Dream Storage Newsletter - May 2024

Monthly Newsletter

In our May edition of the Dream Storage newsletter, we share insights from our conversations with brokers, debt providers, and other industry leaders.

Market Insights

The storage industry’s most powerful tool is being stretched to its limit as many operators continue to offer dramatically low street and web rates to attract new tenants, only to turn around and aggressively increase these rates months into a customer’s tenancy. Leading the charge are REITs, leveraging sophisticated algorithms and entire departments dedicated to revenue management. This practice pressures competing operators, including mom-and-pop stores, to follow suit to remain competitive.

While promotional rates and annual 10-20% price increases on a unit have been historically normal in the industry, we now see REITs luring tenants with one rate only to double or triple that rate within 12 months. As customers become more aware of these pricing tactics, many industry participants fear that customers will reconsider renting a unit out of concern that they are being deceived.

Dream Storage’s Outlook

With the aforementioned street rate strategies in play, determining market rental rates remains challenging. Accordingly, many buyers have started underwriting more conservative rental rates. We have always underwritten conservatively and are doing so even more today to account for the risk. While many attribute the pricing spread between buyers and sellers largely to the increased cost of debt, we have found that our offer prices are decreasing primarily due to the recent downward trajectory of street rates, although that trend appears to have bottomed out.

Many sellers who were once reluctant to offer seller financing are now doing so, with some returning to us with attractive seller-financed rates. Unfortunately, due to the changing rental rate market, our new offer prices often remain the same or, in many cases, have decreased. While we believe we will have success in pushing rental rates aggressively once we are operating these buildings, we are reluctant to project these numbers.

We are actively writing offers, having made three offers this week alone. We remain committed to sourcing opportunities for our investors and look forward to sharing the next opportunity with you.

The Dream Team