Self-Storage Underwriting: The Five Numbers Most Investors Get Wrong

Self-storage has a reputation as a recession-resistant, easy-to-operate asset class. Both statements are true — until you underwrite one poorly. Here are the five numbers I see mis-modeled most often.

1. Economic occupancy vs. physical occupancy. A facility can be 92% physically occupied and 68% economically occupied. The gap is concessions, delinquency, and rent roll ghosts. Always ask for a rent roll AND a T12 income statement — reconcile them yourself.

2. Street rate vs. in-place rate. Sponsors love to show you street rates on their website — the price a new customer would pay today. But your income comes from in-place rents, which are often 15-30% below street. The value-add thesis lives in closing that gap through ECRIs (existing customer rate increases), and existing customers churn when you push rates too fast.

3. Expense ratio. For a stabilized, professionally-managed facility, expect 35-42% expense ratio. Anything under 30% in the pro forma is a red flag. Property taxes, insurance, staffing (even part-time), marketing, and software add up fast.

4. Market saturation. Look up SF-per-capita in a 3-mile and 5-mile radius. The national average is around 8 SF/capita. Anything above 10 SF/capita means you are entering an oversupplied market, and your rent growth assumptions need to be aggressively conservative.

5. True capex. Storage doors, roofs, security systems, and paving are all expensive. Budget at least $0.15-0.25/SF/year in reserves. If the pro forma shows $0, the sponsor is either inexperienced or hoping you don't notice.

Self-storage is a great asset class. But the sponsors who make investors money are the ones who model these five numbers honestly upfront.