Why do independent self storage owners still matter?

The big operators are everywhere, but they do not own the whole industry. 

The five largest operators account for 19.3 percent of facilities and 35.6 percent of rentable square footage. That leaves a very large independent market. In fact, owners outside the top 100 still represent 66.4 percent of facilities and 37.3 percent of rentable square footage. That fragmentation is why acquisitions remain such a major opportunity. Buyers can still find assets where professional management, revenue management, better websites, call tracking, and local marketing can move performance. For owners thinking about selling, fragmentation also means buyers are actively looking for well-located properties with clean financials and upside. One of the best strategies in self storage is aggregation. Another way to describe this same strategy is defragmentation. Smaller operators can buy individual self storage facilities and package multiple together to form portfolios for larger operators to buy. One of the biggest downsides to self storage is that it’s comparatively difficult to deploy capital. In multifamily, you can buy a single 500 apartment, Class-A complex and drop tens of millions of dollars, if not hundreds of millions of dollars easily. In self storage, even the largest of self storage facilities top out below $50 million. This difficulty in deploying large amounts of capital is a road block to large private equity groups and REITs. The biggest of players need to resort to acquiring other large operators to get the scale and volume necessary. Buying from independent operators- mom and pop owners that have 2 or less facilities- and accumulating regional portfolios of self storage, creates a more attractive product as a result of appeasing the desire to deploy larger check sizes. Just by aggregating these independent facilities, a premium is applied as a result of the scale of investment. We find that a 20% plus premium is possible just by aggregating individual facilities into a larger portfolio. As the larger operators accumulate more of the independent facilities, the self storage industry becomes less fragmented.