Hardly a day passes without the U.S. retail industry suffering fresh wounds as malls and outlets shut their doors. Americans are still shopping, though -- online, in their pajamas -- and physics dictates that their new stuff, and old stuff, go somewhere.
Welcome to the renaissance of self-storage.
While retail chains go belly up and hedge funds place bets on commercial mortgages used to finance dying malls, the mini-warehouse industry has set records for construction spending in each of the past six months. Venture capital firms are making big bets on startups that help consumers manage their physical belongings -- on the cloud. And some industry players are drooling at the prospect of buying shuttered department stores and turning them into drive-through storage centers.
It's a viable idea.
"That's the whole meaning of life, isn't it?" the late comedian George Carlin once mused. "Trying to find a place for your stuff."
Beyond existential concerns, industry insiders say the ongoing self-storage building boom traces back to the financial crisis, when funding for new construction of any kind dried up. Builders are still catching up with a backlog of demand from those fallow years; investors, meanwhile, noticed that the assets performed well through the recession, and started buying storage centers as a hedge against future downturns.
The facilities are cheap to build and require very little labor to staff -- so much so that local governments in New York and Los Angeles have sought to limit new projects, arguing that the storage industry is eating up real estate that could otherwise serve manufacturing and logistics companies that produce more jobs.
For owners, low operating costs and high demand have translated into fat margins. Public Storage, the largest storage operator, booked $538 million in revenue during the first three months of this year, against $149 million in operating costs. That's good for a gross margin of 72 percent -- more than double that earned by Equity Residential, the apartments landlord.
"These guys are making money hand over fist," said Chuck Gordon, chief executive officer at SpareFoot, an Austin, Texas, startup that lets storage customers comparison shop online.
Lately, those rich profits have convinced a handful of venture-backed startups that they can win customers by offering more service at comparable cost. That includes Clutter, a Los Angeles company that employs teams of in-house movers to carry a customer's surplus stuff to and from warehouses, on demand. It also photographs stored items and uploads images online, to make it easier for customers to get their stuff when they want it. They'll cart customers' ski gear away in the summer and ship it to hotels in Aspen ahead of winter vacations.
"It's always been our vision to transform the way you manage your belongings," CEO Ari Mir said.
There's so much excitement around the storage industry that it seems as if the only ones urging caution are the largest operators. They anticipate a drop in consumer spending, one that will in turn result in less need for more storage space.
Life Storage, a publicly traded landlord based in Williamsville, N.Y., has said it's done shopping for newly constructed facilities. Public Storage CEO Ronald Havner, meanwhile, warned on his most recent earnings call that the American consumer is "stretched and or under stress."
Investor interest in the storage industry has made the expense of buying facilities in major markets less appealing, said Ari Rastegar, founder of Rastegar Equity Partners in Dallas. To find better deals, he's targeting storage space on the fringes of big metros. Rastegar is also intrigued by the prospect of scooping up property on the cheap from landlords hurting to fill space abandoned by busted retailers.
SundayMonday Business on 06/18/2017