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SAN JOSE — The official end of coronavirus-linked shutdowns has unleashed a surge in demand — including a Bay Area mega-deal — for a mundane-sounding commercial real estate product: self-storage facilities.
Public storage complexes might seem to be the most prosaic of real estate properties. Yet as personal habits shifted dramatically after the end of the business lockdowns triggered by the deadly bug, investors began to view public storage sites as increasingly attractive.
In a big portfolio transaction, 11 self-storage properties, including several in the Bay Area, were bought recently, according to JLL, a commercial real estate firm.
Seven of the self-storage properties in the recent deal are located in the Bay Area and were bought for a combined total of $165.4 million, according to official records on file in Santa Clara, Alameda and Contra Costa counties.
Besides the seven storage complexes in the Bay Area, InSite Property Group, whose operating units include SecureSpace Self Storage, bought three facilities in Texas and one in Oregon, the company said. InSite Property is based in the Los Angeles-area city of Torrance.
Pegasus Group sold the 11 properties in three states, according to JLL commercial real estate executives Brian Somoza, Steve Mellon, Matthew Wheeler, Adam Roossien and Jake Kinnear.
“This transaction represents the continuance of strong underlying fundamentals within the self-storage market,” said Somoza, a JLL managing director.
During the coronavirus-triggered lockdowns, self-storage units fell out of favor, even though they were allowed to continue to operate as an essential service, noted a report from Inside Self-Storage, which analyzes the self-storage industry. That’s because people began to shelter in place rather than venture outside their homes.
But once the shutdowns ended, the self-storage industry’s fortunes swiftly brightened.
“When the most stringent lockdowns were lifted across the country in June 2020, the need for self-storage skyrocketed,” Cory Sylvester of Inside Self-Storage wrote in a July 2022 report on the industry.
And customers’ habits shifted in multiple ways, the report stated.
“Consumers were driven by the desire to create a home office or gym, or to relocate to a more pleasing location,” Inside Self-Storage said in its analysis.
Here’s what InSite Property Group paid for the seven self-storage sites in the Bay Area, according to deeds filed with county agencies:
— 900 Lonus St. in San Jose, $37.7 million
— 355 W. Taylor St. in San Jose, $29.7 million
— 6880 Santa Teresa Blvd. in San Jose, $26 million
— 2721 Shattuck Ave. in Berkeley, $20.5 million
— 2100 A St. in Antioch, $20.2 million
— 324 S. Main St. in Milpitas, $16.5 million
— 13760 E. 14th St. in San Leandro, $14.8 million
The transactions were all completed in late July or early August. The final deal of the seven, the West Taylor site in San Jose, was concluded on Aug. 9, property documents show.
Affiliates of InSite Property Group also obtained $183.4 million in financing in connection with the 11 property purchases in the three states, records on file in Santa Clara County show. PGIM Real Estate Finance provided the funding, according to the public documents.
It’s possible that inflation woes and ongoing supply-chain difficulties could crimp new development. That could limit the construction of facilities whose new units would compete with existing self-storage sites.
“Everything including the price of steel, cement and labor has increased significantly,” Inside Self-Storage stated in the recent analysis. “Municipalities are taking much longer to review and approve projects. The net result is development is more expensive and taking longer than ever.”
With demand rising for public storage units, customers might find it more expensive to store their items, the industry analyst warned.
“We should expect to see self-storage rental rates steadily increase,” Inside Self-Storage wrote in its report.
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