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Subject:  Re: Self Storage as an Investment Date:  5/20/2003  12:22 PM
Author:  FoolMeOnce Number:  108113 of 888229

Check the details of your area, the niche may or may not be filled.

The market for self-storage apparently is becoming saturated in many areas. GWM has kept his costs low and seems to be in a good position to weather competition. He has found a niche that works in his area. That's what successful real estate investing is all about. But tread carefully. There are few barriers to entry and overbuilding can occur. Check out this message board. There are several posts about some of the problems individual operators are having; also a lot of inquiries from people looking to get started.

A few excerpts:

"I also am feeling pressure to do some fairly expensive services I would prefer not to do. Primarily free move ins with our own truck. Now 2 of our major competitors are pushing that service in a big way and a third has the same with a little wrinkle on it. We are open seven days a week and answer the phone 24/7, both of which are in response to competitive pressures, and both of which cost me money. Just learned that a convenience store down the block from one of my facilities has built units out back. My builder, who had never done a self storage facility until he got low bid on my first one, is now doing several new ones in the area, and my banker was telling me he has several new ones on his books. Looks like the bloom is off the rose."

"Timely message. I had just received a request for an interview with a lady writing a book on how to get into the self storage business. I declined and wrote the following reasons.... I think they accurately describe the state of the industry at this point.... "Dear M: If you don't mind, I am going to decline this very nice invitation. I am flattered to be considered, but I am in this very competitive, quite overbuilt business and cannot really afford to assist more folks in building additional competition for me here in my backyard. And, it would be silly of me to think that your book, published there, would not make it here. Lafayette, Louisiana, has over a million square feet of self storage. This is up from 480,000 sqft about six years ago. This building "boom" was repeated all over the United States. Here, as in most communities, there are facilities that have been sitting with less than 50% occupancy for several years. The owners will fib to you about their occupancies, because they don't want to look bad, but they are having problems, nonetheless, and they are everywhere. I can point out four such facilities here without looking hard. All are relatively new. One of the owners contacted me in early January trying to sell his facility and told me that he had 75% occupancy. A quick look at his books revealed an occupancy of about 45% on a financial basis.... he was renting units at ridiculously low rates just to get some money coming in. He is a real nice guy with some very grave health problems, and he is in a bad spot. If I don't miss my guess, he was enticed into the business by the same "hop in, the water's fine" mentality that is promoted nationwide by folks who don't really know, or have something to gain by encouraging development. Construction companies and metal building companies are, along with others, trying to get folks to build even more, and that is understandable, since that's what they do. But, at this point in the development of the industry, there is little room left for more construction, and I don't want to assist in any effort that may ultimately encourage folks to build new facilities. Again, though, thanks for the flattering invitation."

"Just about every one wants to jump into the self storage business. They all think it is low over head with zero maintenance and easy money. Well guys who are thinking for their first time, you should proceed with caution. The market in the Mississippi and Louisiana area seems to be getting quite saturated. We have been in business for eight years and it seems to be getting quite flat. The mom and pop operations scattered on every parcel of land possible is starting to catch up with the supply and demand. So you better do your homework and not think of pie in the sky...but on the other hand, it is your money. Just something to think about...."

"It used to be that when a new site was put in the developer tried to do so in a "new" area where the population was not being served. This usually resulted in properties being spread out geographically from each other. Now, I am seeing unexperienced, and determined newbies locating sites near other "successful" sites under the "they are doing good so will I" theory. Unfortunately, of them as well as the existing properties, this is not so. There is still ageographic element ot selfs storage that is not present in all other "retail" businesses. An example, you might drive across town to eat at a great restaurant, but are unlikley to dos so to rent a self storage. Accordingly, most customers are drawn from a geographic area nearby, and adding sites only "splits the pie" more. New developers would do themselves a favor if they "spread out" and pioneered some new areas rather than "deflating everyones' tires" (including their own)."

"I'm not ready to hit the panic button yet, but right now there are four storage facilities within a one mile area where I'm at, so I'm more concerned than ever before. Just three miles up the road, there is yet two more facilities, with one being built just a few months ago. The storage containers are becoming more popular than ever too. One of the self-storage facilities in my area is down to about 60% occupancy rate, and the owner no longer stays at the facility any more. It wasn't a very big one, and it was one of the many self-storage facilities that were a half-hearted attempt to get into the business. My guess is that despite the overbuilding, it is going to continue. As more and more people continue to pull what money they have left out of the stock market, we are going to find more people wanting to put their money into some kind of investment besides drawing 2-4% interest from the bank on CD's. When things do eventually get completely saturated, and some of the bigger facilities are not able to meet their payments, this is something that actually isn't going to help the near-by competition. It will hurt it because the new owner who gets it on a foreclosure, or bankruptcy or whatever, will get that facility for a much lower price than what the previous owner had in it. When this happens, his prices will also be able to go substantially lower than anyone else's. If the new owner has any managing and people skills whatsoever, along with his new lower prices, there isn't going to be a self-storage facility anywhere near him that will be able to compete. Until the next one folds."

"I've been able to keep my small facility full, but it has become a bit more stagnant in my area due to all of the over building going on. Just a few years ago, it was still hard to find space in my North TX area. That is no longer the case now. People are more savy, and are doing price shopping now too. And yes, it seems nearly every customer I get also wants to get into this business. Many are still under the delusion, that if they have a piece of land, that all they have to do next is build and they will still come. I've lowered my prices to stay competitive, and noticed others doing the same, which is another sign that the boom has long gone in my area. "

"How many of you are experiencing overbuilding? Here in Lafayette, LA, the amount of storage has almost tripled in the last five years (from about 480,000 square feet to about 1,250,000sqft), and I now get near-constant calls and visits from folks interested in getting into the business. Certain areas of town have had low occupancies for a long while, and new locations are getting very, very tough to find (and a bit more risky). Ya'll experiencing any of this in your areas?"


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