Less than two years ago, Rizk Ventures launched national self storage platform SpareBox Storage under the leadership of CEO Steve Treadwell, the former COO of National Storage Affiliates, a publicly traded REIT. Since then, SpareBox has acquired 7 million square feet of storage space across multiple U.S. markets. In February, the firm reached its 100-store milestone with the acquisition of two storage facilities in Texas and New Hampshire.
Multi-Housing News asked Treadwell to share details about the platform’s swift expansion and provide his insights on the consolidation of the self storage sector.
Please tell us about the business strategy behind the platform’s accelerated growth.
Treadwell: Our strategy is to consolidate the highly fragmented self storage sector by acquiring stabilized properties in markets and trade areas with favorable demographic fundamentals. In less than 18 months, we acquired more than 100 stores across eight states and 18 markets, and we have a robust pipeline of acquisitions for continued growth in 2022.
SpareBox looks for situations where a store is undermanaged by a non-institutional owner and where we have an opportunity to improve the customer experience while also driving revenue and value growth by bringing the store onto our management platform. Our portfolio is 100 percent self-managed, and our success is predicated on achieving operational efficiencies by building the portfolio through geographic clusters of three to 15 properties within the markets where we operate.
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Which markets are you targeting and why?
Treadwell: Our consolidation strategy targets the Southeast and the Southwest regions, with a focus on fast-growing secondary and tertiary markets, plus the suburbs and growth frontiers of primary markets.
We pursue markets with strong in-migration, a favorable business environment, and attractive tax policy, all of which are leading indicators for population growth, job growth and income growth.
Our largest concentration is in Texas, and we continue to find great opportunities across multiple fast-growing markets throughout the state. We’re also intent on growing in Florida, Georgia, the Carolinas, Arkansas and Arizona. Our goal is to be in the markets where demand is strong, new supply is constrained, and where we can build efficient operating clusters.
Nationally, rent growth has started to moderate in recent months due to regular seasonality and the dissipating demand generated by the pandemic. In these conditions, are there any markets that are overperforming?
Treadwell: Our operating strategy is to transition stores from mom-and-pop ownership to our institutional management platform. As a result, we have been able to grow rents and increase revenues more effectively than the broader self storage sector.
As our stores mature, we’ll experience rent growth that’s more aligned with the general market. That said, we’re having considerable success in the Florida Panhandle; Myrtle Beach, S.C.; Austin, Texas; and New Hampshire. All of these markets are experiencing above-average growth in population, jobs and income levels.
How do you expect occupancy rates across your portfolio to change in the coming months?
Treadwell: The senior leadership at SpareBox is comprised of industry veterans, and we prioritize revenue optimization over occupancy maximization. Today, on a blended basis, our portfolio’s physical occupancy is currently in the low 90 percent range. We’ll see our occupancy rise by 300 to 500 basis points as we hit peak leasing season in April to July.
Excluding normal seasonal patterns in storage, to maximize revenue we tend to keep occupancy between 92 percent and 94 percent on a portfolio basis. If we get above that range, it probably indicates that our rental rates are too low for the demand in a given market and our competitive position within our trade areas. When we have strong occupancy, we’ll make aggressive moves on rates to achieve revenue growth and to keep a desired level of open inventory for new rentals.
SpareBox aims to streamline the storage experience through technology. What kind of technologies are popular in the industry today?
Treadwell: SpareBox has engineered a management platform that is what we call “unmanned” operations. Our customers connect with us through three different channels: an on-site kiosk that’s simple and intuitive, our website and our call center.
This allows us to provide multiple touchpoints to our customers, with the kiosk and website providing 24/7 service. And as an operator, we can ensure a consistent, convenient and high-quality experience for all of our customers throughout the portfolio, while keeping our operating costs as efficient as possible for the benefit of our investors.
Some of the ways in which we are innovating include contactless rentals, paperless leases and text message customer service for gate codes, payment reminders and links to online payments. We provide our customers with multiple ways to pay their bills each month, and we strive for high adoption of our simple auto-pay option.
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You previously mentioned that SpareBox is focused on consolidating a highly fragmented industry. What benefits does this consolidation bring to the sector?
Treadwell: Both customers and investors benefit meaningfully as the self storage sector continues its consolidation. Institutional management offers customers a more professional service experience and facilities that are well-maintained, and kept clean and secure.
Our customers rely on storage to add genuine value to their lifestyles at a very low price point, and great operators make the whole experience easier and more rewarding. Furthermore, as institutional capital has poured into the sector over the last decade, developers have been delivering top-notch new facilities that benefit their local communities and provide an attractive service for customers.
What are your top three predictions for the self storage sector in 2022 and beyond?
Treadwell: Self storage will continue to be the most attractive sector in real estate as we progress through 2022, and SpareBox is well-positioned to capitalize on the secular trends driving our industry.
Institutional capital, both private and public, will continue to flood into self storage. This sector is resilient in the face of economic and inflationary turbulence, and investors now understand the efficiency and enduring nature of self storage cash flow. The valuations for quality properties will continue to climb, and the importance of professional management will continue to grow.
The secular trend toward higher per-capita usage of storage will continue. Demographically speaking, the Boomers will need storage as they downsize into retirement living, the Millennials will need storage as they grow their families and accelerate their spending on physical goods to match their growing incomes, and Gen Z will use storage as a lifestyle component and accepted part of their “sharing” lifestyle. Many of our Millennial and Gen Z customers actually became familiar with storage during their college experience, and they’re very comfortable including storage as a “necessity” in their daily lives, which is naturally supportive of a growing demand for storage.
Supply and demand will remain balanced for the next couple of years. The development entitlement process and construction constraints such as labor and material costs will slow down developers on the supply side. New supply coming to market will be about 3 percent per year, and we expect demand growth to be similar at 3 percent.