The future is bright for the self-storage industry, at least for the next few years.
So said Dean Jernigan, CEO of self-storage lending firm Jernigan Capital during its recent earnings conference call with analysts.
“I think I can see clearly into 2017 to say that the REITs will have another significant banner year in 2017, similar to what they are going to achieve in 2016, which was similar to what they achieved in 2015,” said Jernigan, who previously served as CEO of publicly traded storage operator CubeSmart.
Jernigan attributed the sector’s continued success to the evolution of sophisticated Internet marketing and revenue management systems. Jernigan said those systems will go a long way towards insulating the industry heavyweights from feeling negative impacts from any new supply.
New supply firewall
“If we have some supply growth in a submarket they have a concentration or a few properties in, I think the platforms are so strong that public companies won’t even miss a beat,” Jernigan said.
About 80 percent of the self-storage REITs’ customers book units through their respective websites, Jernigan said, adding that their conversation rates are extremely high.
“The person who would normally be shopping the competition, they do not find that competition, because the competition is most likely not going to be on the first page of Google,” Jernigan said.
Even if new entrants attempt to compete on price, Jernigan said most customers will not even be aware of it because they will going straight to those companies with the strongest Internet presence.
Jernigan doesn’t expect the sector to experience any “softness” due to new development until 2018, and even then he said the REITs won’t be heavily effected.
“It will be barely felt by the public companies with their incredibly strong website and Internet presence,” Jernigan said.
As of today, Jernigan said he isn’t worried about over development in any single market—even hotspots like Charlotte and Denver. Development has been slow to take off primarily due to slow permitting in many markets around the country and a lack of construction funding, Jernigan said.
Jernigan company aims to remedy that second factor with a current pipeline of $600 million in self-storage development loans it is currently considering. Since launching last April, the company has funded 24 transactions totalling $175.7 million.
Joint venture struck
In other business, the company recently formed a joint venture partnership with Heitman Capital Management. Heitman will invest $110 million and obtain a 90 percent stake in investments placed into the joint venture. Three existing investments will be transferred to the joint venture and new investments will be added as they are available. Consummation of the deal is contingent upon a $75 million coinvestment from an unnamed institutional partner.
“This is a win-win for us and Heitman and we are exceptionally excited about it,” Jernigan said.