Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Self-Storage Facilities
Transcript
- Lucas: Let me start with a number that stopped me: there are roughly 58,000 self-storage facilities in the United States today. That’s more than the total number of McDonald’s, Subways, and Starbucks combined. Luna: Fifty-eight thousand. And I bet most people drive past one every day without really noticing it. Lucas: Exactly. And what’s interesting is how this industry has quietly become a massive target for private equity. According to data from the Self Storage Association, operators spent about $42 billion on acquisitions just in 2025. That’s up from about $28 billion in 2020. Luna: So the pace is accelerating. What’s driving it? Lucas: A few things. First, the fragmentation. Even after years of consolidation, about 60 percent of facilities are still owned by mom and pop operators — typically someone who built a single location on a piece of land they owned, or bought one as a retirement investment. Luna: Which is exactly the kind of market private equity loves. Fragmented, with a clear roll-up thesis. Lucas: Right. And the economics of a well-run facility are pretty attractive. Average occupancy runs around 90 percent. Monthly rent per unit is about $170. And the profit margins? Industry insiders say operating margins can hit 40 to 45 percent once you’ve paid off the construction debt. Luna: Forty-five percent margins. That’s higher than a lot of software companies. Lucas: It is. And the real kicker is that self-storage is incredibly recession-resistant. People don’t get rid of their stuff when the economy turns down — in fact, they often need more storage when they downsize homes or go through life transitions like divorce or death. The industry actually saw occupancy rise during the 2008 financial crisis. Luna: So it’s a defensive asset with high margins and a fragmented supplier base. No wonder PE firms are piling in. Lucas: The biggest players are the publicly traded REITs — Extra Space Storage and Public Storage together control about 15 percent of the market. But behind them, you’ve got private equity-backed operators like StorageMart, which is owned by a family office but has been aggressively buying, and a firm called Life Storage, which was taken private by a group led by Blackstone in 2023 for about $13 billion. Luna: Thirteen billion — that’s not a small deal. What does the roll-up strategy actually look like on the ground? Lucas: Typically, a private equity firm buys a platform — say a regional operator with 20 or 30 facilities in the Sun Belt. Then they use that platform to acquire individual sites from mom and pops, often at 10 to 12 times EBITDA. Luna: And how do they improve those acquired sites? Lucas: Mostly through revenue management — basically, dynamic pricing software that adjusts rents based on local demand, just like airlines or hotels. A typical mom and pop might raise rents once a year. A sophisticated operator uses software that changes prices weekly. That alone can lift revenue by 8 to 12 percent. Luna: So the thesis isn’t just about buying cheap and waiting for real estate appreciation. It’s about operational improvement. Lucas: Exactly. There’s also a push toward ‘value-add’ services — selling packing supplies, offering truck rentals, even providing climate-controlled wine storage for high-end customers. But the core economics rely on that pricing software. Luna: What about the risk side? Is there a debt overhang in some of these deals? Lucas: It’s a fair question. The typical acquisition is financed with 50 to 60 percent debt, and with interest rates where they are — the ten-year Treasury was around 4.2 percent as of this week — the cost of capital is meaningful. But the cash flows are so stable that lenders are still eager to lend. The bigger risk, in my view, is that the acquisition multiples have been creeping up. Five years ago, you could buy facilities at 8 to 9 times EBITDA. Now we’re seeing 11 to 12 times in competitive markets. Luna: Which means the return on equity gets compressed unless you can drive that operational improvement. Lucas: Precisely. And that’s where I think some of the smaller PE shops might get caught. If they overpay and the pricing software can only squeeze so much, the math doesn’t work. Luna: There’s another angle I wanted to bring up: the FTC. I saw a report in the Wall Street Journal last month that the Federal Trade Commission is looking into whether the three largest operators — Extra Space, Public Storage, and CubeSmart — have been coordinating on pricing through shared revenue management software. Lucas: I saw that too. It’s a fascinating case. The allegation is that they all use a pricing algorithm from a company called Yardi Systems, and that algorithm might be facilitating information sharing that crosses the line into collusion. Luna: If the FTC finds evidence of that, it could have big implications for how these roll-ups operate. A lot of the margin expansion depends on pricing power. Lucas: Right. And if that pricing power is challenged, the whole thesis gets weaker. But let’s be clear — the industry is still highly fragmented. Even the top three only have about 20 percent market share combined. So any collusion case would be about specific local markets, not the whole country. Luna: Still, it’s worth watching. Especially for any PE firm that’s building a self-storage platform right now. Lucas: Absolutely. And speaking of platforms, let’s look at one specific deal that I think illustrates the trend well. In March, a firm called BGO — that’s BentallGreenOak — bought a portfolio of 38 storage facilities from a family-run operator in the Midwest. The price wasn’t disclosed, but folks in the industry estimate it was around $400 million. Luna: That’s about $10.5 million per facility. Does that line up with typical valuations? Lucas: It does. At that price, assuming 40 percent margins, you’d need about $2.6 million in annual EBITDA per facility, which implies a rent roll of about $6.5 million. That’s consistent with a well-located, 80,000-square-foot facility in a mid-sized city. Luna: So the numbers are real. But who’s the end buyer here? Is it pension funds? Lucas: Increasingly, yes. Self-storage has become a staple in institutional portfolios. The NCREIF Fund Index — that’s the benchmark for institutional real estate — now includes a self-storage sub-index, and allocations have grown from virtually nothing ten years ago to about 4 percent of core real estate holdings today. Luna: That’s a big shift. And it means that even if PE firms eventually exit, there’s a deep pool of institutional capital ready to buy. Lucas: That’s exactly the liquidity story that makes these roll-ups so attractive. You can build a platform, improve operations, and then sell to a core fund or a REIT, often at a higher multiple than you paid. Luna: One thing I wonder about: the supply side. With 58,000 facilities already, are we approaching saturation? Lucas: It depends on the market. In dense urban areas like Manhattan, new supply is almost impossible because land is too expensive. But in the Sun Belt — places like Phoenix, Atlanta, and Charlotte — there’s been a lot of new construction. In fact, completions peaked in 2024 at about 2,500 new facilities nationally. That’s starting to put pressure on occupancy in some submarkets. Luna: So the easy gains from adding supply may be fading. That would make the operational improvement thesis even more important. Lucas: Exactly. And that’s where I think the next frontier is: technology. Some operators are now using AI to forecast demand at the unit level — predicting which sizes of units will be in demand based on local moving patterns, university calendars, even weather data. Luna: That’s pretty granular. Do you think that’s enough to sustain the margin advantage? Lucas: It might be for a while. But the bigger picture is that self-storage has become a $200 billion asset class globally. And private equity is playing a central role in professionalizing an industry that was largely run by small business owners. Whether that’s good for consumers is a separate question. Luna: Well, and that brings me to something I’ve been thinking about as we’ve been doing these episodes. These conversations about how PE is reshaping industries — they’ve genuinely changed how I think about business. And I know a lot of listeners feel the same way. If this show has given you a useful lens on your own work or investments, it’s worth remembering that we keep it ad-free because of listener support. Lucas: Yeah, that’s a good point. If you’ve gotten value from episodes like this one — whether it’s a new framework for evaluating a fragmented industry or just a better understanding of where institutional capital is flowing — consider chipping in at buy me a coffee dot com slash fexingo. It helps us keep going deep on these topics without any sponsor pressure. Luna: And we appreciate it. Now, back to self-storage — Lucas, you mentioned that the consumer side might be a concern. What do you mean by that? Lucas: Well, when a single PE firm owns dozens of facilities in one market, they have pricing power. And studies have shown that in markets where consolidation is highest, rents rise faster than the national average. A 2023 paper from the National Bureau of Economic Research found that self-storage rents in highly concentrated markets were 8 to 12 percent higher than in more competitive ones. Luna: So the consumer pays more. And there’s no real substitute for storage — you can’t just store your stuff in a friend’s garage forever. Lucas: Right. And that’s the tension. Private equity brings capital and efficiency, but it also reduces competition. For the investor, that’s great — higher returns. For the renter, it’s a mixed bag. Luna: It’s a theme we see across a lot of these episodes. The roll-up works because the underlying business has stable cash flows and the fragmented structure allows for multiple arbitrage. But the end result is often higher prices. Lucas: Exactly. And I think that’s the honest assessment. Self-storage will continue to be a PE favorite as long as the numbers hold up. But the regulatory environment and the supply cycle are two variables to watch closely. Luna: Well, thanks for unpacking that. I’ll never look at those orange and blue buildings the same way again. Lucas: Same here. That’s it for this episode of The Buyout Show. We’ll be back next time with another look at how private equity is reshaping the economy — one industry at a time.