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Why invest in self-storage?

Self-storage offers entrepreneurs, developers, real estate owners and investors the opportunity to diversify their investments with relative safety and confidence. The self-storage real estate sector has proven to be one of the, if not the most, robust real estate segments over the past decade, confirming its attraction and resistance to economic downturn.

For more details on the unique characteristics of the self-storage business, read the sections below or contact us if you are considering investing.

Self storage as a good diversification solution

Portfolio diversification is vital to a successful investment strategy. ‘Diversification’ is the key word here and self‑storage is a differentiating asset class compared to the more traditional real estate asset classes such as office, commercial and industrial. Self‑storage brings some unique benefits that deliver a robust financial proposal and illustrate why self‑storage is a good diversification solution.

Return on investment

In developing markets, self-storage companies are typically producing double digit annual returns. With its robust stabilisation characteristic, good returns nearly always continue over the life of the investment. This is often why many self-storage owners/investors stay with their investment over the long term despite attractive third-party offers.

Asset uplift

Asset uplift’ is one of the key principles of investing in self-storage. This is taking a relatively low-yielding real estate asset and upgrading it to a higher yielding, more stable asset via a simple, proven model. Taking an industrial property with industrial rates and introducing self-storage at what can be two to three times the rate clearly works well on a yield basis. But it will also be beneficial if and when the self-storage owner or investor sells the facility, as the new rates will form the basis for valuation.

Realising your gains

We have covered the on-going value to a self-storage operator in the sections Return on investment and Growing your investment. So when do you decide to sell a part or your entire share in the business?

Exit strategy

A large majority of investors come into self-storage with their ‘exit’ in mind. A successful exit strategy could go like this: over a medium term, invest in a series of self-storage facilities, built and run professionally. Build a brand and stabilise the rental space in a reasonable period.

Nearly every major player in the market has grown through one of these routes and as a result there are thousands of beneficiary founders in their wake.

Once a critical mass of stabilised facilities has been achieved, you exit via any one of several accepted and proven routes:

  • Sell to a large strategic buyer;
  • Sell to a private equity or real estate fund;
  • Sell (and maybe leaseback) to a REIT;
  • Take the entity public via IPO and/or invite other investors.

Long-term growth

There are some long-standing founders in the industry who continue to grow their business year-on-year. They are appreciative of the long life of our high-quality self-storage building components and access control and security systems.

Growing your self storage investment

The initial investment grows as your self-storage facility starts filling up rapidly and the need to expand is on the horizon.Your next building acquisition will typically be funded from cash flow of your existing self-storage business. Early on, when you only have a single or few sites, it’s likely that you’ll need a top up. At this stage you may want to bring in other investors.

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