From the new Metro Self Storage location in Brown Deer to the purchase of the former Harley-Davidson plant in Wauwatosa by U-Haul, self-storage facilities have been popping up all over the Milwaukee area as of late.
“It’s been a trend over the last several years, and it’s definitely ramped up over the last 12 to 18 months for sure,” said Brian Parrish, president and chief executive officer of Milwaukee-based PARADIGM Real Estate LLC.
Some additional examples of recent or planned self-storage developments include conversions of: a 48,000-square-foot industrial building at N92 W15800 Megal Drive in Menomonee Falls; the 124,247-square-foot Iron Mountain Building at 420 W. St. Paul Ave. in Milwaukee; and the 232,200-square-foot former Coca-Cola bottling plant at 2727 W. Silver Spring Drive in Milwaukee.
Another self-storage facility, one that would be a new development, is planned for Pilgrim Road and Shawn Circle in Menomonee Falls. Called The Vault, it would consist of a 53,000-square-foot climate-controlled building and an adjacent 51,400-square-foot non-climate-controlled building.
With all the ongoing and planned projects, Parrish predicts that at least 4,878 new self storage units will come onto the market in southeast Wisconsin by the end of the year or beginning of 2016. The average development in the area consists of 300 to 600 units, he said.
One of the main reasons for the self-storage development surge is that owners of old, functionally obsolete industrial space are looking for new use options for the space.
In addition, Parrish said banks are very willing to lend money and provide SBA financing for self-storage projects as, next to apartments, they are considered the safest form of real estate investment.
Lastly, Parrish said local players in the self-storage market are rapidly expanding in order to defend their territory from out-of-state players whose own markets have already become saturated with self-storage facilities.
According to Adam Matson, senior vice president and industrial real estate broker at Milwaukee-based NAI MLG Commercial, much of the Midwest is a “little late to the game” in terms of developing self-storage facilities. The East and West Coasts and Chicago region, for instance, experienced an increase in developments five to 10 years ago.
Like Parrish, Matson said that he has seen “a big step-up” in self-storage projects over the past 12 to 18 months.
He believes the boom can be attributed to the improved economy. For instance, people have more disposable income now to bring belongings out of their garage and into storage. Additionally, when they move, they are bringing possessions with them rather than selling them.
The enduring need for storage is what makes self-storage such a good real estate investment, Matson said.
“In the Milwaukee metro area, we are underserved currently by self-storage, which means there’s a high demand for the units,” he said. “We’re getting there real quickly with all these conversions, but they still have not outpaced the demand.”
Furthermore, Matson said self-storage facilities, when sold or traded to investors, demand a very low cap rate, which means a high sale price.
“So the demand on the investment side is high, and there’s a lot of competition to buy up full facilities,” he said.
Parrish agreed self-storage facilities are stable investments.
“With self-storage, once a renter moves into a unit, the laws of inertia tend to apply, which means they don’t move out unless they are relocating,” he said. “It takes a lot of hard work to put them up and fill them out, but once they fill up they are reliable investments and the real estate market views them very favorably.”
Since it can take two to three years to fill, however, it can take a while for cash flows to be realized, putting pressure on the return on investment, according to RK Kliebenstein, vice president of acquisitions for Lake Forest, Ill.-based Metro Self Storage.
Metro Self Storage, which has been in the self-storage business since 1973, opened a 79,000-square-foot location at 4059 Bradley Road in Brown Deer earlier this month. It is temperature-controlled and allows customers to drive into the building to more easily load and unload.
Kliebenstein said the industry is experiencing a steady growth pattern, as about 9 percent of all American households currently rent a storage unit, up from 6 percent in 1995. Furthermore, there are 7.3 square feet of storage facility space available for every American, and there are more self-storage facilities in the U.S. than McDonald’s, Wendy’s, and Burger King restaurants combined.
Metro Self Storage operates facilities in 12 states, and Kliebenstein said it is “aggressively” looking for more Milwaukee area locations. The company plans to either purchase existing self-storage locations or do conversions like it did for the Brown Deer location, which was a former beer distributorship.
Matson said most of the new and upcoming self-storage facilities in the area are conversions because not much open land is available on the market, and industrial manufacturing buildings make ideal conversions for several reasons. For one, these buildings encompass a lot of land and are well-located along major thoroughfares, like interstates. They also boast high enough ceilings to allow for multiple levels, and they are climate-controlled. In addition, municipalities are more willing to allow self-storage inside industrial facilities, as opposed to traditional outdoor self-storage facilities, because the former are more aesthetically pleasing, said Nick Keys, an associate at Milwaukee-based The Dickman Company Inc.
Keys recently brokered the Menomonee Falls Megal Drive deal, representing Busy Guys LLC, which bought the building and is converting it to self-storage space. Formerly occupied by GKN Sinter Metals, the building is expected to reopen as an indoor self-storage facility by Sept. 1, Keys said.
“From what they describe, it will be top-of-the-line, all energy-efficient, and climate-controlled,” Keys said. “(Customers) can pick out how much space they need and swipe their card. It’ll be very easy to use.”
Busy Guys LLC is owned by Jon and Joe Kassander from Milwaukee-based Birchwood Snow & Landscape. Busy Guys also developed Cedarburg Storage Company at N143 W6049 Pioneer Road in Cedarburg, a conversion from a former paper company, Matson said.
While self-storage facilities are popular right now, Matson predicts it only lasting a couple more years. At that point, there will either be no more property to buy and convert or the demand will finally be satisfied.
Even now, Matson said the area is close to running out of buildings that could be converted to self-storage space as the region’s industrial market currently has a 4.5 to 5 percent vacancy rate.
Parrish asserts that in 2016, self-storage development will slow down in Milwaukee and Waukesha counties;however, he thinks self-storage facilities will then push south and north into other areas.
“There will be a lot of opportunities for the foreseeable future in self-storage development,” Parrish said. “It’s just not necessarily going to be in Milwaukee and Waukesha counties.”
