I had lunch with a bank executive friend of mine this week. This particular executive is in charge of commercial lending, and was telling me about some interesting trends in banking. The current trendy investment for real estate is- storage rentals. This explains why companies are buying up all of the storage properties, cutting service, and raising rates. He said that building a storage facility with 250 units costs in the neighborhood of $12 million, but can be sold for double that after only two years in operation. Operating expenses are minimal, but such a facility brings in net receipts of $40,000 a month or more.
Why are they so lucrative? Well, that is being caused by current trends in Generation Z, the tranny generation. What he said to me ties together so many data points that it feels like a lightbulb just came on over my head. This is a generation that is refusing to work, yet they want all of the luxuries that their parents have without having to work for it. They still want to feel independent, so they are moving into cheap shacks built on trailers and calling them “tiny homes.”
They store their stuff in these storage facilities, and are free to live the good life, in their own “home” while still being a short walk from mom and dad’s house, where they can do laundry, grab some food, and still have access to things like free electric, free Internet, and still have time to earn a bit of extra money while out protesting for Soros cash or attending Antifa meetings.
I’ve wondered for years how they can afford to pay for the things they need without working, and now I know. Housing? Food? Utilities? It all ties in perfectly. Their only housing expense is the initial cost of the trailer house, $20K to $30K. Food and utilities are largely paid for by their parents, and their only real remaining expenses are Starbucks (most of them have a $20 a day addiction to shitty, candy flavored coffee), their cell phones, and these storage facilities. A large chunk of this generation doesn’t drive, they Uber everywhere.
Then, refusing to work, they go and protest to demand that we adopt a Socialist paradise, because Capitalist society is depriving them of all the things that they want to have.
Don Curton · April 29, 2023 at 8:41 am
IDK – maybe the smaller units. But the people that I see where my storage unit is mainly use it for storing boats, RVs, classic cars, etc. A few businesses such as lawn care store their work trailers there with all the equipment on it. Go there in the morning and you’ll see them hook up and pull out ready for work. Of course this place is mainly BIG storage units for just that type of stuff. Used by middle aged and older people whose HOA’s don’t allow parking a RV in the street for months on end.
Henry · April 29, 2023 at 9:03 am
Here in NC it seems like every unimproved piece of property that isn’t being developed by DRHorton, Lennar, or Pulte is getting storage units. Several decades ago one of the financial rags let out the secret of storage facilities: they rented for (at least at that time, maybe even now) the same cost per square foot as apartments, cost half as much to build, and little to maintain.
Divemedic · April 29, 2023 at 9:09 am
They are renting here for about $1.45 per square foot, not climate controlled. Houses are renting for about $1.30 a square foot.
Don in Oregon · April 29, 2023 at 9:51 am
I think the boom in storage businesses is the result of a generation of families accumulating stuff and then running out of room for it. The garage gets full and they solve the problem by renting a storage unit. Or they move, and decide to reduce their crap but can’t bear to throw anything away.
However I don’t see how $40k/mo is a good return on a $12M investment – that’s only 4% per annum.
Big Ruckus D · April 29, 2023 at 11:19 am
I’m more inclined to see this as an explanation: boomers and Gen X are quite frequently loaded down with so many possessions that their homes have literally run out of room to store anything more.
I see this constantly, while working in people’s homes. Many times half or all of a two-car garage is more or less permanently piled up with various stuff that won’t fit in the house, so it gets shoved in the garage and the cars get parked on the driveway or in the street. The same can often be said for basements, especially when they’re unfinished. I see even finished basements practically unusable for their intended purpose because there’s so much junk stacked up down there. Spare bedrooms, too.
Once that is the case for a given household, they either have to clean up and clear some shit out (which takes time and effort they are uninclined to spend) or rent a storage unit and proceed to fill it up too. This is also how so many storage units get auctioned off, because they are out of sight and out of mind for the people who filled them up with random possessions that obviously weren’t important enough to find a place for at the house. After a while the cost of renting the storage unit becomes untenable, and since they haven’t touched the stuff in the unit sometimes for years on end, it somehow becomes easier to just say screw it, stop paying the rent, and let the stuff go.
I have a difficult time believing gen Z makes up that much of the customer base for these places. First of all, at least around here the tiny house thing is an insignificant trend that I don’t see gaining much traction. Secondly, with their often meager income, the price of renting one of these units in a convenient location is pretty damn high once you’ve exhausted the teaser rate they used to get you in the door. And finally, also owing to their limited income, what are they buying in sufficient quantity that they need a storage unit to shove it in? Unless a bunch of them have inherited family heirlooms like furniture, I’m not sure what they’d even be putting in there. Their ownership of large physical objects tends to be pretty slim.
Whatever the explanation is, there is no doubt that rental storage facilities, along with car washes, are the current hot commodity in real estate development and investment. Around my area, they’re putting up tons of each, and this is been a trend for at least the last five or six years. It’s also notable that both types of properties or frequently seen to change ownership and name within a year or two of the time they’re first opened.
But, as has become the American way, people with money here will speculate in the craziest and stupidest bullshit imaginable just to chase some return. Look at the money that’s been pissed down the rat hole of bogus tech startups that were garbage right from the start in the last 20 years. And consider how much went up in smoke when such outfits that were repeatedly plied with VC investment went tits up.
Theranos, WeWork, FTX, a whole litany of these clown show cash furnaces burned many an investor and their capital. And the stock market? Ha. If you aren’t a big shot corporate or institutional investor, you’re getting fucked sans lube if playing around there.
By comparison, a club carwash or rental storage facility suddenly looks like a sound investment. Problem is, now both are vastly overbuilt in my metro area, and they haven’t stopped adding new ones yet.
Divemedic · April 29, 2023 at 10:37 am
“building a storage facility with 250 units costs in the neighborhood of $12 million, but can be sold for double that after only two years in operation.”
Its about short term gain. Many businesses are about next quarter’s gain, not long term growth.
Don in Oregon · April 29, 2023 at 10:44 am
Not to quibble, but the guy who buys it for $12M will be getting only 2% return. I don’t get it.
Divemedic · April 29, 2023 at 11:09 am
Because he isn’t building it to run it as a business. He is flipping it and selling it for double what it cost to build it.
Divemedic · April 29, 2023 at 11:34 am
Let me also add that this is where the finance guys see the trends going. That’s why storage is costing so much. Right now, it is costing more to rent storage per square foot than it is to rent a home.
Are there boomers renting storage? Yep.
Are there people storing boats and trailers for business? Sure are.
There is also an unprecedented amount of storage being rented by people in the youngest demographic, and this is driving up demand.
That’s where they are saying the trend is. That is why storage rental is the hottest sector of the commercial real estate market right now.
Gerry · April 29, 2023 at 11:11 am
I had a friend who sold shares in a company that converted Walmart and malls into climate controlled storage facilities 20+ years ago. Their target customers were college and state pension funds. They would get the buildings for 10 cents on pretty much guarantee a 10% return on investment. Besides the people who just had too much stuff, the other rental customers were corporations and companies storing inventory off site for some tax reasons.
Jonathan · April 29, 2023 at 1:40 pm
My in laws bought a shipping container late last year.
They had been renting 3 storage units – the container cost less than a year of storage. Of course you have to have space for a container and local regs have to allow it.
Investors are always looking for the next boom; I wonder how long this one will last?
They have fueled booms in commercial and residential real estate in the past, among other things like Beanie Babies, none of which have lasted.
Aesop · April 29, 2023 at 10:15 pm
Not so much a Gen Z as a “hoarder” thing.
And the market being the market.
When storage rents get stupid, people unload, or let it go.
Then that $40K/mo is gone with the wind.
I know more than a few retirees who keep them, and have an RV, and they use them for overflow between trips, after selling off their houses, or downsizing to smaller nests after the kids are gone.
They also don’t get molested or burgled like homes do, so they become safer spots to cache this and that.
Including a secured closet for few cans of long-storage POLs and various knick-knacks halfway between dwelling and bug-out locations, for a relative pittance.
Ask me how I know.
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