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AJ Osborne’s Insights on Self-Storage Market Dynamics

AJ Osborne's Insights on Self-Storage Market Dynamics
Photo Courtesy: AJ Osborne

By: Victoria Kennedy

Amidst the fervor of a thriving bull market, as we edge closer to the elections, self-storage investing has re-emerged as a top choice for savvy investors seeking shelter in what is widely regarded as one of the most recession-resilient options available. This segment of the real estate market has garnered unprecedented attention, driven by its remarkable resilience during economic downturns and its capacity to offer steady yields.

As liquidity surges, buoyed by optimistic market sentiments, a significant influx of capital is channeling towards self-storage ventures. This heightened interest highlights the sector’s robustness and reflects a strategic pivot by investors, aiming to capitalize on the unique opportunities it presents amidst a landscape of economic uncertainty and opportunity.

But is it a free-for-all, or are options scarce? We reached out to leading self-storage investment master, CEO of Cedar Creek Capital AJ Osborne, to learn more.

Insider Access

Self-storage is a pre-existing asset, allowing investors like Osborne to expand properties in ways that may circumvent certain zoning laws and rules. However, this notion requires a nuanced understanding of real estate investment and regulatory frameworks. Self-storage facilities, as established properties, indeed have certain advantages when it comes to expansion or redevelopment.

For instance, if a facility is already zoned for self-storage use, the process of expanding or improving it usually faces fewer regulatory hurdles than developing a new site from scratch, especially in areas with strict zoning laws.

Investors with experience, resources, and a deep understanding of local regulations, like Osborne, can leverage these advantages to expand and enhance their properties with less roadblocks. They are likely familiar with the intricacies of zoning laws, the permit process, and have established relationships with local authorities, which can facilitate smoother project approvals.

Those new to the self-storage market may find entry more challenging for several reasons.

“Regulatory knowledge is something we take seriously,” Osborne shared. “Understanding zoning laws, building codes, and the permit application process is crucial. Without this knowledge, newcomers may struggle to navigate the regulatory landscape effectively.”

Further, of course, is the need for capital. Entering the self-storage market requires significant capital, not only for property acquisition but also for development, renovation, or expansion projects. Therefore, numerous investors prefer partnering with established investment groups, such as Osborne’s experienced team at Cedar Creek.

“Also, understanding market dynamics is key,” Osborne shared. “Knowledge of local market conditions, including demand for storage, competition, and pricing strategies, is essential for success. New entrants might lack the data and experience to make informed decisions, which is why we take this part off their plate.”

Plus, networking and relationship building is super important when trying to break into the self-storage space. Established players have relationships with local officials, suppliers, and contractors that can expedite processes and reduce costs. Newcomers may need time to develop these connections.

Osborne not only possesses extensive connections but also holds ownership or board positions in companies such as Tenant Inc., a SaaS firm that simplifies self-storage facility management. This integration streamlines the ownership and operation process for Osborne, his team, and their investment partners.

While it’s not impossible for new entrants to succeed in the self-storage market, they face a steeper learning curve and higher barriers to entry compared to seasoned investors. Success in this space often requires thorough due diligence, a well-developed strategy, and sometimes, partnerships with experienced investors or advisors who can provide guidance and resources.

Navigating the Tightening Landscape

As the spring months of 2024 approach, the self-storage investment landscape presents a paradox of burgeoning demand amidst an ever-constricting supply of viable investment opportunities. This narrative does not unfold in isolation, but is intertwined with broader economic trends, urban development patterns, and changing consumer behaviors that have, collectively, thrust the self-storage industry into the spotlight as a coveted-yet-elusive arena for investors.

The Surge in Demand

The self-storage industry has long-served as a barometer for economic transitions, providing a tangible asset class that responds dynamically to the ebbs and flows of consumer needs. The current surge in demand can be attributed to several factors, including the rise of remote work, urban space constraints, and the increasing mobility of the population. As individuals and businesses alike seek flexible solutions to manage their possessions and inventory, self-storage units have emerged as an indispensable resource.

“That’s the biggest threat to self-storage: Overbuilding the market,” Osborne said. “Demand is everything. If cities are not letting people build and being very strict on building, there’s way more demand than supply, so we don’t need to worry about the market being oversupplied. We just happen to have a piece in Richmond that gets to expand — it was grandfathered in — because it’s already attached to a facility. If it was just from scratch, we couldn’t do it. That’s just one example of the big opportunities we are able to spot and create for investors.”

The Supply Conundrum

However, the allure of high yields and robust demand has not gone unnoticed, leading to an influx of investors aiming to capitalize on this sector’s potential. This heightened interest, coupled with regulatory hurdles, zoning restrictions, and escalating land costs, has significantly tightened the availability of investment-grade self-storage facilities. Developers face a maze of challenges in bringing new facilities to market, from navigating local ordinances to contending with community pushback against commercial development.

In this constrained market environment, savvy investors are adopting innovative strategies to uncover and leverage self-storage investment opportunities. Some, as discussed, are turning towards redevelopment projects, converting existing buildings into self-storage facilities as a means to circumvent the barriers associated with new construction. Others are exploring partnerships with existing operators to expand existing facilities or enhance operational efficiencies through technology, thereby increasing the value of their investments.

What the Future Holds

As we look towards the horizon, it is clear that the self-storage sector will continue to evolve, shaped by the forces of supply and demand, technological advancements, and shifts in consumer behavior. Investors willing and educated enough to adapt to these changing dynamics, like Osborne, are employing creativity and strategic foresight, finding themselves well-positioned to navigate the tightening landscape of self-storage investment opportunities.

The growing scarcity of self-storage investment opportunities as we advance towards the middle of 2024 underscores a broader narrative of transformation within the real estate investment sector. It highlights the importance of agility, innovative thinking, and a deep understanding of market drivers for those looking to succeed in this competitive arena. The journey ahead for self-storage investors, while fraught with challenges, also brims with potential for those ready to explore uncharted territories and redefine the boundaries of investment success.

About AJ Osborne

AJ Osborne is the CEO of Cedar Creek Capital and has an impressive 20 years of experience as a self-storage owner, operator, and developer. He is a founder and board member of the largest self-storage co-op, Storelocal, as well as Tenant Inc — a SaaS company supporting self-storage facility management. AJ has also written the No. 1 bestselling book on self-storage investing and hosts the top rated and listened to self-storage podcast, Self Storage Income. Accredited investors can find more information here: cedar.cc


Published By: Aize Perez

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