When investing in commercial real estate, self-storage is always a great option. For starters, self-storage facilities are often described as “recession-proof” because they have historically performed well in all economic cycles, including the 2008 recession and the COVID-19 pandemic.
There are several different types of self-storage facilities, though, and it’s important to have an understanding of each before deciding whether to invest.
What Is Class A Self-Storage?
Class A self-storage is any storage facility that was built in the year 2000 or later. According to Rumsfeld Moreu, Growth Manager at FastPaydayLoans, because these self-storage facilities are fairly new, they need less maintenance, and the design and construction are “top notch,” with “high-quality performance.” However, this also means Class A self-storage is the most expensive type of self-storage in the market.
Alex Capozzolo, Co-Founder at Brotherly Love Real Estate also noted that Class A self-storage facilities are typically in more “ideal” neighborhoods, therefore adding to the higher costs.
Class B Self-Storage
Class B self-storage facilities were built in the 1980s and ‘90s. Because they are less expensive than Class A, Moreu said, most tenants usually go with Class B self-storage, “even if its quality is not as updated and cutting edge as the Class A ones.”
And often, said Capozzolo, tenants will find that Class B self-storage facilities are owned by “mom-and-pop operators.”
Class C Self-Storage
Class C self-storage facilities were built pre-1980s. According to Moreu, these facilities often have “poor maintenance and more issues.” They are also commonly found in less-than ideal locations and neighborhoods, making them less desirable to tenants. As a result, Class C self-storage is the most affordable of the three types.
Capozzolo called Class C self-storage a “risky investment.”
How to Invest in Class A Self-Storage
1. Conduct Market Analysis
The first step to investing in Class A self-storage, Capozzolo said, is to conduct a market analysis. He noted that the value of real estate is tied to its location, so the best course of action is for investors to buy or build in an area with high demand and low supply.
To do so, Capozzolo suggested studying growth trends, looking at the percentage of households occupied by renters as opposed to homeowners, studying supply factors, and keeping tabs on the number of businesses in the area. This will give investors an idea of the market and whether a self-storage facility in that area would do well.
2. Find a Property
The next step is to find a property. At this point, investors should seek the help of a commercial real estate agent or broker who can show them Class A properties in the location they want.
When looking at properties, Capozzolo advised examining the condition of the self-storage facility, looking at storage unit doors, water or fire damage, the state of HVAC units, etc. And be sure to check if the facility complies with local industrial zoning laws.
3. Secure Financing
Once you’ve found a property that fits your needs and budget, the next step is to secure financing.
You can get an appraiser to determine the price of the facility, Capozzolo advised.
From there, it’s a good idea to hire a mortgage broker, like those at Lev, who can help you understand your financing options and connect you with a lender that fits your specific needs.
Do Your Due Diligence
A Class A self-storage facility can be a great commercial real estate investment. However, it’s important to complete your due diligence and follow all the steps to investing to get the best facility for your needs.