The quality of construction, location, accessibility, visibility, the level of professional management and many other attributes differentiate self-storage facilities and have a direct bearing on the risks they face. The following definitions are offered as a guide in hopes the self-storage industry recognizes the importance of classification and standardization of terminology.
Class-A facilities. Class-A properties feature excellent locations and access that attracts tenants willing to pay rent in the upper percentile of the market. The facilities must be of superior construction and finish, relatively new or competitive with new facilities, and provide professional onsite and offsite management. These are typically located in markets with high barriers-to-entry. They are characterized by above-average maintenance and security systems.
Class-B facilities. Facilities with average locations, access and visibility earn a class-B distinction. These sites and the rents they collect compete at the low end of class-A facilities and above the class-C facilities. They receive average-to-good maintenance and have a full-time onsite manger and competent offsite management. The quality of construction and security systems ranges from average to good.
Class-C facilities. These sites generally have secondary (less desirable) locations relative to the tenants’ needs. Often they have poor access and limited visibility. They are typically older facilities with growing functional and/or economic obsolescence. They achieve rents at the bottom of the range in the market, are often owned and operated by individuals, and may not have an onsite manager. The quality of construction and maintenance ranges from fair to average. Often these facilities have minimal or no security and receive below average maintenance.
Since the industry has not developed its own standard for classifying facilities, and given the new underwriting standards and the stricter due diligence going forward, we can expect lenders will develop their own classifications.
The need for standardization of terms within the industry is obvious and long overdue. It is particularly important at this stage of the industry’s maturity that lenders, investors, appraisers and analysts understand that not all self-storage facilities face the same risks, even within the same market.
The industry’s current overall strength is weakened only by the few investors, appraisers and lenders who did not or chose not to acknowledge the differences in risk that are directly attributed to differences in the quality and location of facilities.
Charles Ray Wilson is founder of Self Storage Data Services Inc., an independent research firm that maintains the nation’s largest database of self-storage operating statistics. He is an internationally recognized leader in providing independent research on the self-storage industry. For more information, visit www.ssdata.net.