Hoarders: Resilience in Self-Storage REITs

Monica: How did you get in there?

Chandler: You’re messy.

Monica: Oh no! You weren’t supposed to see this!

Chandler: I married Fred Sanford!

Monica: No Chandler, you don’t understand! Okay! Okay! Okay! Fine! Now you know. Okay? I’m y’know…I’m sick.

Chandler: No, honey you’re not sick! Look, I don’t love you because you’re organised, I love you in spite of that.

Monica: Really? You promise you won’t tell anyone?

Chandler: Yes! And look, now that I know if I got some extra stuff lying around can we, can we share the closet.

Monica: Well…it’s just umm…I’m afraid you might mess it up.

–  “The One with the Secret Closet” – Season 8, Episode 14, Friends


“I’ve learned that for hoarders, every cleanup is a grieving process. We are asking them to say goodbye to items that are heavy with memories – some wonderful, some painful. But all are important and deserve respect. A hoarder finds safety in the hoard, in the stacks and piles, and he or she will grieve over the loss of those items when they are gone. The week after the house cleaning is usually the worst. Instead of being happy and enjoying the new space, hoarders go through a difficult process. They miss their possessions, which were their closest friends for years.” – Matt Paxton, The Secret Lives of Hoarders: True Stories of Tackling Extreme Clutter


“Everything is bigger in Texas, loaded double barrel blow you to pieces” – Texas Bloody Money by Upon a Burning Body


If everything is bigger in Texas, can we say it’s even bigger-er in China?

Held on every eleventh of November, Singles Day is the busiest day of shopping in the Chinese calendar. It is a day to celebrate singlehood – the anti-Valentine’s day so to speak – that has become synonymous with Alibaba, the Chinese e-commerce conglomerate that, starting 2009, turned the day into the Chinese equivalent of Black Friday. The day has turned into a retail phenomenon, so much so that in recent years more revenue has been generated on Singles Day than on both Black Friday and Cyber Monday combined.

Alibaba goes to great lengths to grab consumer attention ahead of the Singles Day event. City streets and subways across the Mainland are plastered with advertisements about its 11 November promotions. The sales during Singles Day have become a critical barometer of the health of the Chinese consumer and of Alibaba’s dominance in the Chinese e-commerce market.

The kick-off to the holiday shopping season in US is no different to the days leading up to Singles Day in China. Each holiday season starts with an intense barrage of advertisements about promotions and bargains on offer. Stores start to open earlier and stay open for longer. All these efforts are in attempt to get the consumer to spend more. Holiday shopping is a challenging time for all consumers but is an especially difficult time of the year for hoarders – compulsive shoppers that are most susceptible to fall prey to guerrilla marketing tactics.

Although research shows that only between 2 to 5 per cent of the population meets the criteria to be clinically classified as a hoarder, there is an almost universal tendency to over accumulate. And it is this tendency that has underpinned the long-running building boom in self-storage capacity across the US.

Self-storage is a segment of the commercial real estate market concerned with the provision of space for the storage of possessions. Self-storage space, in the US, has unique economic and legal characteristics including requirements such as month-to-month basis rentals; the tenant having exclusive access to their unit; and a no bailments clause on facility operators with respect to the goods stored by tenants.

The first modern self-storage facilities opened in Odessa, Texas, during the 1960’s. The industry maintained a low-profile for almost two decades, largely functioning as a pit stop for the possessions of those in transition. The rising wealth of the baby boomers, however, changed all that. Come the 80’s and 90’s, these storage facilities were increasingly occupied by old furniture and other unwanted household items. This trend has continued unabated and has even accelerated since 2001. A study by the Self Storage Association found that by 2007 more than half of self-storage clients in the US were storing stuff that did not fit in their homes – remarkable, considering the size of the average American house almost doubled over the last five decades.

The proclivity of the average person to procrastinate, especially when it comes to disposing of unwanted possessions, has underpinned the resilience of the self-storage industry. So much so, that occupancy rates in the US only declined by around 2 to 3 per cent in the immediate aftermath of the Global Financial Crisis. Occupancy levels also recovered quickly as rising foreclosures and people’s inclination to downsize their homes created an added need for storage space.

The rise of e-commerce has spurred new demand for self-storage space. It is cheaper and more flexible as compared to renting space in commercial warehouses – making it ideally suited to online retailers and Amazon Store operators who need flexible solutions to manage inventory. Even brick and mortar retailers in metropolitan areas, looking to reduce their footprint and rental costs, are turning to self-storage facilities to store their goods offsite. These trends combined with the sector’s resilience to downturns in the economy may warrant the somewhat boring and often overlooked self-storage sector having an allocation in one’s investment portfolio.


Investment Perspective

Over the decades, self-storage has evolved from being a fringe component of the commercial real asset class to a core asset within the real estate industry.  Capital flowed into the industry as it has proven its ability to deliver above average yields while showing resilience in times of uncertainty.  Despite the resilience of the sector and its improving financial performance during 2016, the Bloomberg REIT public / self-storage sub-index is down around 17% from its peak in 2016.

Bloomberg REIT Public / Self-Storage Sub-IndexSelf StorageSource: Bloomberg

Approximately one in ten American households already pays for a personal storage unit. This mass proliferation of self-storage has occurred during a period when new homes purchased by Americans have on average been larger than their previous homes. The trend of bigger homes, however, is reversing. The American citizenry is now building and buying homes with smaller square footage than in previous decades. While at the same time self-storage facilities are at around 90 per cent occupancy and a growing number of cities – New York, San Francisco and Miami to name but a few – have moved to restrict or curb the development of new self-storage facilities. In our opinion, a confluence of all these factors combined with the added demand from e-commerce and brick and mortar retailers may lead to a shortage in space and allow storage operators to raise prices. In turn the earnings profile of storage operators should improve and lead to a re-rating in the self-storage REITs.

We are long CubeSmart ($CUBE), Extra Space Storage ($EXR) and Life Storage ($LSI) and a complementary play we are also long AMERCO ($UHAL).


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This post should not be considered as investment advice or a recommendation to purchase any particular security, strategy or investment product. References to specific securities and issuers are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.