A near zero rate of CMBS loan delinquencies for self-storage facilities during the pandemic-fueled recession helps demonstrate the industry’s resilience, according to a new report from data and analytics provider Trepp LLC.

The report, released this month, shows that while CMBS delinquency rates generally have soared during the pandemic — particularly in the hotel and retail sectors — the CMBS delinquency rate in self-storage stood at 0.14% as of September. By comparison, the overall CMBS delinquency rate hovered near 10.5%.

According to Lonnie Hendry Jr., Trepp’s head of advisory services, self-storage is “an unsexy income-producing property type that is kind of the same in an up market and the same in a down market.”

Hendry said self-storage operators are benefiting from the fact that renters aren’t clamoring to cancel their self-storage contracts amid the pandemic, thus giving operators a stable tenant base. Therefore, he said, the industry’s recession-resistant nature should remain intact.

“Self-storage is pretty well insulated. It’s not something that’s ever going to come across as everyone’s first choice [in real estate investing], necessarily,” he said. “But at the same time, if you’re looking for stable cash flows and a good, sturdy investment in good markets, you can make a really good living operating a self-storage facility.”

A closer look at self-storage CMBS

A survey earlier this year by commercial real estate services provider Cushman & Wakefield found that just 10% of self-storage industry professionals cited CMBS as the best source of debt over the next 12 months, compared with 50% who cited banks and 24% who cited life insurance companies.

According to the Trepp report, the metro areas with the highest totals for self-storage CMBS loan balances are:

  • Los Angeles, CA — $808.4 million
  • New York City, NY — $638.8 million
  • San Francisco, CA — $418.6 million
  • Dallas-Fort Worth, TX — $318 million
  • Houston, TX — $265.8 million

Among more than 1,700 CMBS loans for self-storage facilities, only three were marked delinquent as of September, the report says. Those three loans were spread across three metro areas: Bridgeport-Stamford-Norwalk, CT; Palm Bay-Melbourne-Titusville, FL; and Houston.

The sector’s low delinquency rate “can be partly attributed to the fact that the bill for a self-storage facility is a very small portion of an individual’s or business’s monthly expenses. Thus, despite a downturn, the income effect on the self-storage demand is minimal,” according to the report.

“As evident from Trepp’s data, the self-storage sector has been relatively resilient in recent months,” the report goes on to say. “Despite significant distress in the broader economy, the industry continues to operate without any major disruption. However, despite an uptick in demand, an increase in operating expenses and limited rent collection may potentially derail an uptick in revenues.”

Resiliency in action

A September report from commercial real estate data provider Yardi Matrix echoes the Trepp report.

“The real estate industry has had a tough year as COVID-19 continues to weigh on the economy. However, the self-storage sector has demonstrated its resiliency to overcome economic disruptions. Street rate performance across the nation continued to improve in August, with more markets seeing positive growth on both an annual and monthly basis,” according to Yardi Matrix.

“While there does appear to be a slowdown in new storage development activity,” the Yardi Matrix report adds, “this may be a welcome relief for many in the storage sector, especially in markets that have been hit heavily with new supply in recent years.”

John Egan