Extra Space Storage, the king of third-party management in the U.S. self-storage sector, continues its impressive reign.
In mid-September, the Salt Lake City, UT-based REIT announced it had surpassed the 800-facility mark for properties operated by its third-party management platform, called ManagementPlus. That’s up from 724 facilities at the end of 2020.
In the first half of 2021 alone, Extra Space added 100 facilities to its third-party platform and envisions adding another 100 or so by the end of 2021.
The REIT bills itself as the country’s largest third-party manager in self-storage. As of June 30, Extra Space reported 768 facilities in its third-party management program. That exceeds the counts for the other major REITs. As of the same date, CubeSmart reported 718 facilities that were managed as third-party properties, while Life Storage was at 340 and Public Storage at 131.
Third-party facilities represent 40% of portfolio
Today, properties in the ManagementPlus program make up about 40% of Extra Space’s entire portfolio. The REIT says these facilities — representing over 300 self-storage owners — serve more than 500,000 million customers and encompass more than 60 million net rentable square feet.
Eric Bishop-Berry, senior director of third-party management at Extra Space, told the Storage Beat that self-storage owners and operators sign up with ManagementPlus for a number of reasons. For instance, a longtime owner and operator may be retiring, and their offspring plan to keep the business but aren’t interested in running it. Or perhaps a developer wants to own a newly built facility but balks at operating it.
“There’s lots of groups that have the development capability,” Bishop-Berry said, “but they want to leverage an operator that does this day in and day out, and has the systems in place to effectively operate the property.”
Also, a self-storage owner in the third-party management program enjoys access to Extra Space’s bridge loan program and other corporate offerings, he noted. The REIT started the loan program in 2019 to complement the third-party management platform. Last year, Extra Space closed more than $200 million in bridge loans.
“We want to continue to offer a platform that allows our partners the flexibility and multiple different avenues to work with Extra Space,” Bishop-Berry said.
Third-party management delivers array of benefits
Extra Space rolled out its third-party management platform in 2008. Among other benefits, the platform helps the REIT add to its facility count — and, therefore, its revenue base — and supplies data that aids decision-making across the portfolio, according to Bishop-Berry. Furthermore, the platform gives Extra Space a source of potential acquisitions.
For 2021, Extra Space expects to rack up revenue of $59.5 million to $60.5 million from management fees and other income. That compares with $52.1 million in 2020 and $49.9 million in 2019.
Bishop-Berry said the biggest long-term challenge for Extra Space — a challenge that undoubtedly affects the third-party management platform — is a looming rise in new supply coming on the market.
“You could oversupply a market,” he said, “and that can put pressure on operations.”
Many investors and developers are eager to build new self-storage facilities based on the sector’s robust financial results since the onset of the COVID-19 pandemic. Extra Space, for instance, saw a 9% rise in same-store revenue in the first half of 2021 compared with the same period last year and a 13.2% jump in same-store NOI.
Bishop-Berry said the appetite for self-storage as an asset class continues to grow as the sector further demonstrates resilience through economic ups and downs.
What will happen with consumer demand?
Another industry trend to watch is consumer demand, which also promises to play a role in how the third-party management platform progresses. Since the pandemic started, Extra Space and its competitors have witnessed sky-high occupancy rates. As of June 30, Extra Space’s same-store occupancy stood at a jaw-dropping 97%.
“The last 12 to 16 months have been somewhat of an atypical trend in terms of how occupancies have held high,” Bishop-Berry said. “We do expect that as we distance ourselves from the events of the last year, we will enter into a more and more normal seasonal trend.”