TSAG Market Analysis: Chicago

TSAG Market Analysis: Chicago

By: The Storage Acquisition Group

Chicago, Illinois, USA Downtown Skyline

Statistically, the Chicago area sure looks like a desirable self-storage market for developers, investors, and owners alike.

The Chicago metropolitan region has one of the largest and most diverse populations in the nation. It has one of the lowest self-storage penetration rates. Its demographics are generally excellent, particularly its suburbs, with high median household incomes.

But all is not well in Chicagoland.

“We’re not touching anything new there with a ten-foot pole,” says Bob Soudan, a partner at Lock Up Self Storage, the Northfield, Illinois-based owner, and manager of about 45 self-storage facilities in eight states around the country, seven of them in Chicago and 12 in the city’s suburbs

The problem: High property taxes in Cook County – mixed with burdensome zoning and building regulations that many say stifle new construction, conversions, or expansions of current facilities.

How high are Cook County’s property taxes? Nearly quadruple the rates in Florida, where Lock Up Storage also does business, Soudan says.

Property taxes aren’t as high in non-Cook County suburbs. But they’re still high by national standards. Indeed, all of Illinois is considered the second least “tax-friendly” state in the nation due to its high taxes, according to a recent report by Kiplinger.

Not everyone feels as strongly as Soudan. They say every market has its challenges – and savvy investors just have to be more be careful in the general Chicago metropolitan area.

“I wouldn’t be doing business there if I didn’t think it was good,” says John Murphy, owner, and president of Next Door Self Storage, owner of 17 self-storage facilities in Illinois, including some in Chicago’s outer suburbs. “It varies from area to area.”

Back to the statistics. Yes, the Chicago area is indeed seemingly attractive.

The Chicago/Naperville/Elgin area’s self-storage penetration rate, or the square footage of self-storage space per capita, is only 4.7, well below the national average of 5.8 and considered an attractive figure for those considering building or buying in the area, according to data from Radius Plus, the research arm of Union Realtime.

The Chicago area also hasn’t experienced a tremendous building boom in recent years, with only an 8.5 percent increase in overall supplies over the past three years, according to Radius Plus.

Prices in the region remained remarkably steady in the immediate years prior to last year’s onset of the pandemic, which caused wild fluctuations in prices across the county in 2020, including in the Chicago area. Nationally, prices shot up late last year due to the increased demand for self-storage space caused by the economic downturn.

In the months leading up to the pandemic, prices for 10-foot-by-10-foot, climate-controlled units in the Chicago area were going for about $100. This past winter, prices were hovering in the $137 range, according to Radius Plus.

Meanwhile, the occupancy rate for Chicago-area facilities owned and/or managed by major REITs is currently hovering around 95 percent, according to Radius Plus data.

But some of those solid statistics also raise questions. Why hasn’t there been a building boom in Chicago? Why are some owners and investors, though certainly not all, down on the Chicago market?

There seems to be an almost love-hate relationship going on in Chicagoland – and it all comes down to taxes and regulations.

“On the surface, there should be a lot of good development opportunities in the Chicago area, especially in the outer suburbs,” says David Spencer, a vice president and senior advisor at The Storage Acquisition Group. “But the Chicago area is facing challenges – challenges that you may not experience in other markets that offer the same or better upside. The tax burden, in particular, can really complicate the financials on projects in Cook County”

Cory Sylvester, a principal at Radius Plus, agrees that there’s a sense the Chicago market is underperforming – when it could be, and should be, performing much better, at least based on the statistics.

“There’s a lot of stagnation in the market,” says Sylvester, noting the region’s population growth has also fallen in recent years. “The high property taxes create vulnerabilities for businesses.”

As the data shows, there has been construction in the Chicago area, mostly in the outer suburbs – and it has led to some pricing pressures. Like in other areas of the nation, construction in the Chicago area has slowed considerably since the pandemic – and today facilities currently under construction would only add about 1 percent to the Chicago area’s overall supply of 44.8 million square feet of self-storage space.

In the suburbs, there seems to be a healthy amount of competition among REITs, mid-size and small self-storage operators, industry officials agree.

“Despite the pandemic and all the other challenges, there’s still a lot of demand out there,” says Next Door Storage’s Murphy, whose company also operates facilities in downstate Illinois cities such as Peoria, Champagne, and Springfield.

But, like Soudan, Murphy said he has no intention of entering the city of Chicago due to its high taxes, regulations, and the hard-knuckled politics the Windy City is known for nationally. “It’s an area of the pond that I don’t want to jump into,” Murphy said.

The Storage Acquisition Group’s Spencer warned that people shouldn’t get too pessimistic about the metropolitan Chicago area.

“It’s a massive, massive market, both regionally and nationally,” he said. “There are a lot of good opportunities there. But you have to look for them carefully. There are excellent opportunities if you do the research.”

Greater Chicago at a Glance

Number of Facilities 891
Total Self-Storage 44.7M Square Feet
3 Year Growth in Supply 8.5%
Population 9.5M
Penetration Rate 4.7
Median Household Income $74,292

  Note: Data from Radius+

The Storage Acquisition Group logoThe Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

Understanding the Proposed Tax Plan

Understanding the Proposed Tax Plan

By: Yann Reichelt, CPA, Advisor

2021 what is new symbol. The words '2021 what is new' appearing behind torn orange paper. Business and 2021 what is new concept. Copy space.

Understanding the Biden Administration’s Proposed Tax Changes

If the Biden Administration goes through the second budget reconciliation process, there are significant tax changes expected to impact corporate, individual, and capital gains tax rate increases, like-kind exchanges, and estate and gift tax exchanges.

1031 Exchange
-Consideration of repealing this program going forward.
-Practical note: cannot retroactively make deferred gains taxable, only gains on future transactions. A strong lobbying effort is expected.

Capital Gains
-Increase from 20% to 39.6%, for AGI over $1M, but could be as low as $400k.
-Your LT capital gains would be taxed at your ordinary income levels.

Estate and Gift Tax 
-Reduce exemption from $11.7M back to $5.3M (Pre- TCJA)
-Increase tax rate to 45% (from 40%)
-Repeal the “step-up” in basis. Currently, when a taxpayer dies the estate’s assets are re-measured to their fair market value – i.e., a step up in basis.

Expected Timeline
Steps to Change Tax Law Expected Completion Date
Initial budget reconciliation process completed April 2021
House and Senate to vote on the budget and approve October 2021
Effective date for proposed tax changes January 1, 2022*
*Note: certain provisions may be effective as early as October 2021
Summary of Major Changes
Tax Law Current Proposed
Corporate tax rate 21% 28%
1031 Like-kind-exchange Allowed Repealed
Bonus depreciation for qualified property 100% 50%
Capital gains rate for AGI over $1 million 20% 39.60%
Estate tax lifetime exemption $11.7 million $5.3 million
Estate tax and gift tax rate 40% 45%
modern business center

Yann Reichelt joined The Storage Acquisition Group in 2020 serving as an analyst for storage assets nationwide.  Yann is a licensed CPA and utilizes his background in accounting and economics to research markets and provides industry reports for potential acquisitions nationwide.  Yann graduated with a Bachelor of Science degree from Virginia Commonwealth University with a double major in Accounting and Economics.  If you have further questions about selling your self-storage asset, please reach out to Yanndirectly at yreichelt@thestorageacquisitiongroup.com.

TSAG Market Analysis: Greater Detroit

TSAG Market Analysis: Greater Detroit

By: The Storage Acquisition Group

Detroit skyline in Michigan, USA at sunset

Hollywood has its view of Detroit – and then there’s the self-storage industry’s view of Detroit.

In many movies, Detroit, the once mighty Motor City, is portrayed in almost post-apocalyptic terms – a desolate, dilapidated city gutted by the long and painful decline of the U.S. auto industry. It isn’t a flattering image.

But talk to local self-storage industry folks and they see a hard-scrabble city in the early stages of a comeback, surrounded by solid and affluent suburbs, and in a state steadily diversifying its overall economy. It’s a much more flattering image.

“We’re doing all right,” says Peter Spickenagel, CEO of Citizen Storage and president of the Self-Storage Association of Michigan. “Detroit isn’t a market going like gangbusters, but things are pretty good. Things are definitely improving.”

And the data seems to back up Spickenagel and others’ view of the Greater Detroit market, as well as the southern Michigan market in general.

Though the industry isn’t expanding as fast as in other parts of the country, Greater Detroit’s supply of new self-storage facilities has grown by about 7 percent over the past three years, indicating slowly growing investor confidence in the region, according to data from Radius Plus, the research arm of Union Realtime.

Meanwhile, the region’s self-storage rental prices remained remarkably steady in the years and months immediately leading up to the COVID-19 outbreak, hovering in the $110 range for a 10-by-10-foot climate-controlled unit, Radius Plus data shows.

Jonathan Spencer, an advisor at Storage Acquisition Group, agrees Detroit is showing signs of improvement. “There is an overall feeling of optimism from owners in the Detroit market and across the state of Michigan,” says Spencer.

Like other metropolitan markets across the nation, the Detroit area saw a steep fall in rental prices in the months after the onset of the pandemic last winter, followed by a strong surge in prices in the second half of 2020. As of early February, the Detroit area’s rental prices were hovering in the $138 range, a solid figure, says Cory Sylvester, a principal at Radius Plus.

The increasing demand for self-storage space, spurred by the pandemic-caused economic downturn, and rising prices are encouraging signs for the Detroit area, said Sylvester.

Part of the reason for Greater Detroit’s somewhat encouraging pricing is the fact that it has one of the lowest self-storage penetration rates in the county, or 4.4 square feet of space per capita, compared to the national rate of nearly 6, according to Radius Plus data. In all, the Detroit-Warren-Dearborn metro area has about 19.9 million square feet of self-storage space.

“We’re probably one of the most underbuilt markets in the nation,” says Adam Pogoda, a principal at the Pogoda Companies, owner and operator of 51 self-storage facilities in Michigan, running under the National Storage Centers brand.

The region’s low self-storage supply – and increasing pandemic-era demand for space – has been a boon to existing facility owners.
And the supply-and-demand imbalance is starting to attract attention, as more investors start to reassess the region’s long-term prospects. Pogoda said his firm was just recently outbid by a real estate investment trust (REIT) for one property.

“It’s getting more competitive,” he said. “It’s not like Nashville or Dallas, but it’s growing.”

Competition is getting stiffer in the Detroit area – and it’s not all coming from REITs. Seeing the potential for growth, local players are also aggressive in the market, especially in Detroit’s attractive suburban communities.

“Working with the local players and having intimate knowledge of the market is key. Following the trends within the REIT’s is important, but understanding the Detroit owners is the best way to know what is happening in a market” said Spencer, describing the market as “generally strong.”

Storage Center’s Spickenagel says the region has become “very competitive” in recent years.

As for the city of Detroit itself, some of its negative image is well placed. The city’s urban core was indeed devastated by the decades-long decline of the U.S. auto industry, a decline exacerbated by what many consider poor political leadership in the past.

But Spickenagel, Pogoda, and others say there are encouraging redevelopment projects underway today in downtown Detroit, with new residences, commercial and nonprofit structures being built. Old abandoned buildings are also being converted.

Detroit is far from becoming a fully rejuvenated, post-industrial northern city, but progress is happening. “We’re not close to really coming back, but the signs are good,” says Spickenagel.

“It bodes well for the future of self-storage in the area,” adds Pogoda of the city’s slow rebound.

Storage Acquisition Group’s Spencer agrees. If the self-storage business eventually picks up in downtown Detroit, then “you’re looking at a pretty solid market” in the long-term.

And the city’s slow recovery is occurring as southern Michigan as a whole is doing better as well, both in terms of the self-storage industry and the economy in general.

“Our rentals are up,” says Chad Lundberg, managing partner of the Storage Group in Muskegon, Michigan, on the western side of the state, along Lake Michigan and a three-hour drive from Detroit. Lundberg, whose company owns 14 self-storage facilities, said Michigan as a whole has become “economically more diverse and resilient” than it was in recent decades.

“One of the great things about the Michigan economy is that it’s diversifying away from the auto industry,” says Pogoda.

“The general consensus is that Detroit has room for more self-storage inventory. Owners are now taking the opportunity to make improvements to their existing facilities and/or expand their self-storage holdings through acquiring local existing facilities,” says Spencer

As for Greater Detroit, no one is saying it’s about to become the next fast-growing Austin, Texas or Denver. “It’s not an extraordinarily dynamic market,” said Sylvester of Radius Plus. “But there are encouraging signs and, if it’s sustained, it looks good for the self-storage industry.”

Greater Detroit at a Glance 

Number of Facilities 378
Total Self-Storage 19.9M Square Feet
3 Year Growth in Supply 7%
Population 4.3M
Penetration Rate 4.49
Median Household Income $61.995

  Note: Data from Radius+

The Storage Acquisition Group logoThe Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

TSAG Market Analysis: Providence, RI

TSAG Market Analysis: Providence, RI

By: The Storage Acquisition Group

Providence, Rhode Island Cityscape

Providence, R.I.’s self-storage market packs a punch

No one is going to confuse Providence, Rhode Island anytime soon with a fast-growing Sunbelt city.

But the New England city of nearly 180,000 people and capital of the country’s geographically smallest state definitely punches above its weight class when it comes to self-storage markets, according to industry officials.

Providence, home to the Ivy League’s Brown University and perennial NCAA basketball and hockey contender Providence College, has seen a recent boom in new self-storage construction, with more than 1 million square feet added to the general market in recent years. Last year alone, the area’s new supply increased by 11 percent, bringing its total supply to 5.9 million square feet, according to Radius Plus.

And yet rental prices in Providence – and throughout the entire state of Rhode Island, for that matter – have remained relatively stable in recent years, hovering around $130 for 10-foot-by-10-foot climate-controlled units.

Why no big fall in prices with the added supply?

Partly because the Providence/Warwick region, as many people describe the general Providence metropolitan area, has traditionally been an underserved region when it comes to self-storage, with its square feet of space per capita at less than 4 percent. The nation’s penetration rate is about 5.8 percent.

Also, the Providence area’s population has been slowly growing of late, as people priced out of the nearby Boston and New York markets look for less expensive housing in smaller Northeast cities, such as Providence.

The bottom line: Demand for self-storage space has increased in recent years in the Providence area – enough demand to absorb recent new supply.

“It’s not a super high-growth market, but it’s a very solid market,” says Cory Sylvester, a principal at Radius Plus. “It’s been very resilient based on the amount of new supply it’s seen. Rates are still healthy.”

Thomas Palumbo, advisor for The Storage Acquisition Group and senior director at Sitar Realty Co., says the Providence area has its market negatives, including the fact it’s considered a “high barrier” region due to strict zoning laws and the high cost of land.

But its pluses – which include the state’s well-regarded education system, high median household incomes, and the proximity to Boston and New York – make it an attractive market for new residents and potential self-storage customers. And therefore it’s an attractive market for self-storage investors as well.

“The key is: If you can get into the market, it’s a very good place to invest,” said Palumbo.

Indeed, the entire state of Rhode Island — with a population of 1 million people living in relatively densely packed communities — is attractive to self-storage renters, owners, and investors alike.

The scenic city of Newport, located at the southern mouth of the Narragansett Bay, has self-storage rental prices hovering in the $1.80 to $1.90 per-square-foot range, according to Radius Plus’s Sylvester.

“We just love Rhode Island,” said Sarah Harris, director of acquisitions at Bluedog Capital Partners, which owns two self-storage facilities in the Rhode Island towns of Cranston and Wakefield. “It’s still an undersupplied state and there’s strong demand.”

Harris said it’s definitely gotten more competitive in Rhode Island in recent years, as major real estate development trusts (REITs) and others have jumped into the market. “It’s starting to attract more players,” she said.

Utah-based Wasatch Storage Partners is currently building a nearly 70,000-square-foot facility in Providence, with plans to have it operated by a third-party manager.

“To us, it looks like an attractive market,” Wasatch’s Parley Vernon, an investment associate at Wasatch, said of the Providence area.

As the Providence market slowly grows both in popularity and population, the question arises:

Is it getting too popular?

Economically, Rhode Island got hit hard by the 2008 Wall Street meltdown and subsequent recession, taking years for the region to recover. Little or no new self-storage construction occurred in the Providence area early last decade, according to data.

But then construction started to take off in late 2017, culminating in 450,000 square feet of completed construction in the fourth quarter of 2020 alone. Yet, the Providence area still saw a 3.1 percent year-over-year gain in rent prices.

As for future construction, current owners can breathe a sigh of relief, at least for now. Facilities currently under construction would add only about 1.8 percent to the Providence region’s overall supply, a manageable increase, says Radius Plus’s Sylvester.

Providence, Rhode Island at a glance

Population 179,494 (1M in RI)
Total Self-Storage 5.94M Square Feet
3 Year Growth in Supply 19.7%
Penetration Rate 3.7
Median Household Income $68,498
Number of Households 701,870
Renter Occupied Households 244,561

  Note: Data from Radius+

The Storage Acquisition Group logoThe Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

What to Prepare When Selling a Self Storage Facility

What to Prepare When Selling a Self Storage Facility

By: Andrew Burachinsky, MBA, Advisor

Businessman  standing and operate tablet to control and connect big data of real estate sector stock market index with chart and graph background.

Self-storage owners have varying motives that influence their decision to sell.  The decision to retire, investment portfolio diversification, or estate and tax planning are some of the typical reasons owners choose to sell.  Whatever the catalyst, there are items that need to be addressed prior to the decision to sell.

Maintenance & Repairs

A clean well-kept facility produces a higher value and allows the owner to have more negotiating power when trying to achieve their asking price.  Basic maintenance and cleaning make the property more presentable.  Eliminate unnecessary items, remove the trash, and address any landscaping needs.  Repair any safety concerns such as broken lights, cracks in sidewalks, etc., and replace damaged locks, doors, and signage.  Although you may not want to invest a large amount of capital into your facility before selling, important items that impact income need to be addressed.  One item many owners often ignore is a significant difference between buildings built at different times.  If you have added onto your property make sure there is not a stark difference between older buildings and newer ones.  If you do have a budget for capital improvements some to consider are:

  • Security Upgrades (gates, fences, cameras, lighting)
  • Self-Storage Management/Communication Software
  • New roof (if needed)

Rental Rates

Your rental rates need to be comparable with the market.  To evaluate your facility accurately you will need to prepare a rent-roll.  This will be used to determine the current rents received and allow for more realistic projections of future income.  Remember to clear up any long-term delinquencies and work at managing these delinquencies to stay within the industry’s norms.

Once you have your property’s rental rates, it needs to be compared to the market.  Our company offers complimentary Rental Summary Reports to owners interested in selling their facility because it is the only accurate way to determine if your rent rates are comparable.  If the analysis reveals your rental rates are not comparable, raise unit rents appropriately.  Rental rates allow prospective buyers to determine if your facility is able to successfully compete in its market.  Having a breakdown of all of your unit sizes and features should be included in this report.

Financial Records

Ideally, you have financial records in order for the past three years, but more often than not you will be required to provide a 12-month trailing financial statement.  These are easily attainable if you are already utilizing accounting software.  For all unusual transactions, there should be an explanation; all buyers will be interested in accurate and complete records.  This is the most common reason to inhibit a deal from closing.  When we present a property for acquisition, we require the owner to provide us with the following reports:

  • Management Summary
  • Occupancy Statistics Report
  • 12-Month Trailing Profit & Loss Statements
  • Current and Projected Real Estate Taxes
  • Photos

Request a Business Valuation

Understanding your market and the value of your property can best be accomplished by receiving a professional valuation of your asset.  Even if you receive what you believe to be an accurate value from a broker it is important for you to do some of your own research.  Brokers who list facilities will often provide you with a price that may be acceptable to you but not realistic for your market.  The best way to determine a realistic value is through analyzing the capitalization rate and price per square foot for your market.  This is why The Storage Acquisition Group provides storage owners with transparent pricing based on what industry experts have verified as accurate data.

The decision to sell is never easy. Setting aside the complexity of the transaction, simply walking away from a business can be a difficult decision. For many owners, storage ownership has been a continuous process of designing, building, maintaining, and improving the asset. As a company, we appreciate the hard work, sweat equity, financial and emotional risk that goes into this. We want to make the process smooth and help you make the right decision, so we’re here to help with questions regarding market dynamics, capital gains, 1031 options, and other issues that may affect the decision or timing of a sale.


Andrew Burachinsky spent the majority of his career working as an accountant for a private equity fund manager focused on institutional-quality real estate investments in Latin America. He utilizes his knowledge and experience in Finance & Accounting to provide an edge in the constantly changing self-storage industry. Andrew holds an MBA with a concentration in Management from Centenary College. If you have further questions about selling your self-storage asset, please reach out to Andrew directly at aburachinsky@thestorageacquisitiongroup.com.

Ray’s Self Storage – Burlington, NC

Ray’s Self Storage – Burlington, NC

By: The Storage Acquisition Group

Rays SS

The Storage Acquisition Group (TSAG) is pleased to announce the closing of Ray’s Self Storage in Burlington, North Carolina. The main facility is located at 1907 Maple Avenue with a satellite location at 860 Plantation Drive.   Ray’s offers 63,405 net rentable square feet at the Maple Ave. location and 8,800 net rentable square feet on Plantation Drive for a total NRSF of 72,205 across 629 units.  The facility offers both climate and non-climate-controlled space and is conveniently located in the Greensboro-Winston Salem-High Point MSA.

David Spencer, Vice President and Senior Advisor with The Storage Acquisition Group and agent at Keller Williams Commercial in Atlanta, GA, and TSAG CEO & President Cowles M. “Monty” Spencer, Jr. negotiated the transaction.

The Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide.   Uniquely they allow owners to sell direct without having to list their facility. With their 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

TSAG Market Analysis: Boston

TSAG Market Analysis: Boston

By: The Storage Acquisition Group

Boston, Massachusetts, USA

Industry experts have some advice about the Greater Boston self-storage market: If you look hard enough, the opportunities are there.

As is the case in other metropolitan areas across the nation, the Boston-area market has seen its share of new self-storage construction and conversions in recent years, with new facilities adding 14.5 percent to the region’s overall 19.4 million square feet of self-storage space since 2016, reports Radius Plus, the online industry research and analytics firm owned by Union Realtime.

And there are another 34 facilities either planned or under construction in the Boston metro region, roughly defined as eastern Massachusetts and parts of southern New Hampshire and northern Rhode Island. That represents a 10.78 percent increase in new supply potentially coming on line soon, according to Radius Plus data.

Needless to say, the surge in new construction and conversions has led to rental price pressures in some submarkets within the overall Boston area, according to data and anecdotal reports.

But here’s the thing: Despite all the building-and-renovating activity, Boston’s so-called “penetration rate,” or the amount of self-storage space per capita, remains at only 4, below the national penetration rate of 5.8 and well below the rates seen in other major metropolitan statistical areas (MSA) of Boston’s size, according to data.

Add in the facts that Greater Boston has one of the highest median household income levels in the nation, that 51 percent of the population currently live in rental units, and that the barriers are high for newcomers to crack into the market, and you have all the ingredients for self-storage success in the region.

“Boston is a great market,” says Cory Sylvester, a principal at Radius Plus. “It’s not a fast-growing area like you see in the Sunbelt, but it’s still growing and there are so many pluses to the area.”

Thomas Palumbo, a senior director at Sitar Realty Co., and senior advisor with The Storage Acquisition Group agrees that most of Boston’s fundamentals lead to one general conclusion: It’s a top-tier self-storage market for buyers, sellers, and operators alike.

Even if a projected two million square feet of new space is added to the market in the coming years, the Boston area should be able to absorb it. “I don’t think it’s going to disrupt the market much at all,” said Palumbo.

Actually, Palumbo and others have a caveat to that conclusion: It all depends on where new facilities are built in the Greater Boston area. And that gets back to the original advice about looking carefully for opportunities in Boston.

The fact is some areas of Greater Boston have indeed been overbuilt in recent years.

According to Radius Plus data, the Marlborough-Framingham area, known as Boston’s MetroWest region, has seen a 33 percent increase in new supplies over the past three years. The spike in self-storage space is partly in response to a surge in new multifamily-housing construction in the MetroWest area.

“Prices have definitely been hit hard in some of the outskirts of Boston,” Sylvester.

Tell that to Steve Tranni, director of operations for Stor U Self, owner of five self-storage facilities outside Boston.

“There’s definitely been overbuilding,” says Tranni, a member of the Northeast Self-Storage Association’s board of directors. “A lot of new facilities have opened up in recent years.”

Still, a typical 10-foot-by10-foot, climate controlled rental unit in Boston’s suburbs goes for about $140 a month, a very solid price, although costs are high in general in the Boston area.

Despite all the new construction, Tranni’s company is currently developing new self-storage facilities in Quincy, just south of Boston, and in Plymouth, about 40 miles south of the city. But Tranni stressed: Stor U Self did a lot of market research before deciding to embark on the projects.

“We are very, very cautious about buying or building new facilities,” he said. “You really have to slow down and not be stupid about it.”

Then again, one can simply try to build or buy in the city of Boston itself, a generally underserved city compared to other cities around the country. Boston rents for 10-by-10 climate-controlled units easily go for around $200 and up per month.

The city of Boston simply hasn’t seen as much construction-and-conversion activity as in its surrounding suburbs, due largely to classic high barriers to entry in the city, such as a scarcity of affordable land and zoning restrictions. Still, it’s generally believed that once you get a facility in Boston, you should be in good shape.

And Tranni said his company is indeed in the process of buying a facility in the city proper, in a location he declined to disclose.

Connie Neville, a managing director at SVN Storage Realty, says the Boston-area self-storage market is indeed tricky and difficult to navigate, almost as tricky and difficult to navigate as Boston’s infamously convoluted and confusing roadways.

The stats show that Boston is underserved when it comes to self-storage facilities. But a large percentage of Boston homes have attics and basements that cut down on the need for self-storage services, she said.

Then there’s the issue of scores of colleges and universities in the Boston area, from internationally known universities like Harvard, MIT and Tufts to less well-known and yet respected schools like Simmons, Bridgewater State and UMass-Lowell. The tens of thousands of students flowing in and out of the Boston area every year leads to a booming, though only seasonal, business for many operators.

Despite the market’s intricacies and challenges, the bottom line for Neville is that Boston remains a “very robust and very competitive” self-storage market.

Justin Quinto, a brokerage advisor at Investment Real Estate LLC, agrees. “Boston is one of the top MSA markets to be in, no doubt,” he said. “It’s densely populated and has high income. It’s a tremendous market.”’

Boston Self-Storage Market at a Glance:

Population 4.9 million
Square Feet of Space 19.4 million
Number of Facilities 417
Penetration Rate 4
Supply Growth (past 3 years) 14.5%
New Supply (pipeline) 10.78%

  Note: Data from Radius+

The Storage Acquisition Group logoThe Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

Breaking Down the Biden Tax Plan

Breaking Down the Biden Tax Plan

By: Yann Reichelt, CPA, Advisor

Close Up Image Of A Stock Market Graph

Although no formal plan has been released there are multiple levels within the Biden Tax plan which should be noted by business owners.  Corporate tax rates can be expected to rise to 28% from the current 21%.   A 7% tax increase may not seem ideal for business owners, but it is 7% less than the corporate tax rate of 35% before the Trump tax reforms of 2017.   

A concern of commercial real estate investors has been the repeal of like-kind exchange rules.  Under US tax law like-kind or 1031 exchanges allow for a transaction or series of transactions to allow an owner to dispose of one asset and acquire a replacement asset.  The generation of tax liability during these exchanges may make owners think twice before selling their assets.  

If the Biden Administration successfully repeals the 1031 exchange, we may see a shift towards investor’s usage of a lesser-known tax deferral strategy known as a 721 exchange.

Under a 721 exchange, a seller transfers their investment into a Real Estate Investment Trust (REIT) and Umbrella Partnership Real Estate Investment Trust (UPREIT) and in return receives ownership shares of the REIT/UPREIT. It is important to note that similar to a 1031 exchange, the resulting capital gains from the sale of the investment property in a 721 exchange is only deferred, not avoided. Additionally, there are two key differences between a 721 and 1031 exchange. First, once a 721 exchange is completed, there is no “switchback” – i.e., the REIT/UPREIT shares cannot be converted back to real estate through a 1031 exchange or subsequent 721 exchanges. Second, if the REIT/UPREIT sells a portion of the portfolio and returns capital to the investors, the investors will be required to recognize any capital gain or loss when they file their taxes.

Another potential drawback for the commercial real estate industry is the proposed limitations for investors’ use of real estate losses.  If you sell your investment property for less than your cost basis, you can use that loss to offset all of your capital gains from other investments and up to $3,000 in income from other sources in the current year.  The combination of preventing investors from using losses to offset capital gains and the potential repeal of the 1031 exchange are significant setbacks to the real estate industry.

Proposed changes to reduce the Estate Tax Exemption to $5 million from $11.58 million is another item that individuals should be aware of. Currently, this provision allows for tax-free exclusion on the transfer of an estate up to $11.58 million with any excess taxed at a rate of 40%. As a result, business owners interested in valuing and transferring their assets to family members may need to assess the impact of cutting the exemption in half.

Other Expected Changes under the Biden Tax Plan:

We can expect to see tax credits within the manufacturing industry.  The goal is to revitalize facilities and ideally increase production in the US.  Currently, there are 565,537 manufacturing businesses in the United States a 1.4% decrease from 2019.  China is the leading manufacturer in the world with over $2.01 trillion in output followed by the US at $1.867 trillion.

The pharmaceutical industry can expect to see incentives eliminated to move production overseas.  Germany leads the world in drug export revenue at $62.3 billion.  The United States hits the list at number 5 generating $22 billion dollars annually.

Pharmaceutical production isn’t the only list that Germany sits at the top of, they are currently the most energy-efficient country in the world.  The Biden tax plan proposes to extend tax incentives that generate energy-efficient and clean energy jobs which could help the US climb from their current position as the 13th most energy-efficient economy.

New market tax credits provide incentives to businesses that invest in low-income communities.  Under the Biden administration, we can expect to expand tax credits for investors willing to initiate growth in these new markets.  Additionally, business owners can plan for more tax credits under the low-income housing tax credit.  This is a dollar-for-dollar tax credit for affordable housing investments.

Tax credits to encourage businesses to build child care facilities onsite.  With 64.2% of households having two employed parents and 23% of households being run by single parents, onsite daycare would alleviate many parental concerns.

One last tax credit to be on the lookout for are tax credits to improve accessibility and compliance for the Americans with Disabilities Act.  The ADA prohibits discrimination on the basis of disability in employment and requires business owners to provide reasonable accommodations for employees with disabilities.  Although smaller businesses will not be able to take advantage of these tax credits (businesses with fewer than 15 employees are not covered by ADA provisions) larger businesses willing to make these changes could see incentives come tax time.

The ultimate impact of the proposed changes outlined is difficult to determine amid the uncertainty involved on what changes will actually be passed into law. A key factor will be the results of the senate run-off race in Georgia where Democrats need to win 2 seats in order to have equal footing in the senate. If the Republican Party remains in control of the senate, it will be very difficult for Biden’s proposed changes to get passed into law. Lastly, the earliest that any of these measures may take effect is 2021.

Yann Reichelt is a CPA and currently works as a Manager for the Business Assurance and Advisory at Keiter.  He joined the TSAG team in 2020 and works collaboratively with Jonathan Spencer and Scott Eckert in various markets throughout the US.  Yann brings over a decade worth of experience in accounting to the TSAG team.  If you have further questions about how the Biden tax plan affects your self-storage asset, please reach out to Yann directly at yreichelt@thestorageacquisitiongroup.com.

TSAG Market Analysis: Northern NJ

TSAG Market Analysis: Northern NJ

By: The Storage Acquisition Group

Dusk Falls on the Urban Downtown Metro Area of Newark New Jersey

Some consider northern New Jersey a mere “drive-thru” area as they travel by car between New York City and Washington D.C.  But to others, particularly those in the self-storage industry, northern New Jersey is a lush region of the Garden State – with a dense population, the third highest median household income in the country, a high concentration of multifamily dwellings, and close proximity to the nation’s largest metropolis, New York City.

“It’s mostly bedroom communities, not a drive-thru area,” says Richard Monteforte, chief operating officer and an owner of American Self Storage in New Jersey. “It’s a great self-storage market in a great state.”

And it’s considered to be a largely underserved self-storage market, with a penetration rate of 4 square feet of self-storage space per capita, well below the national average of 5.8 square feet per capita, according to data from Radius Plus, a self-storage data analytics and research firm.

Like other markets across the country, northern New Jersey, with its mix of gritty urban cities and affluent suburban towns, has definitely seen its share of new self-storage facilities coming on line in recent years, mostly the result of conversions and in-fill projects.

The cities of Newark, Paterson, and Elizabeth, all tucked close together just southwest of Manhattan, saw a combined 5 percent increase (or 632,000 square feet) in deliveries of new self-storage space in 2018, an 8 percent jump (986,000 square feet) in 2019 and a 6 percent increase (734,000 square feet) so far in 2020, according to Radius Plus.  There is an additional 10 percent of new supplies under construction in the immediate Newark/Paterson/Elizabeth area alone, according to data.

Cory Sylvester, a principal at Radius Plus, says the numbers clearly show northern New Jersey has one of the higher new-construction rates in the nation. But the “supply has been added in pockets,” such as in southern Paterson, where new self-storage space has increased 35 percent in recent years and sent rental prices downward by 15 percent, Sylvester says. Meanwhile, many parts of the region have seen little new supply in recent years.

Overall, the demand for self-storage space remains strong in northern New Jersey, precisely because of the relatively low number of self-storage facilities serving the densely populated area of the Garden State. In addition, the entire New York metropolitan area, which includes parts of northern New Jersey, has a penetration rate of only 2.95 square feet per capita – and urban residents need self-storage space somewhere.

The bottom line: Northern New Jersey’s self-storage industry is a beneficiary of the general lack of supply in the entire New York metropolitan region – and it’s an area capable of sustaining a surge in new supplies and yet rebounding within a relatively short time, Sylvester and other industry officials say.

In addition, northern New Jersey’s population is growing, especially since the onset of the coronavirus pandemic, as residents in New York City leave the city in droves for more suburban/country settings as COVID-19 rages in urban areas.

“We’ve seen a big exodus out of New York City,” says Phil O’Hara, head of operations at Delta Self Storage, which owns two facilities in northern New Jersey and one in New York City. “It’s been good for New Jersey (self-storage) operators. There’s still plenty of demand out there.”

Before the pandemic hit the nation last March, self-storage prices in northern New Jersey were largely flat, a relatively encouraging phenomenon in a region that’s seen a solid increase in supplies.  Over the past 12 months, prices have been running in the $140 to $165 range for 10-foot-by-10-foot climate-controlled units in the general region, according to Radius Plus data.

“It is a great market,” Bill Sitar, New Jersey advisor for Storage Acquisition Group, says of New Jersey in general. “It’s the most densely populated state in the nation and has among the highest per capita income as well. We have the third busiest port in the country and are located in between NY and Philly/DC.”

He added e-commerce wants to be in northern New Jersey precisely because of its convenient proximity to so many major U.S. metropolitan markets.  Even northern New Jersey’s minuses are considered pluses. The entire state is viewed as a “high-barrier” region, with tough zoning laws and expensive real estate, making it difficult for developers to build new facilities and for investors to buy existing properties.

Yet those high-barriers act to protect existing self-storage operators, said American Self Storage’s Monteforte, who has been active over the years in the New Jersey Self Storage Association.

“At association meetings of self-storage (operators), I used to tell people, ‘You’ll never see a happier bunch of guys’ because we were in a great industry in a great state,” says Monteforte.

Says Storage Acquisition Group’s Sitar: “You are going to be paying top dollar for assets in this market and the sellers are very sophisticated. Additionally, with much access to capital deals are very competitive.”

Nicolas Malagisi, national director of self-storage at SVN Commercial Real Estate Advisors, says the recent pandemic was initially hard on some New Jersey’s self-storage operators, due to strict emergency social-distancing and lockdown rules.

“But business is largely back to normal,” he said. “It’s proved to be a very resilient market. I’m very optimistic about it across the board. It’s a good market.”

Radius Plus’s Sylvester agrees the future looks bright for northern New Jersey’s self-storage sector, ticking off its proximity to New York City, its high median income and its dense population. “There’s so much going for it,” he said.

Northern New Jersey At A Glance  (Newark, Paterson and Elizabeth areas)

Combined Population 557,7000
2019 New Deliveries 986,000 (8% Increase)
New Facilities Under Construction 10% Increase
Rental Rate 10×10 CC $140-$165 per month
Square Feet/Capita 4

  Note: Data from Radius+

The Storage Acquisition Group logoThe Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

Extra Space Storage – Atlanta, GA

Extra Space Storage – Atlanta, GA

By: The Storage Acquisition Group

ES Centerville 7

The Storage Acquisition Group (TSAG) is pleased to announce the closing of Extra Space in Snellville, Georgia. The facility is located at 3220 Centerville Hwy on 10.8 acres with 14 buildings and 823 units across 94,954 net rentable square feet.  The facility offers both climate and non-climate controlled space with an additional 110 spaces and 50,000 SFof uncovered outdoor parking.

David Spencer, Vice President and Senior Advisor with The Storage Acquisition Group and agent at Keller Williams Commercial in Atlanta, GA, and TSAG CEO & President Cowles M. “Monty” Spencer, Jr. negotiated the transaction.

The Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide.   Uniquely they allow owners to sell direct without having to list their facility. With their 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.