Self-Storage: An American Pastime
06.10.22
2078 Fifth Avenue, a dilapidated brownstone that haunted Harlem for nearly forty years, marks the birthplace of American hoarding. Known as “Harlem’s House of Horrors,” the residence was occupied by two brothers, Homer and Langley Collyer, who filled the house with over 100 tons of matter between the 1930s and 1940s.
Columbia-educated and descended from a gentile New York family (“Our ancestors came to America on the Speedwell, which had a better passenger list than the Mayflower,” claimed Langley), the brothers were reportedly “wealthy beyond the dreams of a Croesus” and were believed to own “half of the Waterfront.”
But their blueblood heritage did little to shield them. Children reviled the house, which seemed to grow more menacing by the day. “They call me the spook,” confessed Langley to a reporter. “They say I drag dead bodies into the house after dark and string them up from our old elm tree. They break my windows. They make my life miserable. They even put a sign on my door saying, ‘This is a ghost house!’”
Neighborhood animosity fueled Langley’s paranoia, inspiring him to build a complex maze of newspapers and junk filled with booby traps to dissuade would-be intruders. He wore disheveled, 19th century rags held together by safety pins. “I have to dress this way,” he said. “They would rob me if I didn’t. We make our home look as if no one lived in it. We would be murdered otherwise.”
In 1947, after decades of increasing eccentricity, an anonymous tip reported the smell of a rotting corpse. Homer, who was blind and paralyzed, was found first, “sitting in a small cubby made of newspapers piled to the ceiling — like an enthroned king with his long flowing hair.” Police organized a nation-wide manhunt for Langley until he was found nearly a week later, just ten feet away, crushed by one of his own booby traps while bringing food to his brother.
Had the brothers survived just a few decades longer, perhaps they could have avoided such a grisly end. Self-storage burst onto the scene in 1964, a uniquely American solution to the problem of too much stuff. Today, the thriving industry actively caters to the families of hoarders, positioning the product as a Band-Aid-solution to temporarily solve their storage woes. “If you have a hoarder in your life — or if you’re worried about your own hoarding problem — a storage unit may seem like the last thing you need,” opines one self-storage company. Self-storage units, however, “put a price on your hoarding. This reorients your priorities, encouraging you to clean out the junk and keep your most treasured items.”
Today, the United States has no shortage of clutter. Over 1 in 10 Americans utilize a self-storage unit, and the industry boasts nearly 2 billion square feet of total rentable self-storage space. Thanks to a confluence of low operating costs, favorable lease terms, sticky renters, increasing mobility, and a shortage of traditional housing, the industry averaged 3.5 percent annual growth for more than 30 years. This week, we discuss the insatiable growth of the self-storage industry, a bizarre cultural invention arguably more American than apple pie.
Why Self-Storage?
Self-storage was originally born of necessity. In 1964, oilman Russ Williams and his stepson, Bob Munn, opened America’s first self-storage facility, A-1 U-Store-It-U-Lock-It-U-Carry-the-Key, in Odessa, Texas. The cinder block and steel structure provided extra storage space for oil companies and established the model for the windowless garages so popular today. As one industry participant describes it, “They just decided to build a bunch of garages in one day. They were able to rent them out. They built more. They rented them. Someone else caught on and did the same.”
For decades, the industry kept a low profile, marketing itself to the rare individual experiencing a traumatic life event. Ron Havner, Chairman of Public Storage, the largest self-storage company in the US, once defined the Four D’s — the traditional drivers of self-storage demand — as death, divorce, disaster, and dislocation. In recent years, however, the Self-Storage Association (SSA), aka “Big Storage’s lobbying group,” has retreated from this negative approach, not wanting to “suggest that self-storage facilities thrive the most when people are getting divorced, dying, or fleeing hurricanes.”
One driver for the recent growth in self-storage is the increase in housing costs and the elimination of traditional storage spaces such as attics and basements. “Many homes built in the postwar years until today — particularly the bungalows and ranches so popular in the temperate states that have seen the most population growth — come without basements or attics,” reports Slate. “It is thus no surprise that the three states that have the most self-storage space — Florida, Texas, and California — are in the Sun Belt.” Attics, in particular, have become an endangered species, as builders shifted from rafters-based roof framing to trusses — a cheaper alternative that leaves little space under the roof.
Paradoxically, self-storage facilities were a bargain to build. Early facilities were no-frills, tin bunkers built on the fringes of cities or suburbs on undesirable plots of land. Operating costs — especially when compared with other real estate classes such as apartments or hotels — were a steal in terms of taxes, electricity, and labor. Even today, when self-storage has transitioned from “junkyard to upscale neighborhood status, and from chain-link fencing to climate-controlled options with meeting rooms,” the industry retains covetable lease terms and taxation benefits that continue to attract investors and entrepreneurs.
“Storage facilities employ a negligible number of local residents and do not pay sales taxes,” writes one architectural researcher. “They use tenancy contracts that would make other landlords shudder. If a customer is in default of a payment, storage owners can lock them out of the unit. If they remain in arrear, Steel Storage reminds potential investors that ‘the ability to quickly remove and replace non-paying tenants is a well-known feature of the industry.’”
The ability to change rental rates month-to-month, combined with tenants’ tendency to forget about their units, allows well-run facilities to reap unusual profits. “Human laziness has always been a big friend of self-storage operators,” said Derek Naylor, president of the consulting group Storage Marketing Solutions. “Because once they’re in, nobody likes to spend all day moving their stuff out of storage. As long as they can afford it, and feel psychologically that they can afford it, they’ll leave that stuff in there forever.” Public Storage, self-proclaimed one of the “largest landlords in the world,” reported a 2021 annual EBITDA of $2.394B, a 21.87% increase from 2020, securing $16.40 of revenue per square foot.
Modern Day Treasure-Hunting
“The second that Gary Reuter yanks up the green sliding metal door of a self-storage unit, the pack of hunters turns on its dozen flashlights. There are eleven men and one woman, all-around retirement age. Most wear canvas jackets or windbreakers, their heads topped with wool caps or wide brimmed felt Western hats. They hold their industrial Black & Decker LED beam flashlights over their heads and lean into the dark locker, like spelunkers peering into a cave,”
— Aaron Mesh, Raiders of the Lost Crap
One of self-storage’s key advantages — its favorable lease terms and outsourcing of considerable risk to the renter — has facilitated a robust sub-culture of modern-day treasure hunters. Immortalized on the reality TV show Storage Wars, there are approximately 80,000 lien sales per year, according to one industry commentator. “It’s like Christmas shopping every day,” says one bargain hunter. “I’ve found money, I’ve found Rolexes, I’ve found diamonds.” His wife is quick to correct him: “You’ve found dead fish, you’ve found garbage.”
Units are sealed until auction, and, in most states, participants are forbidden from inspecting the items before making a bid. But for many, the thrill of the unknown merely serves to increase excitement. “It becomes clear what a storage auction is,” writes one observer. “It’s a game of poker, usually small stake but with no limit, except the players are betting on cards they’ve never seen, belonging to people they’ve never met.”
However, not all are at ease with casually sifting through another person’s intimate property, often seized at a prime moment of economic misfortune. Critics are increasingly calling for greater tenant rights or a wholesale reform of the current lien sale system.
“Self-storage leases are troubling,” writes Jeffery Douglas Jones, an associate professor of law at the University of Michigan. “Under such leases, self-storage facility owners may freely dispose of defaulting tenants’ medical and tax records, family ashes, heirlooms, etc. in the same manner as they would treat fungible items such as chairs or a bookshelf… The practice of unmonitored, undocumented auctions of tenant property and the freedom of landlords in many states to sell tenant property by whole lot, no matter what the individual value of items, seems suspect.”
While some companies, such as Public Storage, forbid the storage of heirlooms or “other precious, irreplaceable, or invaluable personal property,” Douglas believes this defeats the entire purpose of self-storage. Under such agreements, tenants are in breach of contract for something as innocuous as storing Christmas ornaments or china. Such restrictions, he argues, “clarify[y] the business model of the self-storage industry: its sole product is the storage of crap — personal property that tenants neither highly value nor much need — and only crap.”
Havner, who oversees over 2,600 facilities in 39 states, would seemingly be untroubled by this assessment. “There’s a lot of junk stored in our properties,” said Havner. “I’ve sometimes said that we could put a torch to this building, and it would have zero effect on the local economy — because that’s how much junk is stored in our properties.”
Prospects for Self-Storage
Thanks to the highly localized nature of self-storage (most facilities serve a radius of three to five miles), the industry remains deeply fragmented, with over 70% of facilities run by mom-and-pop operations. However, with the rise of third-party property management services, consolidation is increasingly an option as facilities go fully remote with keycard, biometric, and phone-based access to units.
Following the pandemic, new growth is largely in general units, but storage for extras like RVs, yachts, and cold storage has increased as well. The most immediate threat to self-storage — an overbuilt market — has temporarily waned thanks to prohibitive construction costs. “Deliveries for this year will remain well below recent peaks,” reported Marcus and Millichap in their 2022 Self-Storage Investment Forecast. “A shortage of materials and labor is affecting timelines. In some cases, projects cannot find the materials needed to finish.”
And, despite our resolutions, it seems unlikely that we will convert into a nation of consummate minimalists anytime soon. “If you’re asking me if Marie Kondo is right and we should just have two boxes and nothing else, I wish every day that I could come home and throw it all away,” says one captive self-storage user. “At least, I started this process wanting to make that statement. But I think, in the end, each of us deserves a little sentimental comfort.”
About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.
