Key Growth Challenges
The two biggest strategic challenges in growing Japanese trunk-room businesses are sourcing and financing. First, real estate is much more expensive in Japan than the United States. Compounding this dynamic for trunk-room operators is facilities must generally be located in dense, urban and more expensive areas because many Japanese don’t have cars. They would access the business by foot, bike or train.
On a fully built-out basis (or rather, a fully converted basis, as most trunk-room locations are conversions from office space), Japanese storage costs the developer about $350 to $450 per gross square foot, including the purchase price and conversion, based on statistics provided by Quraz. In the United States, it costs $50 to $75 per gross square foot, according to information compiled and estimated from the U.S. self-storage real estate investment trusts. This challenge is difficult to overcome, but hard work and discipline help—hard work to build a deep pipeline of opportunities, and discipline to wait for the right opportunities or for sellers to become more motivated.
The other strategic growth challenge is the availability of financing. To the best of my knowledge, non-recourse financing has not been available for trunk-room assets in Japan. Domestic banks have yet to invest the time to understand and embrace the trunk-room asset class, for several reasons:
- The asset class is relatively new.
- A trunk-room asset has yet to trade hands.
- There are few institution-grade operators in Japan.
- Domestic Japanese banks are very conservative.
This challenge will likely be overcome with time. Specifically, domestic banks may be forced to support trunk-room transactions if and when:
- One of their large customers, such as a multi-national trading company, buys or launches a trunk-room business.
- Offshore banks, insurance companies or financing companies, many of whom have successfully financed storage in other parts of the world, begin financing and enjoying the benefits of trunk room assets.
- New, credible operators enter the market and bring with them a level of sophistication and know-how that adds to the credibility of the asset class and provides alternative operators in the event of trunk-room borrower’s default.
My company is bullish that these strategic challenges will ultimately be overcome with time, effort and imagination. I also imagine the Japanese trunk-room market will eventually and naturally take its place as the second or third largest self-storage market in the world, the same position as the Japanese economy relative to other world economies.
Steve Spohn is the president of Quraz, Japan’s largest owner and operator of indoor self-storage facilities. Spohn has been living and working in Tokyo for nearly five years. He can be contacted at firstname.lastname@example.org; visit www.quraz.com .