The self-storage market is looking at an active year ahead, according to Hunter Thompson, CEO of Cash Flow Connections. His company has acquired approximately $25 million in self-storage product this year, and next year, he expects to nearly double his volume. To find out more about this investment niche and how new trends—like on-demand service—are reshaping the industry, we sat down with Thompson for an exclusive interview.
GlobeSt.com: Tell me about your investment strategy this year.
Hunter Thompson: Obviously, real estate is localized, so each opportunity has its own thesis. While it is important to look at the big picture, overall each property is judged on its own basis. Going into 2017, we wanted to take advantage of the fact that there was a tremendous amount of self-storage supply between 2005-2007. There was a lot of gross square footage that was dumped onto the market, and because of this, there are a lot of inexperienced managers in these properties. From my perspective, the best way to take advantage of this cycle is to buy properties based on in-place income and implement new management strategies. These operators don't understand the complexities of the business, and there are so many ways to add value to the property. Because the tenant base is not price sensitive and because they are on 30-day leases, you can implement these strategies quickly and effectively. You can change a property's profile quickly.
GlobeSt.com: What is your outlook for self-storage development next year?
Thompson: Self-storage development has come back fiercely. This happens with the business. It is a great investment vehicle and it is very easy to pitch to investors. When it comes back, it comes back significantly, particularly in prime markets. The fact that we are seeing more development now means that in two years, we will see more supply come onto the market. Right now, it hasn't been a factor. It will be a significant factor in 2019. Our investment thesis may change as the cycle ages to account for that. In 2015 through 2017, we were focused on buying mismanaged properties. As development comes back, there is another opportunity. Developers aren't as good at leasing up properties, so in 2019, I am anticipating investing in properties that are 25% or 45% occupied.
GlobeSt.com: How will the self-storage industry change next year, and what are the driving trends?
Thompson: The hottest topic in the space is the self-storage apps. This is what everyone is talking about, and it has the potential to really change the dynamic of very prime markets. These are markets like San Francisco, Los Angeles and Manhattan, where there is a big discrepancy between the city center and 45 minutes away from the city. These make money by picking up items in the city hub, drive the items an hour away where rental rates are much less expensive. Because rental rates are cheaper, they are able to provide this on-demand service without charging more for the space. So, tenants are getting an on-demand service without having to pay a premium.
GlobeSt.com: What is your outlook for 2018, and what are your investment goals?
Thompson: Firstly, 2017 has been a really exciting year. We have a total of 200 investors and 100 were added in 2017. Our goals for next year are to invite another 100 investors into the family, and we would really like to raise a total of $15 million for properties that we know can perform. That would be a total goal of purchasing $45 million in commercial real estate. Based on deal flow, I believe that we can accomplish that without altering our underwriting standards, which is key.
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Kelsi Maree Borland
