Texas has been at the forefront of the latest self-storage development cycle, but industry heavyweight Dean Jernigan thinks things are getting overheated.

Jernigan, who leads publicly traded self-storage investment firm Jernigan Capital, added Austin and Dallas to the company’s “Danger List”—cities in which the amount of new supply under development exceeds 10 percent of the current supply.

Jernigan announced the designation via his Twitter account:

Jernigan said the Austin MSA as 40 new projects underway that will add three million square feet to the existing 15.5 million square feet. The Austin MSA has a population of about two million people. Jernigan went on to call out other oversupplied markets that make up his “Worry List”, which have new supply above five percent of current product, and his “Watch List”, which have new supply above 7.5 percent over existing:

Jernigan’s portfolio

As of June 30, Jernigan Capital has invested in 11 development properties, either ground up or conversion projects, representing about $76.5 million in principal financing. That list includes a $8.6 million project in Austin.

Jernigan Capital also has issued $36.8 million in construction loans to developers who have a contract to sell to third-party purchasers upon completion, and five loans to acquire or refinance operating properties totaling $128.28 million.

On Monday October 3, Jernigan Capital announced that it closed a $9.2 million development investment on 798-unit facility to be developed in Columbia, SC. The project is to be developed by Hallmark Self Storage. Jernigan Capital made the loan through its $122.2 million joint venture with Heitman Capital Management.

Developer perspectives

All Storage CEO Jay Schuminsky told the SpareFoot Storage Beat that he does sees an abundance of development in the Dallas market, where the company has three projects currently in development.

But Schuminksy said he doesn’t see a lot of direct competition with his company’s new projects.

“We have a bit different product type,” Schuminsky said, adding that it is developing more expensive and harder to permit “drive thru” buildings.

Schuminksy said he thinks there is still some development opportunities for his company in the Dallas-Ft. Worth area.

“We have a little bit of pipeline left, after that I don’t see us doing anymore,” Schuminsky said.

All Storage
All Storage is expanding its facility at 6900 Granbury Street in Fort Worth by 156,000 square feet.

Barriers to entry vary

Schuminsky said there is a disparity between planned developments and actual projects getting built. Labor shortages and permitting challenges are slowing down projects, even though Coming Soon signs suggest otherwise, he said.

He said their company is focusing on high barrier to entry submarkets, such as Arlington, rather than Dallas proper where there is more development activity.

“Dallas proper is a little more lax. You see lot’s of cranes so we’ve stayed away from places that don’t have barriers to entry–they’re scary,” Schuminksy said.

Banner Storage Group is scheduled to develop this 110,000-square-foot facility at 7701 Banner Drive in Dallas this December.

Finding equilibrium

Banner Storage Group also has three projects under development in the Dallas-Ft. Worth market. President Gary Delaney said they don’t have direct competition within a two mile radius of their sites.

“We’ve always been selective in our submarkets, part of our due diligence as always been checking with the planning people to see who else has been in looking at sites,” Delaney said.

Delaney said he isn’t sure if the Dallas market is reaching an over saturation point–only the market can determine that.

“I think those numbers of what supply can handle are subjective,” Delaney said. “The product is a lot more accepted by greater numbers of people. Until we see a softening of the occupancies, I don’t think we really know where equilibrium is,” Delaney said.

Alexander Harris