Executive Summary

For commercial real estate executives allocating capital across asset classes, self-storage represents a compelling risk-adjusted return profile that has consistently outperformed traditional sectors over the past decade.

This briefing analyzes:

1. Performance comparison across CRE asset classes (2020-2024)
2. Operational advantages that drive superior returns
3. Market structure creating sustainable competitive moats
4. Florida-specific opportunity with demographic tailwinds
5. Investment structures available (value-add, expansion, ground-up)
6. Tax optimization strategies enhancing returns by 2-3 points
7. Current pipeline opportunities ($40-57M, multiple strategies)

Key Finding: Self-storage offers 15-19% IRR potential with lower volatility than office, retail, or multifamily – making it an attractive portfolio diversification tool for institutional and family office capital.

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SECTION 1: ASSET CLASS PERFORMANCE COMPARISON

Five-Year Performance Metrics (2020-2024)

Key Observations:

1. Self-Storage Rent Growth Outpaced Most Sectors

At +4.2% CAGR, self-storage exceeded retail (+1.8%) and multifamily (+2.8%), while office declined (-1.2%). Only industrial surpassed self-storage (+6.5%), but industrial prices have escalated beyond many investors’ return thresholds.

2. Stable Occupancy Despite Market Volatility

Self-storage maintained 89-93% occupancy through COVID-19, economic uncertainty, and rising interest rates. This stability reflects:

• Essential service status (people always need storage)
• Diverse tenant base (600-800 small tenants, not concentrated exposure)
• Flexible pricing (month-to-month allows rapid adjustments)

3. Cap Rate Compression Demonstrates Institutional Confidence

While office cap rates expanded +150 bps (risk premium for distress), self-storage compressed -80 bps (institutional buyers paying premiums for quality assets).

4. Transaction Volume Remained Consistent

Unlike office (declining volume) or industrial (overheated bidding), self-storage maintained steady transaction activity – indicating healthy buyer/seller balance.

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Risk-Adjusted Return Analysis

Sharpe Ratio Comparison (Risk-Adjusted Returns):

Interpretation:

Self-storage delivers the highest risk-adjusted return (Sharpe Ratio 3.21), meaning superior returns per unit of risk. Even industrial, with higher absolute IRR (17.5%), has lower risk-adjusted performance (2.38 Sharpe).

Why This Matters for Executives:

Portfolio theory suggests diversifying into assets with:

• High absolute returns (self-storage: 15.2% IRR)
• Low volatility (self-storage: 3.8% standard deviation)
• Low correlation to other holdings (self-storage uncorrelated to office/retail cycles)

Self-storage checks all three boxes.

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SECTION 2: OPERATIONAL ADVANTAGES

Advantage #1: Tenant Diversification (600-800 Small Tenants)

Compare Lease Concentration:

Impact on Cash Flow Stability:

Self-Storage:

• Single tenant loss = 0.1-0.2% revenue impact
• Even 5% vacancy (40 units) = manageable cash flow impact
• No single tenant bankruptcy risk
• Result: Highly predictable cash flow

Office/Retail:

• Single tenant loss = 10-40% revenue impact
• Major tenant bankruptcy = potential default on debt service
• Extensive downtime for re-leasing (6-18 months typical)
• Result: Volatile cash flow, significant re-leasing risk

Executive Insight: For fiduciaries managing pension funds, endowments, or family office capital, tenant diversification significantly reduces downside risk.

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Advantage #2: Flexible Pricing (Month-to-Month Leases)

Lease Term Comparison:

Strategic Pricing Advantage:

Self-Storage Can:

• Raise rates monthly for new tenants (capture market increases immediately)
• Test pricing strategies (A/B test different rate structures)
• Respond to competition (lower rates if needed, without long-term commitment)
• Optimize by unit type (premium pricing for high-demand sizes)

Office/Retail Cannot:

• Locked into multi-year leases (can’t capture market rent increases)
• Fixed escalators (often below inflation, losing real purchasing power)
• Must wait for lease expiration (may take 5-10 years to mark-to-market)

Real-World Example:

Self-Storage: Market softens → reduce rates 10% → occupancy recovers in 30-60 days → raise rates back when demand returns Office: Market softens → locked into 7-year lease at old rates → stuck below market for years

Executive Insight: Month-to-month leases provide unprecedented pricing flexibility – allowing operators to optimize revenue in real-time rather than being locked into below-market contracts.

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Advantage #3: Low CapEx Requirements

Annual CapEx as % of Revenue:

Why Self-Storage CapEx is Lower:

No Tenant Improvements:

• Tenants rent empty units (bring their own belongings)
• No buildout, no furniture, no fixtures
• Move-in cost: $0
• Move-out cost: $0 (just clean unit)

Minimal Building Systems:

• No complex HVAC (climate-controlled uses simple package units)
• No elevators (or minimal – 1-2 in multi-story)
• No kitchens, bathrooms, plumbing (except small office)
• No expensive façade/lobby requirements

Simple Maintenance:

• Paint units periodically
• Replace doors/locks as needed
• Maintain paving/fencing
• Keep lighting/security operational

Impact on Cash Flow:

Self-Storage:

• Revenue: $1M
• CapEx: $30K (3%)
• NOI after CapEx: $970K

Office:

• Revenue: $1M
• CapEx: $150K (15% – includes TI for new tenant)
• NOI after CapEx: $850K

Difference: Self-storage retains $120K more cash flow annually (12% higher effective NOI).

Executive Insight: Low CapEx means higher distributable cash flow and less reinvestment drag on returns.

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Advantage #4: Recession Resilience

Occupancy Performance During 2008-2009 Financial Crisis:

Why Self-Storage Holds Up:

Countercyclical Demand Drivers:

• Downsizing: Families moving to smaller homes need storage
• Business closures: Small businesses storing equipment/inventory
• Foreclosures: Displaced homeowners need temporary storage
• Job relocations: Career transitions create transitional storage needs
• Lifestyle changes: Divorces, deaths, family consolidations

Recession Actually Creates Demand:

While office/retail see demand destruction (businesses close, consumer spending falls), self-storage sees demand creation from economic disruption.

Evidence from COVID-19:

During 2020-2021 pandemic:

• Office: Remote work → occupancy collapsed
• Retail: E-commerce → store closures
• Self-Storage: Relocations, home office setups, urban exodus → occupancy increased 2-4%

Executive Insight: Self-storage provides portfolio diversification against economic downturns – often performing best when other CRE sectors struggle.

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SECTION 3: MARKET STRUCTURE ADVANTAGES

Fragmented Ownership Creates Opportunity

Market Share by Operator Type:

Fragmentation Creates Value Creation Opportunities:

1. Mom-and-Pop Inefficiencies:

• Below-market rates (haven’t kept pace with competitors)
• Outdated technology (still using physical keys, manual billing)
• Poor marketing (no online presence, no SEO/Google Ads)
• Minimal ancillary revenue (no insurance, merchandise, truck rental)
• High expenses (not leveraging bulk purchasing, overpaying vendors)

Acquisition Playbook:

• Buy at 7-8% cap (reflects current inefficient operations)
• Optimize rates: +10-15% over 18-24 months
• Implement technology: smart access, online rentals, dynamic pricing
• Add ancillary revenue: +$50K-95K annually
• Reduce expenses: 150-200 bps margin improvement
• Exit at 6.0-6.5% cap (institutional buyer pays premium for stabilized asset)

Result: 15-19% IRR from operational improvements alone

2. REIT Divestitures:

• REITs sell non-core assets (geographic rationalization)
• Institutional quality (modern, climate-controlled, clean financials)
• Legacy national pricing (10-15% below local market rates)
• Minimal ancillary revenue development

Acquisition Playbook:

• Buy at 6.0-6.5% cap (pay REIT premium for quality)
• Rate optimization: +10-15% (local market pricing)
• Ancillary revenue: +$50K-95K annually
• Expense efficiency: -150-200 bps (remove REIT overhead)
• Exit at 5.5-6.0% cap (cap rate compression for optimized asset)

Result: 15-17% IRR with lower execution risk than mom-and-pop

Executive Insight: 60% mom-and-pop ownership creates massive consolidation opportunity – similar to multifamily in 1990s, which transitioned from fragmented to institutionalized over 20-year period.

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High Barriers to Entry Protect Returns

New Supply Constraints:

Result: Limited New Supply

• New construction down 35% (2024 vs. 2023)
• Permits down 40% in major Florida markets
• Developer pro formas struggling (need 18%+ IRR to justify risk, most markets can’t support)

What This Means for Existing Operators:

✅ Pricing power:Limited competition from new supply

✅ Occupancy stability:Demand growth not offset by supply growth

✅ Value creation: Existing facilities more valuable (replacement cost exceeds market value) ✅ Exit liquidity: Buyers can’t build new, must acquire existing

Executive Insight: High barriers to entry create sustainable competitive moats – unlike multifamily (easy to build) or retail (oversupplied), self-storage supply remains constrained.

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Strong Institutional Buyer Market Provides Exit Liquidity

Active Acquirers (Paying Premium Prices):

1. REITs (Public Storage, Extra Space, CubeSmart, Life Storage)

• Constantly acquiring stabilized assets
• Paying 5.5-6.0% caps for quality facilities
• Strong balance sheets (low cost of capital)
• Annual acquisition volume: $1-3B combined

2. Private Equity (Ares, Blackstone, KKR, Cerberus)

• Building self-storage platforms
• Targeting $50M+ portfolio acquisitions
• Patient capital (10+ year hold periods)
• Annual acquisition volume: $500M-1.5B

3. Regional Operators (Independent Groups Building Portfolios)

• Acquiring 10-50 facility portfolios
• Geographic clustering strategies
• Operational synergies (shared management, bulk purchasing)
• Annual acquisition volume: $300M-800M

4. Family Offices & High-Net-Worth

• Seeking stable, inflation-hedged cash flow
• Long-term hold (generational wealth)
• Premium for quality, stabilized assets
• Annual acquisition volume: $200M-500M

Total Annual Self-Storage Acquisition Volume: $2-6B

What This Means:

✅ Liquid exit market:Multiple buyer types competing

✅ Cap rate compression:Institutional buyers paying premiums (drives values up)

✅ Certainty of exit:Not dependent on single buyer type

✅ Timing flexibility: Can sell when stabilized, not forced to hold

Executive Insight: Self-storage has institutional-grade liquidity rivaling multifamily – unlike niche sectors (car washes, laundromats) with limited buyer pools.

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