Self storage units are an increasingly popular asset class in their own right
Self storage units have in recent years proved to be one of South Africas most successful asset classes, says Steven Horton, a Director of S A Self-Storage Investments (SASSI), the company that is currently expanding the fastest in this field in South Africa.
From the time (2004) we launched our first self-storage facility at Edgemead in Cape Towns Northern Suburbs we have always made a certain number of the units available to investors - and they have always responded well.
Phase I (120 units) at the Edgemead project in fact sold out in three days and Phase II (100 units) in a week and a half. On Phase III SASSI kept all the units for themselves, but some 40% of the total are today still privately owned.
What is more, says Horton, even allowing for the fact that the project was launched in a property boom, the appreciation rate has been highly satisfactory.
At the launch we were charging R50,000 (exclusive of VAT) for a 45 m3 unit. Today that same unit would sell for R87,000 (exclusive of VAT), says Horton.
In other terms, units that sold originally for R3,300 per m2 are today valued at R5,800 per m2. The project, in fact, saw a 74% increase in value in three years.
Surprisingly, says Horton, many of SASSIs original investors have been expatriates, people who were possibly already in the financial world and could recognise a good investment when they saw it. The local community, to whom SASSI always market themselves strongly, had also responded well. On follow-up projects many of the financial institutions and big investment houses had also become involved.
Those who understand how self storage works, says Horton, appreciate very quickly that in this type of development, although the basic unit is a no-frills facility, it is possible to charge rentals that are the equivalent of those charged for A-Grade office space. This is because the units are relatively small and because, too, SASSI is selling convenience and cubic metre space rather than square metre space.
As in all property development, says Horton, location, aesthetic factors and good management are still the keys to success - coupled, in this case, to a high level of safety and convenience for the customers.
We ensure not only that our projects are well designed and well constructed but also that they are in strategic high profile positions that are convenient for our customers, he says. We also, through Stor-Age, ensure that every development is efficiently run. Staff undergo a thorough training before being let loose on the public and we conduct ongoing advertising and direct selling campaigns to ensure that we maintain a 90% plus occupancy rate.
The importance that we place on management and service sets us apart from many developers of this type of project who simply appoint a security team and a caretaker and then walk away. Our ongoing concern for our developments results in their becoming increasingly valuable and profitable.
Tracing the background to SASSIs rapid rise to prominence in this specialist field, Horton says that back in 2004, prior to being founded, they had realised that self-storage units were an asset class in the property sector with huge potential not just in South Africa but worldwide.
However, says Horton, the fact that the industry was still young and in its early development phase meant that very little information was available and the general perception was that to gain access to the upside potential in this sector was likely to be extremely difficult unless you were an entrepreneur with very deep pockets.
Undeterred, says Horton, SASSI had embarked on an R & D programme looking at what was happening in this sector locally and internationally.
The goal was always to develop a simple, easy to understand, transparent business model that would give investors of all sizes (from corporates to quite small individuals) a chance to participate in this commercial property market. To be successful we realised, that we had to be able to generate strong cash yields and to make it possible for the investors to trade their investments easily and quickly if they so wished.
Most of SASSIs directors, says Horton, are chartered accountants or former investment bankers, many with already acquired expertise in property management and construction.
We are run by financial professionals who have applied all the traditional corporate management principles to the self-storage industry, he says.
Self-storage units, says Horton, are, in fact, one of the latest responses to the needs of todays more sophisticated societies - and the always-changing property market.
Not so long ago there was no such thing as a skyscraper, a shopping mall or even a decentralized business park. Today these are very much part of our lives.
It is much the same with self-storage units. These have become popular and profitable because they fulfill a very real need. Capitalism, with its inherent ability to invent ever more attractive products and to make life ever more comfortable, has resulted in many people acquiring goods at a faster rate than ever before in the history of humankind - but at the same time we are now in an age in which the available living and work areas are smaller and therefore less space is available for ones goods.
In these circumstances one might expect people to become less acquisitive. In our experience, however, peoples possessions always remain dear to them - they evoke poignant memories - so that in many cases they would rather store them than dispose of them.
Furthermore, our age is characterized by high mobility: people change and renovate their homes and change their jobs regularly. This, too, creates a demand for storage.
Much the same applies on the commercial front where businesses expand or contract almost overnight - again creating a demand for instant storage.
The business model evolved by SASSI, says Horton, is similar to that of many hotels today - the developer is the single largest investor in every scheme and usually aims to hold onto his units in perpetuity. However, other investors can be admitted to take up to 50% of the stock in any one facility.
The fact that SASSI invests in its own projects, says Horton, is a huge reassurance to investors. They appreciate that our future is linked to theirs - and that we are working to a common goal.
SASSI, he adds, developed a rental pool system that is in many ways unique. Investors acquire the rights and titles to one or more self-storage units but, if they are not using them themselves, these become part of a rental pool which makes them available for short or long term periods to hirers.
Distributions, paid out quarterly, are calculated not on each units usage by hirers but on the performance of all units combined - and earnings are boosted by investors participating in the net profits of the ancillary retail business which supplies users of units with boxes, locks, wrapping materials, rope and the like.
Following on the success of this rental pool investment model, says Horton, SASSI has also developed joint venture deals in which they and investors develop and own units independently of others in the rental pool.
Outlining SASSIs growth plans for the next few years, Horton says that, as mentioned, in Cape Town they are already in Edgemead and Maitland and are currently developing new stores in Tokai, Sea Point and on the West Rand of Johannesburg with projects in the pipeline for Durban, Port Elizabeth and Bloemfontein. Investors will be kept informed of all these developments on an ongoing basis.
Article by: www.saselfstorageinvestments.com