Why Investment Appetite Is Growing for Self-Storage Deals

Investment appetite is growing for self-storage deals. Real estate investor Gelt has entered the self-storage market in South Pasadena, near a multifamily property that it owns, and discovered a strong interest in self-storage deals because of their similar low-risk profile and outperformance compared to other asset classes during a downturn. The firm has acquired Southmark Storage, a 665-unit self-storage facility located in South Pasadena, in an opportunistic deal, and discovered the tremendous upside in the asset class during the transaction.

“Our first self-storage deal in South Pasadena was largely an opportunistic acquisition. Gelt acquired a multifamily asset a few years ago, which had been owned by the same seller,” Keith Wasserman, a partner at Gelt, tells GlobeSt.com. “We had an existing relationship through the seller’s broker and identified a quantifiable value-add opportunity to improve performance and bring rents to market. During the acquisition phase we discovered substantial appetite from our multifamily investors for an asset class with a similar low-risk profile. Our equity position was over-subscribed within a matter of weeks. In the Great Recession, self-storage outperformed other real estate asset classes and has proven to offer superior returns with low risk.”

Southmark Storage was a perfect foray into the market. It is in a great location near one of Gelt’s multifamily properties, it was nearly fully occupied at the time of the sale and it is sizable with 623 self-storage units, outdoor units and a two-bedroom apartment for onsite management. “Location and value-add potential were pivotal components in our decision to acquire Southmark Storage,” says Wasserman. “The site is located within a 30-minute drive from our Los Angeles headquarters, which has allowed us to work closely with our property manager Extra Space, who is the largest third party manager for self-storage assets in the country. As a result, we have gained extensive domain knowledge, which will facilitate our expansion into the vertical.” Gelt has hired Extra Space Storage to manage the asset.

Now, the firm is actively looking to expand its self-storage portfolio. In the next 12 to 36 months, it plans to grow a portfolio to 1 million square feet in primary and secondary markets where the firm already has a presence. “Gelt is looking to acquire core plus, value-add and opportunistic storage sites larger than 50,000 square feet in supply-constrained primary and secondary markets where we have an existing footprint,” explains Wasserman. “Our research indicates self-storage will be amongst the most resilient asset classes through future economic cycles.”