Where Does Self Storage Development Make Sense Today?
Basis Industrial's Anthony Scavo discusses location selection, obstacles and how to stay competitive.
The recent self storage construction boom has been fueled by rising demand, favorable economic conditions and the profitability of these developments. Over the past five years, 276.9 million square feet of storage space came online in the U.S., amounting to 14.5 percent of the total inventory, according to Yardi Matrix. As of July, 64.6 million rentable square feet of storage space was under construction, with forecasted completions for this year expected to add 59.6 million net rentable square feet to the inventory.
But going forward, deliveries are expected to slow down to 50.1 million rentable square feet in 2025, followed by additional cooling. Although the pace of new construction is tapering, developers in the sector remain optimistic.
“We are confident that the self storage and small bay industrial sectors will outperform other industry segments based on their resilient income stream and sticky tenant base,” said Anthony Scavo, president & managing partner with Basis Industrial.
The owner-operator has developed more than 10 million square feet across 100+ storage facilities, so we asked Scavo to expand on Basis’ strategy and reveal where opportunities lies.
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What are some of the criteria you consider before starting a new self storage project? How do you select the location of your next development?
Scavo: It’s simple—low current supply of self storage compared to the national average, rents high enough to make our internal metrics work, and the demographics reflecting population and income growth. These components are some of the criteria that we look for in the market and where we have had the most success.
We also try to choose markets with high barriers to entry—where it is difficult to get a self storage project zoned, approved and built. With this strategy in mind, we are able to look for sites in regions or towns that others may avoid due to the lengthy approval process and politically charged environments. Luckily, we have the financial wherewithal to pursue these types of deals.
Speaking of difficulties, self storage developers often face NIMBYism and even self storage moratoriums. What are some of the most pressing challenges you need to overcome when embarking on a project? How do you surmount them?
Scavo: We absolutely face town boards and committees that are adamantly against storage facilities in their neighborhoods. The key here is providing the facts and data about the facilities. Effectively communicating that these facilities have low traffic volumes and noise creation is often a plus. Most of our projects are multistory Class A facilities and not the old drive up with a chain link fence around it. They are highly secure and appealing from the outside which helps to deter the riff-raff that most planning boards imagine when they think of traditional Class C facilities.
Were there any promising projects that you had to eventually walk away from? If so, why?
Scavo: We have had several projects that we have had to walk away from over the last couple of years for various reasons. Several times we have started the approval process in a location that has relatively low supply metrics just to see three other developers submit plans in the same town. We try to avoid competition at all costs and any competition during the lease-up cycle can often be disastrous.
One of the facilities you’re currently working on is set to include 955 climate-controlled units in Melbourne, Fla. Tell us more about the project and the area it will serve.
Scavo: In July 2023, we broke ground on the 126,741-square-foot, state-of-the-art self storage facility in Melbourne, Fla., and in November 2023, we closed on an $11 million construction loan for the project. This is a prime location and market for a self storage facility as it is located in a high-earning and high growth area with high rents. We believe Melbourne’s demographics are continuing to improve due to the ever-prospering space industry.
We continue to be selective and seek out the best markets to develop self storage facilities in, and Melbourne meets our strict criteria. We acquired this development site along with the 250,000-square-foot Space Coast Small Bay Portfolio in November 2022 for $30 million.
What would you consider Basis Industrial’s most successful self storage developments so far?
Scavo: In our current portfolio’s development cycle, we have had a lot of success thus far in our Carmel, N.Y., facility. This was a warehouse conversion and it got approved relatively quickly. Lease-up has gone incredibly smooth, and we project-to-stabilized in under 24 months from opening.
How do you stay ahead of competition?
Scavo: Our acquisition and development criteria as well as our underwriting are always ultra conservative, which leaves room in our projects for increased interest rates and any potential softening of rental rates. Therefore, we are very selective with the projects we choose to push forward and, at the end of the day, they all need to have room for market distress so we can weather the storm and ultimately maximize asset value for our investors and our partners.
We see a lot of developers move on any deal that meets the first pass of underwriting, but it is the deeper analysis and the conservative approach born through over the 100 years of collective experience of our principals that makes us prepared to capitalize on the volatility in today’s market as opposed to being burdened by it.
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What are the main goals of Basis Industrial’s self storage arm for the rest of this year? Any longer-term plans?
Scavo: We are trying to get the remainder of our robust pipeline fully entitled, approved and closed. We currently have three projects with a total of 400,000 square feet open and operating, six projects totaling 700,000 square feet in different phases of completion under construction, and five projects totaling approximately 600,000 square feet under development working their way through the approval process. Our goal is to get these five projects fully entitled and closed.
Is there anything else about trends in self storage development and/or the sector at large that you would like to add?
Scavo: We believe that there are markets that have become over-saturated/supplied and that in those markets, it will take time for the rental rates to rise back to where they were. This oversupply is one of the main issues why self storage is only recently getting some bad press about rents dropping etc. That is why, if we continue to concentrate on undersupplied markets with high barriers to entry, we can still outperform competitors.
