Section 2 • Economics & Demographics Revenue growth should continue to look


strong across the industry. William Warren Group expected revenue growth in the 7 percent to 10 percent range across the board in 2014, compared with a typical 4 percent to 5 percent year. Rising demand and occupancy rates allow owners to re- duce concessions. With more than half of storage tenants retaining their units for over a year, opera- tors have ample opportunity to make incremental rental raises to create additional revenue. The storage sector is seeing more loans from


banks, which are offering funds for new construc- tion, turnaround construction, conversions, add- ons, and existing facility buys. Lenders embraced qualified operators with a good track history. A new wave of joint ventures (JV) is bringing


fresh capital to the industry, allowing some op- erators to expand their footprints and new own- ers to enter a promising real estate sector. Industry experts report that the number of joint ventures announced or in the talking stages has been on an upward curve for the last two years. JVs can take many forms. The self-storage


REITs have used them for years to buy portfolios of properties that may lie outside the parameters of their balance sheets. Regional operators that want to grow beyond their immediate borders but still want a safety net might form a JV with a REIT. A joint venture allows participating parties to


leverage equity. The operating partner benefits from branding and economies of scale by invest- ing a portion of the equity. The REITs carry some of the equity to the transaction, while the joint ven- ture partners bring the balance. Some investors recognize that


self-storage


promises to be a secure source of cash flow in good times and bad, while the REITs may realize


Table 2.2 – Top 10 Metros for Boomer Population Growth (2012 - 2013)


Change in 50-69


Rank U.S. Metro 1 Austin, TX


2 Raleigh, NC


3 Dallas, TX 4 5


Charlotte, NC-SC Charleston, SC


6 Houston, TX 7 8 9


10 Miami, FL Source: U.S. Census Bureau/Trulia 42 Self-Storage Almanac 2015


Fort Worth, TX Atlanta, GA


San Jose, CA


year-old population 4.40%


4.30% 3.50% 3.40% 3.30% 3.20% 3.20% 3.10% 3.10% 3.10%


some properties in a JV perform similar to bonds in their capacity to generate cash flow. REIT executives, storage developers, and other industry experts acknowl-


edge that new development is coming to self-storage. Joint ventures may jump-start new development that will be needed to meet marketplace de- mand in the years to come. REITs are better positioned to make portfolio acquisitions where the return


is immediate, rather than financing new development that will be years in the making. That’s where joint ventures come into play. The REITs enter into JVs to give them a foothold on new development, but on a limited scale.


The storage sector is seeing more loans from banks, which are offering funds for new construction,


turnaround construction, conversions, add-ons, and existing facility buys. Lenders embraced qualified operators with a good track history.


Sovran and Extra Space do not have development platforms, so they are


looking to a joint-venture model or partner with qualified builders, according to the BSC Group in Chicago. Sovran is partnering with local developers in Chi- cago, Atlanta, and Chattanooga, Tenn., to build new facilities. The REITs’ strategy would be to manage the facilities with a vision of acquir-


ing those stores down the road. Once the store is open and doing business, a REIT may want to acquire the property if it’s well located and considered a high quality asset. Joint-venture partners come in all shapes and sizes, but operators with


multistate platforms are among the most attractive candidates. Private equity companies may seek to enter the storage industry through an established op- erator to reduce risk. There is plenty of equity sitting on the sidelines and these funds could find


their way into self-storage joint ventures down the road. Local, regional, and national privately held companies hold tens of millions of dollars of equity looking for a home, and self-storage represents the best landing spot for many investors.


Population Aging Population aging—a global phenomenon—is one of the most remarkable trends of the new millennium and its full impact has yet to be seen. Of the 77 million born into the baby boom generation between 1946 and 1964, the youngest turned 50 in 2014. In 1930, Americans over 55 comprised only 5.4 percent of the population;


today, the 60 million in this demographic make up approximately 13 percent of our population, and their numbers are growing rapidly. The U.S. Depart- ment of Health and Human Services predicts that those age 50 and older will represent 45 percent of the U.S. population by 2015—the majority being born during the mid-century baby boom. Boomers are not only significant for their sheer numbers; they control


over three-fourths of the nation’s wealth. With baby boomers controlling so much wealth, their economic influence can’t be overstated. The Economic Policy Institute reports that baby boomers have a net worth three times that of younger generations. Boomers’ median income is 55 percent greater than


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