Public Storage is on a big building spree. And we mean big.
Not only is the Glendale, CA-based self-storage REIT building a slew of facilities, but these new facilities frequently are bigger than Walmart stores—200,000 to 300,000 square feet in some cases. That could mean trouble for nearby operators.
“Public Storage is going to be very aggressive in filling up their new facilities,” said Jon Danklefs, a self-storage broker at Marcus & Millichap in San Antonio, TX. “It will make it very difficult for existing operators in those submarkets to continue with the rental rate growth they have seen in past quarters.”
Operators that have been able to boost rents by 5 percent to 8 percent a quarter might be looking at flat growth if a Public Storage facility opens in their market, Danklefs warned.
Brian Somoza, managing director of the National Self Storage Team at JLL, agreed. He’s the former acquisitions director at Public Storage. “You are going to see a lot of downward pressure on rental rates,” he said.
That’s because Public Storage will focus on stabilizing those properties as quickly as possible by offering extremely competitive rates. “They want to maximize occupancy,” Somoza said.
Expanding pipeline
An artist’s rendering shows a Public Storage project planned for Seattle, WA.
As of March 31, Public Storage had 31 construction and expansion projects in the works. The development pipeline is set to deliver more than 3.6 million square feet of self-storage space at an expected cost of $436 million.
That’s more than twice the $215 million the company spent on development during 2013 and 2014 combined.
The SpareFoot Storage Beat was able to identify 13 Public Storage development projects that were completed this year, are under construction or are starting construction soon. (A complete list can be found at the bottom of this story.)
Projects on deck
Among the upcoming projects is a 1,900-unit facility at 1200 S. Dearborn St. in Seattle, WA. Construction on the six-story, 218,500-square-foot building is on track to start construction this summer. (A local developer had planned to build a project on the same site seven years ago but fell into bankruptcy before getting started.)
In June, Public Storage secured several building permits for a self-storage facility at 7895 Riverfall Drive in Dallas, TX. Public Storage bought the site, which features two office buildings, in March. The facility is expected to span more than 200,000 square feet, industry observers say.
Paul Darden, president of Dallas-based brokerage firm Paul Darden Co., told The SpareFoot Storage Beat that Public Storage had four to five projects planned for the Dallas market — each totaling 200,000 to 300,000 square foot.
The company has several other projects underway in other Texas markets: Austin, Frisco, Plano, Round Rock and The Colony. Nearly all of those projects will exceed 100,000 square feet apiece, industry observers say.
Construction is underway on this Public Storage facility in Frisco, TX.
Why so big?
As the world’s largest self-storage operator, owning more than 2,200 self-storage facilities, Public Storage has everything to gain by building as big as it can. For one thing, getting entitlements and approvals in high-barrier-to-entry markets is challenging, Danklefs said.
“The difficulty has increased exponentially in the state of Texas,” he said.
It’s easier for Public Storage to secure entitlements for one massive project than for several smaller projects, he said. “From a placing-of-capital standpoint, they are looking for economies of scale,” Danklefs said.
Danklefs said many private operators are building larger facilities in the Dallas area for the same reason.
One-shot deal
Somoza said he thinks Public Storage is building mega-projects so that it doesn’t have to come back and build more facilities two to three years down the road. “They want a one-shot deal,” he said.
Public Storage is expected to continue to grow its pipeline in the near term. The REIT is actively looking for sites in key markets across the U.S., Somoza said.
In a recent filing with the U.S. Securities and Exchange Commission, Public Storage indicated it continues to pursue development projects. The company said its ambitions might be hampered by the availability of suitable sites and the challenge of obtaining building permits in some cities.
“They have built a strong development team,” Somoza said, “and they are going to take full advantage.”
Public Storage has $436 million worth of projects in its development pipeline.
Below is a partial list of Public Storage recent and current developments. Gross square footage numbers are approximate.
California
Glendale, CA
5500 San Fernando Road
Square footage: 174,266
Status: Opened in May 2015 with 1,400 units.
Maryland
Frederick, MD
8450 Broadband Drive
Square footage: 77,000
Status: Construction permits issued June 2015. Project originally was conceived by Shurgard Storage Centers before its acquisition by Public Storage.
New York
Hicksville, NY
800 S. Oyster Bay Road
Square footage: 128,000
Status: According to Newsday.com (paywall), Public Storage plans to build a $10.4 million facility, receiving a tax break of $327,000.
Long Island City, NY (Queens)
3025 Northern Blvd.
Square footage: 110,000
Status: Six-story building nearing completion. Facility is an addition to an existing facility.
Texas
Georgetown, TX
2300 S. Interstate 35
Square footage: 93,181
Status: Opened in April 2015.
Spring, TX
2101 Old Holzworth Road
Square footage: Unavailable
Status: Opened in spring 2015.
Frisco, TX
8433 Legacy Drive
Square footage: 152,200
Status: Under construction.
Round Rock, TX
1501 Louis Henna Blvd.
Square footage: 149,679
Status: Under construction. Facility consists of a couple of three-story buildings.
Austin, TX
14002 Owen Tech Blvd.
Square footage: 135,816
Status: Under construction. Building permits issued in June 2015.
Lewisville, TX
Sam Rayburn Tollway near Blair Oaks Drive
Square footage: Unavailable
Status: Awaiting site-plan approval for 4.3-acre site. Acquired site in December 2014.
Plano, TX
2100 block of Hedgecoxe Road
Square footage: Unavailable
Status: Purchased 3.9-acre parcel in February 2015.
Dallas, TX
7895 Riverfall Drive
Square footage: Unavailable
Status: Purchased site in March 2015. Building permits issued in June 2015.
Washington
Seattle, WA
1200 S. Dearborn St.
Square footage: 218,500
Status: Construction scheduled for this summer. Six-story building will offer 1,900 units.
