For years, construction of self-storage facilities in the U.S. has lagged population growth. The gap is so wide, in fact, that industry veteran Dean Jernigan says about $25 billion worth of storage facilities needs to be built in major metro markets for the industry to catch up and keep up with population growth.
Developers should build 3,450 facilities over the next five years in the 50 largest metro areas to erase the facility deficit and keep pace with future population growth, Jernigan, chairman and CEO of publicly traded self-storage lending firm Jernigan Capital, told The SpareFoot Storage Beat. According to Jernigan’s estimates, about 150 facilities will be completed this year and up to 400 next year.
The projected need for 3,450 facilities breaks down this way:
- 1,575 facilities to meet pent-up demand for facilities that didn’t get built.
From 2010 to 2014, only 300 facilities were built in the 50 largest metro areas. Jernigan said 375 facilities should have been built in the those areas each year to match population growth.
That pent-up demand explains the industry is “seeing tremendous occupancy, rent growth and terrific top-line revenue growth from the public companies,” Jernigan said. “We can’t possibly ramp up quickly enough as a sector to build enough storage to make up for what should have been built.”
- 1,875 facilities to account for future population growth.
Jernigan said the industry is the early stages of an extended development cycle that could last up to seven years. Because most developers sat on the sidelines during the past several years, there’s a lot of catching up to do, he said. Finding sites and securing entitlements will extend the development cycle, Jernigan said.
Miami, FL-based Jernigan Capital is seeing signs of that development cycle ramping up. The firm has made its first loans to developers, and Jernigan said many more are in the pipeline. “We have loans in the closing queue in 10 different states,” he said.
The company has pending term sheets for about $200 million in loans, according to a recent filing with the U.S. Securities and Exchange Commission.
Jernigan Capital made its first round of development loans to developers in Florida.
Miami City Self Storage obtained more than $24 million in financing from Jernigan Capital to build two facilities in Miami, each spanning 100,000 square feet. That group has unveiled plans to build four to eight more facilities in the Miami area.
Jernigan Capital also lent $4.44 million to a developer building a facility in Ocoee, FL, near Orlando. In addition to the development loans, Jernigan said his firm refinanced a loan for an existing facility in Michigan.
Jernigan Capital issues loans up to a 90 percent loan-to-cost ratio at an interest rate of 6.9 percent. “We get 50 percent of the cash flow and any refinance proceeds, and 50 percent of sales proceeds when the property is sold,” Jernigan said.
Jernigan formed the self-storage lending company in early 2014, shortly after exiting as CEO of Malvern, PA-based self-storage operator CubeSmart. Jernigan Capital went public this April, with the IPO’s stock opening around $20 a share. The firm’s IPO generated net proceeds of $105.8 million.
With the amount of development needed in the industry, Jernigan expects his firm to stay busy. To help handle the workload, Jernigan Capital just hired John Good as president and chief operating officer.
Good will join the firm in June. He is corporate and securities partner and co-head of the REIT practice group at law firm Morrison & Foerster LLP.
“John is well known in REIT circles and has been an extremely important part of our team since the formation of the company,” Jernigan said.