MINNEAPOLIS—Profound changes within the self-storage industry has it much more profitable for large companies that can use their size to drive up occupancy and boost revenue. As a result, the industry has experienced a great deal of consolidation over the past few years as big operators across the nation bought up many of the Mom-and-Pop owners. A perfect example of this phenomenon was the recent purchase for $22 million of a four-property storage portfolio in the Minneapolis region by a joint venture between Lake Forest, IL-based Metro Storage and Chicago-based Heitman.
“These were Mom-and-Pop owners and even though the properties were stabilized, they did not have the economics of scale, the Internet presence or the revenue management techniques to reach full potential,” Marc Boorstein, a principal of Chicago-based MJ Partners Real Estate Services, tells GlobeSt.com. He and MJ Partners principal Jeff Jacobson represented all parties in the transaction.
The portfolio consists of 208,184 rentable square-feet with 1,501 storage units and 448 parking spaces. The properties are located in suburban Eden Prairie, Bloomington, Orono, and Mound. Tenants occupy 82.2% of the space in the three stabilized properties, and 53% in the recently opened Orono property. Metro Storage plans to rebrand all of the properties as Metro Self Storage.
Metro has about 90 facilities and “they can squeeze out much more revenue from these sites and do so immediately,” Boorstein says. “If Mom-and-Pop operators can hit 82% in occupancy they're happy,” but the big operators can push the rate over 90%. As of July 31, for example, Public Storage, the nation's largest operator, rented out 94.8% of its space, up from 94.0% one year ago. “And that's really driving the market for these properties, probably much more than interest rates.”
“It's a different business than it was just four or five years ago,” he adds. The big players have gotten much more sophisticated and instituted techniques that boost profits and improve stability. After years of testing, for example, many have discovered how to schedule periodic increases in users' rental fees without losing them as customers. “The renters are staying much longer than anyone anticipated. They typically start off by saying, 'well, I'll be here about three months,' and then they end up staying a year. For a traditionally low-tech business, it's become quite data-driven.”
Companies like Metro and Public Storage also have a much bigger presence on the Internet, according to Boorstein. When prospective tenants use Google to hunt for a self-storage site, the smaller operators usually don't show up as the first or second listing, an increasingly important advantage since the proliferation of mobile devices has made Internet searches far more common. The Internet was supposed to level the playing field for the little guys, but in this case “it ended up creating a bigger divide.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
