In 2018 David and Beth Mesite paid $750,000 for Trackside Self-Storage in Plainville, seeing it as a good business for David to run into his retirement years. Offers to buy the 177-unit property have come pouring in recently, as the COVID-19 pandemic has caused storage demand to soar, increasing occupancies and investor interest in the […]
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In 2018 David and Beth Mesite paid $750,000 for Trackside Self-Storage in Plainville, seeing it as a good business for David to run into his retirement years.
Offers to buy the 177-unit property have come pouring in recently, as the COVID-19 pandemic has caused storage demand to soar, increasing occupancies and investor interest in the facilities.
“Just about every week I get one call, if not more,” Mesite said. “I just don’t listen to the offers. I purchased this as a long-term holding.”
Trackside doesn’t offer the climate-controlled units of some modern facilities. Patrons come in during business hours when Mesite is on-site. He said he enjoys chatting up customers and uses the office for other ventures, including his construction management business and rental properties he owns in Middletown and Portland.
Occupancy has jumped from about 85% before the pandemic to 92% today, Mesite said.
“COVID didn’t hurt us,” Mesite said. “It actually helped with the business because people had time to go through their things and say: ‘Let’s put this in storage.’ ”
Nathan Coe, first vice president for the Hatcher Group of realty brokerage and advisory firm Marcus & Millichap, said the market for self-storage facilities is “hotter than ever.” Property values nationwide are the highest they’ve been in 30 years, he said.
The Hatcher Group brokered more than 154 self-storage property sales nationally in 2021, up from around 60 in 2020, Coe said. Four of those deals were in Connecticut.
In Bristol, the 155-unit Broad Street Self-Storage facility sold in December for $2.9 million, and Stor U Self Storage in Portland, with 651 units, sold for $12.75 million during the same month.
“We are definitely in the strongest market in self storage we’ve ever seen,” Coe said.
Traditional demand drivers
The self-storage industry began heating up around 2014, and then got a big boost from the pandemic, Coe said. Investors have flooded in to buy properties, buoyed by cheap interest rates. The Hatcher Group has also seen first-time storage investors who previously invested in retail, office or other asset types that are now underperforming, Coe said.
Buffalo-based real estate investment trust Life Storage, one of the largest entities in the market, paid $336 million for 29 self-storage facilities in the third quarter of 2021, according to its latest earnings report. That put the company over 1,000 facilities in 39 states, including 21 locations in Connecticut.
Life Storage generated $70.3 million in profit in the third quarter of 2021, up from $37.1 million in the year-ago period, according to its financial statement.
Occupancy rates for Life Storage facilities have climbed from the high-80% range five years ago to the mid-90s amid the pandemic, said Life Storage Vice President Alex Gress.
The traditional drivers of the storage industry are deaths, divorces, natural disasters and demolitions, Gress said. The pandemic has made a major factor of another “D-word” — decluttering, he added, particularly as more people work from home and need the extra space.
People who began renting space in 2020 are holding it at higher-than-usual rates, he said.
“They have grown accustomed to the additional space,” Gress said. “And the trend of working from home, that’s not going away.”
About 75% of the self-storage market is held by smaller owner-operators, but investment groups make up a growing percentage of the industry, he said.
“About 25% are four or five big publicly traded REITs,” Gress said. “Most have third-party management platforms.”
Local pushback
Gress said it takes about two years to get plans for newly-constructed self-storage facilities drafted and through local land-use boards.
But some municipalities have instituted moratoriums on new construction.
Stratford officials are considering a moratorium, according to the Connecticut Post. Last summer Norwalk began contemplating a pause on construction of self-storage or distribution centers in parts of the city while officials contemplated a broader zoning overhaul, according to The Hour.
Milford imposed a moratorium in 2018 and Hartford relegated new self-storage construction to industrial zones after a facility was erected next to I-84 in the Parkville neighborhood.
Wethersfield launched a moratorium in 2019, worried that self-storage facilities were taking up too much space without yielding enough in jobs or taxes, said Richard Roberts, chair of the town’s Planning and Zoning Commission.
Wethersfield extended its moratorium again in September 2020, and then lifted it that December, after new regulations were adopted, Roberts said.
The new rules require self-storage facilities to be at least three stories tall — in order to maximize tax value for the space — or involve a mix of retail, business, office or other allowable commercial uses. A waiver of these requirements can be granted for redevelopment of buildings that would otherwise sit dormant.
Wethersfield also requires new storage facilities to mimic the outward appearance of office or multifamily buildings, among other restrictions.
“What we were looking for was to create regulations that provided for a more attractive and potential mixed-use rather than just a field of metal warehouses,” Roberts said.
