And that old saying is, “Excess Profits Breed Ruinous Competition”.
I my last post I described a deal in which Arcadia Realty Trust recently sold 14 self-storage properties scattered across the New York metropolitan area to the Storage Post division of Heitman, LLC for $300 million.
I did a little more digging and found the portfolio was about 1.1 million square feet, so the sale price represented $273 per square.
According to the Marshall & Swift Cost Service, the cost to build a self-storage (M&S calls it mini storage – so cute!) ranges from $17 per square foot for a low quality metal building to $59 per square foot for a quality high-rise structure. That implies a value of well over $200 per square foot for land. That’s good, right? Yes and no.
Yes, because the sector is getting the recognition is deserves. No because the barriers to entry are pretty low.
Unlike apartments, which have been zoned into nonexistence in many areas for fear of – God forbid – school children(!), self-storage bears none of that stigma. Plus, self-storage facilities can be built on the oddball piece of land nobody else can use. Here’s an example:
This parcel, not far from our office, has almost no frontage, yet over 40,000 square feet of climate controlled and non-climate controlled space entered the market on a major highway just off a major signalized intersection. The land is almost worthless for almost any other use, so it can be bought for cheap.
Based on my earlier analysis, the potential profit for a property like this is $200 per square foot or $8 million on a $3 million investment in land and building construction.
This might get someone’s attention, no?