Slowing Growth
“While fundamentals are solid in the self-storage sector, there are signs that we are reaching an inflection point and growth is set to slow,” wrote Omotayo Okusanya, an analyst at Jefferies & Co., in a May 8 report in which he downgraded both Extra Space and Public Storage to hold. Move-in rents at Public Storage locations open at least one year averaged $114 per month in the first quarter, down from move-out rents of $123, according to Okusanya.
Investors who want to buy existing storage properties are stymied by high prices.
“It’s a tough asset class to make work for us right now, but we’re actively looking,” says Liz Raun Schlesinger, a managing director and co-head of the self-storage group at W.P. Carey Inc., a New York–based REIT. “Properties have become pretty expensive.”
The Extra Space site that charges the highest rent is a long way from Utah. It’s on West 143rd Street in New York’s Harlem neighborhood, where customers pay an average of $45 a square foot for their units on an annual basis. That’s slightly less than they would pay to rent a Manhattan apartment, which averaged $52.50 a square foot in June, according to real estate appraiser Miller Samuel Inc.
Mind Blowing
“For a concrete pad with three steel walls, a roll-up door and an incandescent bulb,” Kirk says with eyebrows raised. “It blows people’s minds.”
Another highly profitable site is across the street from Co-op City in New York’s Bronx, the largest housing cooperative in the U.S., with about 50,000 residents. There are 500,000 people within a 3-mile (5-kilometer) radius of that location, Kirk says.
“The median household income is pretty low, lower than $50,000, but because you have so many people in such a dense area with so many life-changing events, there’s unbelievable demand,” he says.
Woolley founded Extra Space in 1977 and opened 28 properties during the next decade. In 1994, he sold all but three of them to Memphis, Tennessee–based Storage USA Inc. and concentrated on his larger real estate business, which included construction of 34 apartment projects with 13,000 units in the western U.S. and Canada.