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Self-Storage: A Lucrative but 'Get-Rich-Slow Business'

Newer Developments May Include Ground-Floor Retail Shops
April 11, 2018
MCSS

Jay Massirman’s specialty is self-storage, one of the more humdrum – but potentially lucrative – niches in commercial real estate.

Massirman’s Miami City Self Storage (MCSS) recently opened a 1,000-unit facility at 490 NW 36th St. in Miami, close to the emerging neighborhoods of Wynwood and the Design District.

MCSS and other developers saw opportunity following the housing bust, when demand outstripped supply. Former homeowners-turned-renters and downtown dwellers who happily eschewed white picket fences and big back yards needed places to stash their stuff.

The NW 36th St. facility is the sixth self-storage project MCSS has built in South Florida, and comes on line a month after it opened its first Broward County location, in Pembroke Park, FL.

MCSS, one of the largest self-storage developers in Miami-Dade and Broward counties, is eyeing returns on cost in the 8 to 9 percent range over the next few years, Massirman said.

“Self-storage is very appealing to developers because you’re building a box and filling it up,” he told CoStar News. “But there are a lot of variables. It’s more of a long-term, patient business. I like to joke it’s a get-rich-slow business.”

None of the company’s six facilities screams self-storage at first glance. The air-conditioned buildings are vertical, with colorful designs that include glass exteriors. What’s more, Massirman hopes to add ground-floor retail to future projects so that consumers can pick up a cup of coffee before squeezing that second hand couch into an 80-square-foot box, he said.

MCSS has six more projects in development across Miami-Dade and Broward counties, which would increase the company’s portfolio to more than 2 million square feet when completed.

While the national outlook generally remains positive, the industry is facing head winds, warned Tom Gustafson, an executive with Colliers International’s Self Storage Group in Cleveland. Supply is starting to exceed demand in some local submarkets.

“That’s forced landlords to get real aggressive to drop rental rates,” Gustafson said. “Now fairly stable is 80 or 85 percent occupancy rather than 90, 92 or 95 percent.”

Nearly 800 self-storage facilities opened across the country last year, Colliers figures show. In the Miami metro, which includes Miami-Dade, Broward and Palm Beach counties, there are 480 existing self-storage facilities, with 66 more in the pipeline, according to New York-based data provider Union Realtime and MiniCo Publishing of Phoenix, AZ.

With the market tightening in South Florida, Massirman is treading lightly on future projects. He said the development cycle is closer to the end than the beginning, with lenders not nearly as eager to provide financing as they were in 2012 and 2013.

MASSIRMAN

“I would say the current pipeline is at equilibrium at this point,” said Massirman, a former CBRE vice chairman. “Future deals need to be really and truly (solid). Demand has to be proven out.

“The city of Miami has some extreme competition, and it’s going to be a struggle for a while before some of these buildings get leased up,” he added.

As a result, MCSS is looking at other markets, especially New York, Boston, Los Angeles and San Francisco. Its joint venture partner, Pacific Storage Partners, is considering other opportunities on the West Coast.

The problem, according to Gustafson, is getting municipalities to approve self-storage projects. They prefer multifamily or retail developments because they’re more attractive, benefit more of the community and bring in more income tax revenue, he said.

But Massirman remains undeterred, saying there are still opportunities as long as developers find the right sites. And he believes adding ground-floor retail to self-storage facilities will go a long way toward winning over banks and elected officials.

“If we can solve those problems, it works,” he said. “You have to be creative and roll up your sleeves. That’s the challenge.”



Paul Owers, South Florida Market Reporter  CoStar Group   
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