Self-storage: The men who got rich selling empty space

http://www.bbc.co.uk/news/business-26921870

by timw6n • 12 years ago

94 64 12 years ago

bbc.co.uk

From the article:

    But there is one clear lesson from the storage story.

    If you want to be a millionaire, you'd be well advised
    to look beyond what's sexy.

Quoting from Paul Graham:

    There are great startup ideas lying around unexploited
    right under our noses. One reason we don't see them is
    a phenomenon I call "schlep blindness." "Schlep" was
    originally a Yiddish word but has passed into general
    use in the US. It means a tedious, unpleasant task.

-- http://paulgraham.com/schlep.html

rayiner2• 12 years ago

It's also a great example of the general principle that it's good business to try and figure out how to disproportionately leverage public resources.

Say police protection and property enforcement was privatized. Under such circumstances, the cost of security for a storage facility would be substantial. But in a society where the public pays for security, it's "free" to create a business that presents an outsized target for thieves.

PeterWhittaker2• 12 years ago

Hardly. Physical security at self-storage facilities is comparable to that at non-classified government installations - at least the ones I've seen in Canada: Perimeter fencing with logged access control, CCTVs and live monitoring, individual locks on storage areas, etc.

Add the cost of insurance, bonding, etc., and there is absolutely no "free" involved.

spindritf• 12 years ago

Lack of police protection would also greatly drive up the demand for secure storage.

pjc50• 12 years ago

You couldn't run this business in a libertarian state; nobody would trust you not to steal their stuff, and almost everyone would be so poor as to not afford your service. This is why there isn't a thriving self-storage business in Somalia.

AlexMuir2• 12 years ago

"Danny Dorling, professor of geography at Oxford University, says we have six times more "stuff" than the generation before us."

I run a storage business and I can say that this is no longer the case with the younger generation. We used to store boxes of CDs, Videos, 14" Colour TVs, Desktop Computers, Hifis. Now all this is in a laptop and mobile phone, which people just take with them. We now insist on up-front payment as the items people store are worthless to sell.

90% of what we store is now boxes/suitcases of clothes and books.

chiph2• 12 years ago

I had a 10x20' storage unit for years -- it was full of all the stuff you mentioned - CDs, stereo, furniture, an astoundingly heavy 34" tube TV... All the media went digital (with multiple backups!) and everything else was either sold on Craigslist, donated, or hauled away to the landfill. Now I can move by just renting a small trailer.

mcmullen• 12 years ago

Why didn't you just sell the non-essential things and make room for the rest? I only ask because I have lived in 7 different properties since starting University and now (almost three years into career) and I literally take what I need and chuck the rest; one could probably describe me as the 'anti-hoarder'.

josefresco2• 12 years ago

"We now insist on up-front payment as the items people store are worthless to sell."

Was this ever different? Boxes of CD's, videos and tube TV's don't sound that valuable. But reading into your comment, it seems it wasn't always like this...

bkmartin• 12 years ago

It might now seem that way, but when you can put those things into a second hand shop for $1-$5 a piece someone's DVD, or CD collection can become quite valuable when its abandoned. Some people did/do store hundreds of cd's, dvds, and the like. A unit could have a thousand dollars(in real secondhand market value) of merch very easily.

Spooky23• 12 years ago

Buddy of mine does lots of odd lot things. He buys storage units once in awhile and gets big hits sometimes. He's gotten gun collections and snowmobiles, among other things.

scottkduncan• 12 years ago

Do you see the overall demand profile for self-storage changing accordingly, i.e. it could be headed for a secular decline because younger demographics don't accumulate as many physical items?

When I was brainstorming startup ideas once I mentally kicked around "AirBNB for self-storage," but liability issues and what I saw as a trend towards minimalism among those who would have been a target demographic as reasons to discard it.

davidw• 12 years ago

younger demographics don't accumulate as many physical items?

We'll see how that plays out as they age, which tends to include things like getting married, having kids, buying a house, and that kind of thing. For instance, our garage now contains 2 strollers, 2 kiddy scooters, 3 kiddy biycles of varying sizes, and one sort of push-tricycle thing. I didn't have all that crap when I was younger, either!

I heartily agree with the advice elsewhere to look at "boring" and "unsexy" stuff. It also helps if it's "far from the tree" in the sense of not picking something that's immediately related to the world you know as a programmer.

bananas• 12 years ago

I'll confirm this. I'm much older than the "younger" generation and I have virtually nothing compared to my parents and theirs. I can get everything I own in a 45l bag and a large box. They can't get all their crap in a 4 bedroom house with a double garage.

Also as a side issue, yes you're right; absolutely nothing out there is worth much any more. The Internet and particularly eBay has laid waste to the value of things by making everthing ubiquitous.

AlexMuir2• 12 years ago

Another effect of the internet is that it is now trivial to find out the second-hand value of something.

kcovia• 12 years ago

Whether it's for economic (less spending money), technological (mp3s are a lot smaller than CDs), or simply cultural reasons, the younger generation seems to have less stuff.

I see an opportunity in 5-10 years...microapartments in former self-storage space?

parenthesis• 12 years ago

Some people already run mail-order businesses from self-storage units:

http://www.bbc.co.uk/news/business-25336446

Jtsummers• 12 years ago

This seems like a more likely outcome than living spaces. If for no other reason than a lack of water/electric outlets for home use. Air-conditioned storage units could make decent (depending on location) store fronts as well, in a sort of industrial mall sort of way.

jpindar• 12 years ago

It's hard enough to get the governmental approval of microapartments in buildings with more normal residential design. (Depending on the location of course.)

rabino• 12 years ago

The title is lame. He didn't get rich selling empty space. He got rich selling what's enclosing that empty space.

frogpelt2• 12 years ago

I thought so too.

You could call undeveloped, beach-front property empty space too, but it would be disingenuous.

bluedino• 12 years ago

I never understood friends who put things in storage. It was their used furniture and things they never used. But they'd gladly play $100/month to store it away for 2-3 years at a time. You're better off just selling it and buy new (used) things in a year or two.

Not to mention the hassle of moving things to and from the storage unit!

jdeibele• 12 years ago

I've only rented a storage unit a couple of times but for me there were two factors: one was knowing the history of everything that was in it. And the other was that I had chosen those items.

I liked knowing that nothing was damaged in ways that weren't easily visible, like something you bought used might be.

And I don't enjoy shopping so trying to get something just like what I had is/was difficult. And it's getting harder: manufacturers change models at an incredible rate. You have to read reviews all over again, etc.

jtbigwoo2• 12 years ago

I've a storage unit when selling my home. Apparently buyers like to look at nearly-empty shelves and closets.

pdeuchler• 12 years ago

This article misses the entire point of the self storage game, in that it's all about real estate. I'm not sure of the structure they have over in the UK but I'm quite sure it's the same type of thing, considering that land over there is much more valuable.

Here in the US you'll find a vast majority of the land used for self-storage is owned by either investment firms specializing in commercial/self-storage real estate, MLP's (Master Limited Partnerships), or REIT's (Real Estate Investment Trusts). There are a lot of nuances to it, but essentially these are tax vehicles that buy up a bunch of not particularly sexy land, but in an industrious location that has long term potential. The issue then becomes what to do with the land while you sit on it, and the answer to that is self-storage. Self-storage warehouses are incredibly cheap to build and operate, often times the largest cost is insurance (although that's not saying much nowadays). Many MLP's/REIT's either own their own self-storage company, own a controlling share in one, or at least own a good percentage of one, or the self-storage company in and of itself is an investment firm wrapped in a thin veneer of self-storage. Thus, on top of the rent you can get a nice cut of the storage profits. It's a fantastic racket if you can get momentum, after a certain point the money essentially prints itself and you still have control of a massive chunk of land to boot. The self-storage business is also very predictable, and highly tuned, so the investment returns on both the land and the storage business are very conducive to long term wealth building.

larrys2• 12 years ago

I'd be curious where you are getting that narrative from. It differs from what I am familiar with for sure in terms of knowledge of this industry. Not that that's not the play of some REIT's (or what they say they are doing but not really doing) of course but I wonder how many of the locations fall into that category vs. just "after a certain point the money essentially prints itself". Which sounds pretty good. [1]

(What you are saying is typically done though with parking lots in cities for sure for various reasons.)

"and you still have control of a massive chunk of land to boot"

Unless you have land in a particularly valuable location the fact that there is a building on it is going to contradict having someone purchase it for development purposes. It's being used. In other words "nothing to see here move along". And if it was in a super valuable upcoming area that would already be priced into the land cost and might be prohibitive.

I'd also would like to know what the time frame is for something like this to actually happen and how many times it has actually been done. That is, out of the entire self storage industry, how many locations (multi level for example - those larger buildings) have been raised for a higher use (with every tenant thrown out)? And something else built on the land which generates more revenue. Where a comparable piece of empty land was not available?

Of course it might be something that the REIT says marketing wise in order to enhance the appearance of the value of their properties. But to me it seems that the reality of whether that would actually happen (and how often) might be entirely different.

That said any links to this would be nice if you can pass along.

[1] For self storage that I am also familiar with they predictably raise the price every year. And it's not easy to move things out (you need a truck or you need to dispose of something.)

itbeho• 12 years ago

I've seen one self storage facility in my town removed in favor of a commercial medical plaza recently.

Self storage buildings around here are just cheaply built steel buildings. They are easy to dismantle.

ldd-• 12 years ago

It's relatively common practice - buy RE as a speculative investment and hold hoping that it will grow in value as an area develops.

In the meantime, it would be great to have the property throw off some free cash flow, so developers build businesses on the property that involve highly generic structures that are easy to build (low investment) and easy to demolish - otherwise, the cost of demolition for any prospective buyer will reduce the value they are willing to pay for the land.

Common businesses for this purpose are parking lots/garages and storage. When you see those, it's pretty safe to assume the owner is trying to maintain as much option value as possible in the property.

Once you build a specialized structure, you lose option value on the property.

coldtea• 12 years ago

Unless you have land in a particularly valuable location the fact that there is a building on it is going to contradict having someone purchase it for development purposes. It's being used. In other words "nothing to see here move along".

Huh? It's not like the way those things are sold is people driving around and searching for empty lots.

The owner actively seeks to sell it, and he (or his agent) negotiates with prospective buyers who might not even have visited the location at this point, just look for something in that area.

The fact that there's a building (the garage or self storage) on the location so "it's being used", doesn't matter at all as to whether there will be buyers for it.

Heck, buyers investing in upcoming (development/price wise) places are known to buy and demolish existing residential buildings and established business to build their new stuff (an office building, a mall, a skyrise, etc) -- a parking lot is nothing compared to that.

And it even comes with a single owner to negotiate with, as opposed to buying several different residential buildings to build on.

boobsbr• 12 years ago

People do the same with parking lots in Brazil.

Buy some land in the city, and old crumbling house (which usually are big), and sit on it waiting for the value to go up, or some construction company wanting do build an apartment building on it.

What to do with the land while you wait? Make it a parking lot and car wash. Lots of buildings here only have 1 parking spot per apartment, and the tendency nowadays if for middle class families to have 2 cars.

Workforce for a parking lot + carwash is abundant and extremely cheap, they don't even need to have a driving license, and barely be able to read.

Quite a lucrative business.

seanalltogether• 12 years ago

I recall reading that this was a big problem with downtown Denver back in the 60s or 70s. The whole downtown area was covered in parking lots because people were sitting on land waiting for it to go up in value. It was having a negative impact on trying to turn downtown into an attractive hub for more business to come in.

edit - found it http://usa.streetsblog.org/2013/05/13/how-denver-repaired-it...

marincounty• 12 years ago

If you have to rent a storage unit get the smallest unit, and get rid of it quick. I used to work for this thieving industry. The owners know once you move your stuff in; they have a customer for life. As you get older you will accumulate some good stuff, but make sure it can all fit in a closet sized unit. Keep tools of your trade. Keep valuable jewelry, and silver. As for books, it's my sore spot--I have a small library. If I needed to part with them, and I just might ave too, I'd keep a valuable first editions, and two milk crates full of must have refrence books. The indusrtry is a slimy business. The owners take advantage of hoarders, sedimental types, and the desperate. They literally have industry seminars where they discuss making more money on late fees. The also ask for your S.S. number when renting(I think that is illegial?). Don't take your frustrations out on the country guy--he's just a low paid worker. If you do plan on skipping out on the highest per square foot rent in the world--get your stuff out before the lock goes on. Use their dumpster and throw 90 percent of your garbage out. Yes--most of you store garbage. Women store to many linens, books, and Chinese made furniture, and the inherited sewing machine(keep the machine, throw away the cabinet). Men store too many redundant tools, or huge tools they never use. Keep the suitcase Tig/stick welder. You don't need three welders. Keep the Snap-on tools, but sell the huge cabinet. Sell all antiques, and give away the cheap furniture including the matress. Everyone seems to cling to there matress? My final thought--sit down and roughly figure out how much your stuff is worth. Figure out how many months if rent will replace your possessions? For 95 percent of you it's a couple of months rent. Good luck. Oh yea, I would like to see all rents due on the first of the month. They prorate on the date you move in. Why--so you will forget to ake you payment, and have to pay a late charge. Forgo the rental insurance. Sue the mini storage in small claims court if they slip up in any fashion( I.e. have video cameras, but don't have the tape of your unit being broken into. As to the mini storage owners--yes--you are extorting people at a very stressful time in their lives; you are just like pawn Shop Owners. When you filthy Lookers are counting your ill gotten gains, keep Sundays open, and drop by a local church--you might hear something interesting.

frogpelt2• 12 years ago

Self-storage is quite an interesting phenomenon. The total self storage rentable space in the US is now 2.3 billion square feet.[1] That's enough space for every American to have over 7 square feet in which to stand. In fact, that's probably enough to lay down.

To be sure, a lot of other men and women got rich before the storage men, in order for us to have more stuff than will fit in our houses.

1. http://www.selfstorage.org/ssa/content/navigationmenu/abouts...

hf2• 12 years ago

Coincidentally, this is something I have researched just last week for my area. I would love to store boxes upon boxes of things that I will need in another two years (eg. baby clothes), will sell eventually, or plain don't want around[0].

Unfortunately, I have come to the conclusion that the concept of self-storage presented here, quite similar in spirit to my local self-storage providers (henceforth: SSPs), is not reconcilable with my use-cases and fundamental needs.

To wit: All SSPs that I found were located on the outskirts of town. "Industrial estate" would describe it well. This calls for car ownership (or rental, at least) and huge transfer volumes.

But I want to spirit away a smallish box every month or so. I would like to carry it (perhaps in a bicycle trailer) around the corner. In short: I want those SSPs to be as ubiquitous as libraries.

Now, are there cities were a system not unlike to the one outlined above exists? If so, are hacker/maker spaces similarly well-distributed?

[0] Books, chiefly by virtue of their tactility, belong solidly into the latter category, as non-intuitive as it may sound: these cellulose blighters are everywhere and frankly cumbersome to circumnavigate by now.

roel_v• 12 years ago

Well how much would you pay for it? 10x what it costs to store it at the outskirts of town? Why don't you take a taxi every month to go there?

JaakkoP2• 12 years ago

Hope you don't mind me asking if you live in Texas? I'd love to ask feedback about my storage on demand startup remotegarage.com, as it sounds like it would serve your needs better than traditional self-storage?

hf2• 12 years ago

I don't want to sound overly enthusiastic, but I do think that this fits the bill 90% of the way. Great presentation[0]; pricing explicit and almost exactly what I would have imagined; and, of course, sane pick-up and delivery. I even hunted around for a spelling mistake to have something on the opposite side of the ledger. No such luck.

Alas, I'm a few thousand miles short of becoming a valued customer.

Now, hopefully, you're wondering about that last 10%: It's point 2 in your "How it works":

Pack your things carefully and take pictures of the contents.

I'm sure legal would have a word or two to say about that, but: how much would it set me back if you did that, together with providing a rough description of the box' contents? This, then, would appear on my account page's List of Boxes.

The details are devilish, of course, and supreme caution is indicated: you don't want a prominent "take-a-peek" option to adversely affect the trust of your more privacy-conscious clients.

[0] Which, incidentally, doesn't appeal to me, as I am solidly in the tarsnap aesthetics camp, but we both know what to make of that.

robmaceachern• 12 years ago

Any post about storage units should reference this George Carlin routine http://youtu.be/4x_QkGPCL18

tpowell• 12 years ago

I don't know if they're international or not yet (I doubt it), but an Austin startup is trying to professionalize this unsexy market:

http://www.sparefoot.com/

thinkling• 12 years ago

The web-enabled home-delivery version of storage: http://www.storrage.com/

You don't get your own storage unit; instead, they pick up labeled tubs from your house, and when you want them again you can request a specific one to be delivered. They don't take furniture and such.

(Disclaimer: I'm not connected to this company in any way, not even as a customer.0

theorique• 12 years ago

Tyler Durden says: "The things you own, end up owning you."

grecy• 12 years ago

I spent 2 years living in rural Central and South America, and of all the things that shocked me on my return to North America, the sheer amount of stuff people have was by far the biggest.

People have multiple cars, boats, quads, kayaks, tvs, couches, RVs, snowboards, skis... the list is endless.

I was dumbfounded that people have so much stuff, they pay money to put that stuff someplace.

rajacombinator• 12 years ago

What a silly headline. All housing is empty space when sold too.

ambrop7• 12 years ago

I read most of the article but I'm still not sure: What is self-storage? How is it different from just selling storage space?

Self-storage: The men who got rich selling empty space

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