Jernigan Capital CEO Dean Jernigan kicked off the company’s recent earnings conference call with his own spin on a classic Mark Twain quote: “The reports on the demise of the storage sector are greatly exaggerated.”
The publicly-traded self-storage sector took a hit in 2017 as revenue growth decelerated at an alarming clip for many investors. That’s in large part due to a record levels of self-storage construction that has brought on a rising tide of new supply in markets across the country. But Jernigan, whose company invested $408.8 million in new self-storage development last year, says he thinks the negative prognostications about the industry are overblown.
“I think 2018 is going to be a much better year than what anyone is thinking at this point in time,” Jernigan said. “I think the sector will get back towards historical norms as far as top line growth of about four percent.”
Lend, build, buy
The company acted on its bullish view of the storage industry, buying out developers’ interests on four projects in January and February of this year, bringing the total number of wholly-owned facilities to five in 2018.
That is a key part of the company’s strategy: issue participation loans to self-storage development partners, and buy out their interests at a later date. The company invested in a total of 32 self-storage development projects in 2017.
The company expects to invest between $300 million to $340 million into new self-storage projects in 2018.
When will development taper off?
Looking just at the top 50 metro areas, Jernigan said he expects about 400 starts from last year to cross the finish line in 2018. That would be just less than the estimated total deliveries in 2017. And Jernigan expects a similar number in 2019.
“Its kind of a flat top here. I think that number will drop precipitously in 2020,” Jernigan said.
Jernigan projected 150-200 deliveries in 2020.