From 2015 to 2021, REITs grew their market share from 23% to 32%, a 40% increase in just 6 years.
Traditionally, self storage facilities required considerable amounts of manual labor: a human in an office was needed to book reservations and take payments over the phone, admit tenants into facilities, and clean out units.
With web-based storage management systems, we can automate all of these tasks saving tens of thousands of overhead, thus increasing our NOI.
As we expand our exit scenario becomes more attractive. The larger our portfolio, the larger the potential buyers, the cheaper their debt, the lower their return requirements, all equate to a compressed exit cap at sale.
Our goal is to consolidate $100m of self storage assets over the next 5 years and exit to a large real-estate private equity group or REIT.
As the largest generation of business owners enter retirement, the opportunity to purchase stable, cash-flowing self storage facilities will accelerate for the next few years and then drop off dramatically. Consolidators will take advantage, aggregating high-performing assets now and selling for large gains.
REITs and large private buyers need to place billions of capital each year, and are unable to achieve their preferred yields in MSAs. Diversification into large self-storage portfolios in tertiary markets provides them with a safer and higher yield option.
Further, REITs are starting to invest heavily in remote management. Extra Space recently acquired a remotely managed self storage portfolio and the accompanying company for $590M. We expect institutional interest in mid-sized properties to increase as we hit critical mass, affording us an excellent exit opportunity.
The short-term nature of storage rentals allows Redwood to increase prices for all of our customers just weeks after we take over management, driving revenue growth immediately.
Rental rates have increased significantly in tertiary markets as the new work-from-home movement has loosened geographic restrictions for high-paying jobs.
Behaviors that drive people to self-storage (divorce, downsizing, relocation, renovations) are more common during economic downturns, making self-storage a more counter-cyclical asset and potential hedge against recession.
While many residential investors were burned by eviction moratoriums, self-storage owners were shielded. Self-storage is generally far lower maintenance than similarly priced residential real-estate.