Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Self-Storage Facilities
Transcript
- Lucas: Luna, I was looking at the transaction data for the first half of this year, and one category jumped out: self-storage. Private equity firms have been quietly consolidating this space for a while, but the pace has really picked up since late 2023. Luna: I've seen the headlines—Extra Space, Public Storage, those big REITs gobbling up facilities. But PE firms doing it directly? Lucas: That's actually the newer story. The big public REITs are still active, but the private equity mid-market has become the most aggressive buyer. In 2024 alone, there were over a hundred transactions involving pe backed platforms acquiring individual properties or small portfolios. One deal that caught my eye: a mid-market firm called Aspen Storage Partners—backed by a PE shop I'll name in a moment—bought a 35-property portfolio across the Sun Belt for roughly $275 million. Luna: Okay, that's a sizeable chunk. What's the thesis? Self-storage has always been a steady cash-flow business, but it's not exactly high-growth. Lucas: Right, but that's changing. The thesis is threefold. First, storage is recession-resistant—people downsize, move, divorce, die. Demand doesn't crater in a downturn. Second, the industry is still fragmented: about 60 percent of facilities are owned by single-site operators. That creates a classic roll-up opportunity. And third—this is the new angle—technology and dynamic pricing are driving revenue growth in ways they weren't ten years ago. Luna: Let's talk about that third point. How does dynamic pricing even work for a storage unit? It's not like a hotel room—you're renting it by the month, often long-term. Lucas: It is more like a hotel than you'd think. Software platforms like Storable and SiteLink let operators adjust rates in real time based on occupancy, local demand, even seasonality. If a facility near a college town hits 90 percent occupancy in August, the system automatically raises rents for new tenants. And here's the kicker: existing tenants see annual increases that are algorithmically optimized to minimize churn. One operator I spoke with said their revenue per square foot is up 18 percent since implementing dynamic pricing two years ago. Luna: So the PE play is: acquire a portfolio of mom and pop storage sites, install this tech, raise rents, and sell the whole thing back to a REIT or larger platform at a higher multiple. That sounds familiar. Luna: Speaking of familiar, you know what also benefits from this kind of roll-up? The fact that we can have these conversations without ads—thanks to listeners who support the show. If you've gotten some value out of these episodes, whether it's a deal structure idea or just understanding a new sector, buy me a coffee dot com slash fexingo helps keep the lights on. No pressure, just a simple way to say thanks. Lucas: Yeah, it really does make a difference. And it keeps us independent, so we can dig into whatever niche we find interesting. Okay, back to storage. The Aspen deal—the PE backer is a firm called Blue Hill Capital. They raised a dedicated $400 million fund just for storage roll-ups. They're not alone. Luna: Wait, a fund dedicated to storage? That's pretty specialized. How many are out there? Lucas: At least a half dozen that I track. There's National Storage Affiliates, which is a REIT but structured as an umbrella partnership for operators. There's stor a city, backed by a Canadian pension fund. And there's a handful of smaller shops like Storage Fund Advisors. It's becoming its own asset class within alternative real estate. Luna: What are the typical deal metrics? What multiple are these buyers paying? Lucas: For a stabilized facility, we're looking at a cap rate of around 5.5 to 6.5 percent, depending on location and quality. The purchase price is often expressed as a multiple of net operating income—usually 14 to 17 times NOI. That's higher than it was five years ago, when you could get facilities at 10 to 12 times. But the thesis is that dynamic pricing and operational improvements can push NOI up 20 to 30 percent within three years, effectively lowering the entry multiple on a forward basis. Luna: So you're paying 16 times trailing NOI, but you plan to make it 13 times forward. That makes sense if you can execute. Lucas: Exactly. And the execution risk is lower than, say, turning around a restaurant chain. Storage is simple: you collect rent, you maintain the property, you don't have perishable inventory or labor turnover. The main operational challenge is theft prevention and gate access, but modern electronic locks and camera systems handle that. Luna: What about new supply? I've seen three-story climate-controlled storage facilities going up in my neighborhood. Is that a threat to existing assets? Lucas: It's a double-edged sword. New supply can push down occupancy in a given market, especially in fast-growing Sun Belt cities where developers are building. But the cost of construction has gone up so much that new facilities need to charge significantly higher rents to pencil out. That actually helps existing facilities—they can raise their own rents without losing tenants to newer properties, because the new ones are priced even higher. In Atlanta, for example, new supply rents for about 30 percent more per square foot than the average existing facility. Luna: Right, so the incumbents have a cost advantage. That's a classic moat. But are there any headwinds? Interest rates are still relatively high. A floating-rate loan on a storage portfolio might be painful. Lucas: That's the biggest risk right now. Most pe backed storage deals use floating-rate debt, and with the Fed holding rates steady at 5.5 percent for most of 2025 and 2026, the debt service costs have eaten into returns. But the flip side is that high rates also slow down new construction and make it harder for independent operators to refinance. So the PE firms with dry powder are in a good position to buy from distressed sellers. Blue Hill Capital, the firm behind Aspen, told me they're seeing more opportunities now than they did in 2023 or 2024, because some owners who locked in low fixed-rate loans in 2021 are now facing a maturity wall and can't refinance at today's rates. Luna: That's the classic private equity playbook: buy when credit is tight, improve operations, sell when credit loosens. So what's the exit? Back to a REIT? Lucas: Most likely. The big public REITs like Public Storage and Extra Space have been active acquirers, but they're selective. They want scale—portfolios of at least 50 properties in contiguous markets. So a PE firm that rolls up 100 facilities over three to five years becomes a prime acquisition target. In fact, in 2025, we saw a $1.2 billion deal where a pe backed platform called StoreSmart sold 85 properties to Public Storage. That's the kind of liquidity event these funds are aiming for. Luna: And how do the original owners—the mom and pop operators—feel about selling? They're often older, ready to retire, and they see a tax-efficient structure like an UPREIT where they can defer capital gains. Lucas: That's a big part of the pitch. The seller can swap their property for operating partnership units in the REIT, deferring taxes and getting a steady dividend. It's a very attractive exit. So the supply of willing sellers is there. The question is whether the PE firms can integrate all these individual properties into a coherent platform without losing the local management touch. Luna: That's the classic challenge in any roll-up. You've got 35 different facilities, each with its own manager, its own pricing history, its own local reputation. You can't just slap on software and expect it to work. Lucas: Right. The successful operators I've seen do two things. First, they keep the local manager in place and incentivize them with a profit-sharing bonus tied to revenue growth. Second, they centralize only the back-office functions—accounting, collections, marketing, pricing. That way, the local manager still handles customer service and maintenance, but the revenue optimization is done by a team at headquarters using the dynamic pricing software. It's a hybrid model that seems to work. Luna: So where do you see this going over the next couple of years? Are we going to see a mega-merger or a series of IPOs? Lucas: I think we'll see a few large platforms go public, but not this year. The IPO market is still choppy. More likely, we'll see a wave of consolidation among the pe backed platforms themselves—the larger ones buying the smaller ones. And eventually, the biggest ones will either sell to a REIT or list. There's already talk that one platform, SmartStop Storage, is eyeing a listing in late 2027. But for now, the game is about buying, improving, and waiting for the interest rate cycle to turn. Luna: Interesting. So storage is the new dental practice? Not as sexy, but maybe more predictable. Lucas: Exactly. No insurance billing, no perishable inventory, no employees with specialized skills. Just steel boxes and a gate code. It's about as simple a business as you can find in private equity. And that's why everyone is piling in.