Why This New Firm Is Targeting Self-Storage Assets

The middle of the pandemic may seem like an odd time to launch a new company, but Drew Dolan saw opportunity. He founded DXD Capital and launched a fund to target self-storage properties. He cites historical precedent as the impetus for the new company. For the past three downturns, self-storage has outperformed other commercial asset classes.

“The rental market for self storage has traditionally been very seasonal, ramping up in spring and tailing off after summer,” Dolan, principal and fund manger at DXD Capital, tells GlobeSt.com. “We should be seeing the lowest annual rents this time of year as demand drops off, but instead we are seeing rents that resemble the peak summer months. We believe this is linked to sustained changes in personal and business behaviors compounded by the secular growth the sector has seen coming for the last fifteen years.  Self storage adoption in the US has increased 50% over that timeframe our bet is that trend accelerates with unprecedented unique new customer demand.”

The pandemic has also created unique opportunities in the space, namely development sites for new construction opportunities. “Pre-COVID, there were many diverse demands for premier land sites like retail, restaurant and office. Those uses are longer viable in the current economy,” says Dolan. “They will come back, but not all land sellers have the ability to wait for a market to recover. We are finding excellent self storage sites that were just unavailable for self storage development pre-COVID.”

In addition, consumer spending has actually been stable through the pandemic, as people have been forced indoors and buying goods online. In the long-run, Dolan says that this will create continued demand for storage space. [People are buying] everything from outdoor heaters, gym equipment, air fryers and home office furniture,” he says. “This stuff will create incremental immediate and future need for storage. New stuff displaces the old but not all Americans are good at giving away their old stuff.”

The fund is targeting 10 quality self storage deals, but didn’t disclose a budget for these deals. “The DXD goal is to have industry-leading returns for our investors coupled with industry leading technology that is constantly iterating for better efficiency, and service that puts us best-in-class,” says Dolan.

In terms of the timing, Dolan says that the significant headwinds created by the pandemic make this an ideal time to launch the fund. “True, it might be easier to wait out the storm, but the advantages we gain for acting in this moment far outweigh the short-term challenges,” he says. “We are building into the bottom of the next self storage real estate cycle using conservative underwriting and a strong team to execute our plans.”