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An Alternative to Traditional Self-Storage Acquisitions: Why and How to Pursue Off-Market Deals
If you’re looking to acquire a self-storage facility, the traditional approach is to find one on a multiple listing service. However, it’s becoming increasingly popular for investors to pursue off-market deals. This approach can be more complicated and take longer, depending on how you go about it; but the rewards can be well worthwhile. Let’s explore benefits and drawbacks.
Kris Bennett
November 11, 2024
5 Min Read
In the world of self-storage investing, competition is fierce. There are many sophisticated and well-capitalized groups hunting for opportunities. If you want to get ahead, off-market deals can give you a distinct advantage.
I’ve closed several of these transactions over the years, and in my experience, they typically come with less competition, the potential for better pricing and more ways to add value. The key is sourcing. You can either work with a broker or go directly to self-storage owners. Both options have their pros and cons but can be essential to your acquisition strategy.
Using a Broker: The Off-Market Fast Lane
Self-storage real estate brokers are like the paid ads of deal flow. They have relationships with owners who are eager to sell and regularly communicate with them. If you give them your investment criteria, chances are they have an owner in their database who matches them. This method is quick and efficient, saving you a lot of time and legwork. You won’t be chasing down leads that quickly go cold. The seller is already committed, so you don’t have to convince them to part with their property.
Furthermore, deals sourced through self-storage brokers typically come with clean, easy-to-analyze financials, saving you time on due diligence. This also allows you to make quicker, better informed decisions.
That said, when you source an off-market self-storage deal through a broker, you’ll probably pay more than you would if you found it yourself. This is the trade-off. The seller is also factoring in the broker’s commission, which can lead to an inflated price.
One more thing to remember: A broker may be willing to present you with an off-market deal, but they’ll likely send it to other qualified buyers as well. It’s their job to maximize the sale price, and you could end up paying just as much as if the property were listed on the market. The broker will likely disclose this up front, but it doesn’t hurt to ask.
Direct to Owner: The Off-Market Long Game
The other way to source off-market self-storage deals is to go directly to facility owners and ask if they’d like to sell. It takes longer to see results, but it’s worth the effort to find these opportunities, as there’s typically less competition, which means you can often get a better price. On top of that, many of these properties might not be performing at their full potential, offering you a chance to add value and improve return. For example, perhaps an asset has no website or social media presence, or its rents are below market. It may just need some physical upgrades or stronger management.
That said, going direct comes with its own challenges. First, finding contact information can be tricky. Even if you manage to track down an owner, convincing them to sell can take time. Also, their books may not be in order, so you'll have to dig deeper during due diligence.
I sourced one self-storage deal from a phone call. The owner sent me his financials, but the facility income comingled with funds from his other businesses. It was almost impossible to figure it out. In the end, I passed.
Another time, the seller had to handwrite his unit mix on a scratch piece of paper and send me a photo via text. He was a retiree who lived at the beach and traveled to check the self-storage facility once a week. I closed that deal, but not without triple-checking the rent roll and scrubbing each rental agreement!
Contacting Self-Storage Owners
If you’re inclined to take the direct approach, there are several tools you can use to get in touch with self-storage owners who may be interested in selling their assets.
First, you can simply purchase a call list from a national data provider. This is a quick way to gather leads, but the accuracy can be hit or miss. I’ve purchased a list using the North American Industry Classification System, a six-digit coding system used to organize businesses by industry. The codes are cumbersome to sort and filter, but it’s the cheapest approach.
You can also manually gather data using Google Maps. It often doesn’t provide you with owner addresses and phone numbers, but it can still be a useful way to get started. Pull up your target markets and search for “self-storage.” Ignore the real estate investment trusts and other large operators. Instead, target mom-and-pops with names like “Jim’s Pack and Stack” or “Highway 49 Storage.” Enter the facility address and phone number in a spreadsheet, then start calling or mailing. You might eventually reach the owner.
Finally, there are companies within the self-storage industry that provide in-depth data on properties nationwide. These services are generally quite accurate and reliable, and will provide information including owner name, address and phone number. Once you’ve chosen a tool and familiarized yourself with it, you can download and sort a list in a matter of minutes. The downside is there’s generally an annual contract and cost; however, if you’re confident that you’ll close a self-storage deal in the next 12 months, that cost is minimal.
What’s the Best Strategy?
Ultimately, deciding between broker-based and direct-to-owner sourcing for an off-market self-storage deal depends on your goals, timeline and capital constraints. If you’re looking to close quickly and are OK with paying a premium, a broker is likely the better choice. They can present qualified leads with minimal hassle. On the other hand, if you’re willing to take a slower, more hands-on approach, going direct has the potential for better pricing and more value-add opportunities.
I recommend a mix of both. Build relationships with self-storage brokers to keep the deal flow steady while also working on direct-to-owner outreach to find openings. This balanced approach will help you keep your acquisition pipeline full and allow you to move quickly when the right opportunity presents itself.
Kris Bennett has closed more than $130 million in self-storage deals and completed 200,000-plus square feet in facility expansions. As the host of “The Storage Investor Show” podcast, he shares his expertise each week, interviewing self-storage real estate founders, CEOs and investors. He’s also been a guest speaker in executive MBA and undergraduate classes at the University of North Carolina’s Kenan-Flagler Business School, where he served as a fund manager for its private-equity real estate fund. Follow him on social media @thekrisbennett or visit www.thekrisbennett.com.
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