector is drawing in private equity funds without a current stake in self-storage, family offices and REITs not focused on self-storage. The strong pandemic-era performance of the self-storage sector — characterized by high occupancy rates — is helping fuel that interest, Mele said. His company’s self-storage team handled 41 deals last year, comprising more than 100 facilities valued at nearly $750 million.
Storage asset sales soar in 2020
Blackstone Real Estate Income Trust’s $1.2 billion acquisition of Simply Self Storage and Nexpoint Advisors’ $900 million acquisition of Jernigan Capital represented more than one-fourth of last year’s dollar total. But single-asset sales also blossomed with $3.5 billion changing hands—a 13% increase over 2019. Private investors accounted for 58% of the acquisition activity in 2020, the report says.
Data from Real Capital Analytics suggests 2021 could be another robust year for self-storage acquisitions. For the first two months of this year, the firm recorded $968 million in self-storage investments in the U.S. If that pace were to continue every month for the rest of 2021, deal volume for the year would surpass $5.8 billion.
Although the dollar amount for self-storage acquisitions in 2020 was eye-opening, commercial real estate data and research company Yardi Matrix says the number of U.S. acquisitions declined from 908 in 2019 to 724 in 2020. That’s a one-year drop-off of 20%.
A pandemic-fueled boom in sales
Bill Bellomy, a broker with Austin-based commercial real estate brokerage Bellomy & Co., said several factors combined to propel acquisition activity in 2020: cheap debt, cheap equity, lots of investors seeking someplace to park their money, and more investors hunting for alternatives to retail, lodging and other hard-hit real estate sectors.
“No one reason was more impactful than the other reason,” Bellomy said, “but collectively they led to a strong acquisition market.”
Steven Weinstock, national director of self-storage at commercial real estate services company Marcus & Millichap, said the sector’s solid rental and occupancy rates last year cemented self-storage as a recession-resistant investment alternative. That trend has presented an opportunity for a self-storage owners to harvest recent gains by selling assets, he said.
Where does it go from here?
Bellomy said that in 2020, deals for lease-up properties took a back seat to deals for stabilized properties, largely due to greater underwriting confidence in those assets. But he anticipates certainty about lease-up deals will grow this year as the traditional rental season heats up.
Meanwhile, uncertainty over whether storage demand will stay as strong as it was in 2020 could cause a decrease in new storage development, said Doug Ressler, manager of business intelligence at Yardi Matrix.
Weinstock said he sees a carryover from 2020 to this year in terms of self-storage acquisitions, with facility owners continuing to reap investment gains and buyers continuing to be take advantage of low interest rates and attractive yields. Another factor, he said, is ongoing cloudiness about the future of the 1031 exchange. Some investors want to take advantage of this tax-friendly property swap before it potentially vanishes.
The shiny self-storage sector on the hill
Furthermore, vaccine rollouts, federal stimulus initiatives and the economic recovery should support a tide of self-storage acquisition activity in 2021, Weinstock said
Weinstock envisions a “really rosy outlook for 2021 and beyond” in the self-storage sector.
“As select commercial real estate property sectors continue to face challenges in 2021, the self-storage industry remains a bright spot,” Yardi Matrix says in a recent report.