Self Storage in Maine, Investment Vertical with Growing Demand

Throughout 2020 and 2021, self-storage development has dominated both urban and suburban markets.

There are, 50,000± self-storage units in the U.S. (90 percent of the global market), only 8.3-percent of which were vacant in 2020. Statista predicts global revenue in the sector is predicted to grow to $47-billion dollars by 2024, and Northern New England is a prime market for development.

According to SelfStorage.com, there are 211 self-storage facilities in Maine with a capacity of just under four-million square feet. That’s about 2.9 square feet of storage person per Mainer, less than the national average, and unit costs are higher in our state than others: the national average for units is just under $90 per month, while units in Saco cost out at $140 per month; in South Portland, that’s more like $163.

This means that self-storage investors in southern Maine with an eye toward the future have a chance to break ground on a growing market, taking advantage of other emerging benefits, including ease of automation and maintenance, as well as a lack of necessity for a retail frontage on the proverbial Main Street. Rather, backroad-situated properties with lower values are usable though multi-property self-storage entrepreneurs benefit from having at least one facility located in a heavily-trafficked area for advertising and marketing purposes.

Self-Storage Investing: Ease of Ownership

Drilling down to the essentials, self-storage properties require little infrastructure to develop and management to maintain.

“It’s a metal building on a slab with doors and lights. There are no tenant complaints to field, no issues with the HVAC, the plumbing, or the decor,” says Ben Spencer of Maine Realty Advisors (MRA). “Basically, it’s just keeping the property up to date, plus some snow removal and landscaping. By itself, all of that spells ‘green light’ to more hands-off investors, especially in southern Maine where high per-unit prices make investing in this sector all the more potentially profitable.”

Maine self-storage entrepreneur, Tanner Herget, traded owning and managing multiple hospitality businesses (51 Wharf, Bonfire, Drink Exchange) to enter the self-storage business in 2018, acquiring multiple such properties over time while modernizing operations in each instance.

He says there’s no more chasing down checks from tenants these days: “When I took over these facilities, most customers were stopping by and paying with checks. Now, I have nearly 90 percent of them on automatic recurring payments using a software system designed for self-storage businesses. That system syncs to the gate code, so a new customer can drive up, rent the unit online, and drive in moments later.”

Noting that making a self-storage investment profitable is about more than total occupied square footage, Herget makes a distinction between economic and area occupancy, proffering the term “facility occupancy” instead. Instead of judging profitability by area occupancy, it’s important to measure “economic occupancy,” he says. Basically, to be optimally profitable, it’s important to charge competitive rates and to have all customers paying those rates. This can lead to client turnover and attendant decline in area occupancy while still driving a better bottom line and freeing up space for higher-paying customers.

Tanner is able to apply significant annual increases in monthly rate, with short notice periods, and due to the lack of competition, retains 98.5% of his occupancy per increase.

In addition to profitability, self-storage investing in Maine has left him free to pursue other ends both personally and professionally.

“Storage seemed like a better avenue toward the lifestyle I wanted,” says Herget. “Operated correctly, the residual income is strong and continues to increase as prices go up and infrastructure development and maintenance is largely minimal as long as you do it right.”

Self-Storage Business in Maine: Growing Demand

Anecdotally, it’s seemed like self-storage facilities are sprouting up all over southern Maine, but per the numbers, Maine has less self-storage capacity per capita than most other states.

“With the rising cost per foot of acquiring and developing in the residential sector, we’ve witnessed the demand for self-storage increase dramatically,” says Spencer. “Self storage provides users with an affordable and low-maintenance option when the rest of the market is anything but.”

“You’re not dealing with a lot of calls/complaints; you’re not dealing with water and sewer issues; and many of the existing self-storage facilities are sold out as far as area occupancy, if not the stronger standard of facility occupancy,” says Spencer. “It’s much easier to manage units in this area than in multi-family buildings.”

Utilizing proper management tools and processes can make self-storage investing a lucrative opportunity, which starts with finding the right property to make the entire enterprise as profitable as possible.

As far as investment exit strategy, passive properties producing steady residual income create obvious and attractive returns to investors and come at a lower barrier to entry than other commercial products. With development costs ranging from $40-60 PSF and lease rates ranging from $10-12 PSF, with affordable and well-placed land, it’s possible to develop with a high yield and realize immediate increased equity.

“The self-storage industry is a growing market and Maine investors are seeing the benefits of this sector become increasingly desirable and profitable,” says Spencer. “Here at MRA, we have experience in this area, and if it’s not right for you, we’ll help you find other commercial real estate opportunities that are more your style.

“We’re excited about this area, though, and we’re not the only ones–so it’s time to act now if it seems like the right kind of investment for you.”

Interested in learning more about self-storage investment opportunities in Maine? Contact us today!

Written by Ben Spencer

Also Check Out These MRA Articles:

Central Maine Real Estate Forecast

The Art of the Off-Market Deal

The Revitalization of Downtown Lewiston

Solar Energy Boom Reaches Maine: How To Invest

The New Normal: Real Estate Challenges & Opportunities in Maine Post-Coronavirus

Central Maine Real Estate Weathering Pandemic, Poised For Growth

The 2020 real estate market in central Maine has faced pandemic-related challenges, just like the rest of the world. The good news: while the market faced many challenges in 2020, central Maine is in a position to come out of a tough year and make 2021 a year to remember. 

Last year’s market was highlighted by low leased vacancy and low workforce occupancy. In Lewiston, for example, TD Bank and Maine Community Health Options are still paying rent, but workers are at home. The same thing is happening in Augusta with the Maine State buildings and also the Waterville Colby properties. 

Driving the market are smaller users, 3,500-sq.ft. and below. At MRA, agents are working hard to place these tenants because the bigger entities aren’t making decisions quite yet. 

In central Maine, residential is really driving the market (I call it “flight to isolation” as more and more people leave denser population areas especially in Massachusetts, New York and Connecticut). It’s also a “flight to quality/commute” that’s changing the face of residential real estate in our state.

Look At The Data: Lewiston/Auburn

Lewiston/Auburn experienced a relatively flat office market in 2020, including the University of Southern Maine’s decision to delay their highly anticipated move to downtown.

In these two highly connected Maine cities, it’s again residential driving the market with companies like Chinberg Properties working on major projects like the Continental Mill, as well as Pineland Lumber (a 250-unit development for medical workforce housing) and more. One major goal in this area: connect the new Auburn area down to the Mill District in Lewiston, which will set the entire area up for further growth.

“Thankfully we haven’t heard any huge changes to businesses office space plans,” says Misty Parker, Lewiston’s economic development manager. “The next six months will really be telling. A lot of businesses are looking at 2021 as a planning year to come back. There’s definitely a need for smaller offices for smaller businesses. People have been cooped up for so long that having an independent, safe space to conduct business is valuable.”

L/A Forecast: Lewiston/Auburn will make a swift and speedy return. When USM resumes their search for downtown space, the market is going to escalate quickly. The entire area is looking at major office movement this year. In residential, it’s going to be important to offer a premium product to capture renters’ attention. The multiple new projects coming online in the next year will make residential absorption a little flat because there’s so much product coming online, but it will happen.

Pro Tip: Small is good. In summer 2020, MRA took a large professional office building (The Professional Building on Lisbon Street) and subdivided it to give professionals working at home a chance to get out of the house. The entire property hit full occupancy within a month of acquisition.

Look At The Data: Augusta

Due to so many readily apparent factors, vacancies are popping up in the office market, but local users remain engaged. 

The good news: Sales are happening, including monster sale of space developed by FD Stonewater for Maine DHHS and PERS to Winthrop Advisors out of Boston for $39-million dollars–a clear record for 2020. Another mega transaction for central Maine, 442 Civic Center Drive for $8.7-million dollars.

“We’re coming off one of the historically biggest economic cliff drops in recorded history,” says Keith Luke, Augusta’s economic development director. “Here in Augusta, remarkably, the development picture has remained hot and there’s certainly lots of untapped development potential here.”

Augusta Forecast: There is activity in the market. Multifamily is fueling the growth in Augusta, as well, with quality developments keeping the market here on track. Slow office absorption and flat rent increases are facts on the ground that will hinge on the country and state’s ongoing response to management of coronavirus.

Pro Tip: Although smaller deals are happening in Augusta, there is activity. Look out for smaller buyers and renters to get a return on investment. When it comes to industrial, look at land development projects with 5,000-25,000-sq.-ft. of industrial space. Install necessities including docks and floor drains to create demand.

Look At The Data: Waterville

Don’t forget about Waterville! It’s been a year on pause with Colby College and other major players taking time to get back on track post-pandemic. As students go back to school and companies kick back into gear, Waterville is going to be just fine.

Waterville is hot right now! The industrial market is benefitting from cannabis industry growth, and residential is absolutely on fire with multifamily transactions closing at an all-time high rate.

Waterville Forecast: Look for rents across all sectors to go up in this area considerably as the inventory is reduced and existing product is leased up. Sales are happening in Waterville, though on a much smaller scale as far as space and price.

Pro Tip: Waterville is a tough market to move into, but there are opportunities in smaller developments. There are deals going through left and right, including two big projects under development: The Seton Project (68 residential units, 35,000-sq.-ft. of development–the old Maine General Hospital); and FirstPark has industrial lots available with excellent infrastructure in place.

Summing It Up

Overall, all of the players in the central Maine real estate market have been biding their time on breaking new ground while keeping existing projects on-time and on-budget. Surprisingly given the pandemic, there’s a well-grounded optimism at play.

“It’s a scary, yet promising time to be involved in central Maine,” says Parker. “Our planning department is hoping to analyze current zoning standards to see where we can support additional commercial, industrial and residential housing opportunities by encouraging density where it makes sense while not changing the character of the neighborhoods.”

Written by Frank Carr

Also Check Out These MRA Articles:

The Art of the Off-Market Deal

The Revitalization of Downtown Lewiston

Solar Energy Boom Reaches Maine: How To Invest

The New Normal: Real Estate Challenges & Opportunities in Maine Post-Coronavirus

Successful agents and investors in this market are facilitating transactions quietly and under the radar. These types of off-market deals have become the preferred method by which commercial and industrial real estate deals are handled in The Greater-Portland Area.

Competent commercial brokers avoid publicly listed buildings for the most part. There is no need. The buyers are fixed, the prices are known, and the demand exists. Hard-won knowledge is capital in today’s fast-paced markets, and is often the only thing standing between a successful investment and losing money hand over fist. 

Broker to Broker: Extreme Dealmaking

The local market has excelled since 2012. While many economists believed values could not continue to increase to where they are today, it’s still possible that we have not seen the peak. Finding properties NOT yet on the market is the only way to stay above the competition. 

Josh Soley, founder of Maine Realty Advisors, sees this as an accelerating trend: “Here in Portland and Southern Maine, commercial brokers are getting better and better at working with each other, predicting roadblocks, and delivering the right properties to investors.”

Prospective buyers interested in developing a relationship with a Maine-based broker are able to tap into local tiers of influence, which means they have boots-on-the-ground knowledge not just when it comes to finding the perfect property, but also with banks and other local entities critical to a successful deal.

“Southern Maine, especially downtown Portland, contains a thriving retail, industrial, and multifamily real estate market,” says Soley. “There is also no doubt that it’s the buyers who have the strongest relationships with their brokers who are finding deals right now.”

“I would say that the majority of solid investment deals happen off market,” says Sylas Hatch, an associate at NAI The Dunham Group. “By and large, if it’s a good investment deal, it’s off market.” And, he notes, the buyer side demand is high right now. “There’s a real lack of industrial inventory in Southern Maine and it’s probably going to keep trending that way. Rents are going up in that sector. There’s a large difference in cost between renting in an existing space compared to a new building, so I don’t see a lot of new projects coming up to change the equation.”

Money Tight, But Available

One thing that is possibly affecting deals these days: bank financing, another area where relationships are key. “Lenders are a bit timid right now, but they’re still making investment capital available for those who qualify, especially existing clients,” says Hatch. 

What this all tells us: Serious investors are working fast and feverishly to get deals done quickly as the window in time presented by current events won’t last long. There’s a plethora of investor capital waiting to be spent, especially when it comes to industrial and commercial space. That, mixed with a compression of interest rates, meaning capital-laden investors are literally chasing deals these days.

“Everybody’s calling around, trying to get deals done. The amount of deals out there haven’t gone up or down since COVID-19, but investor demand has definitely increased,” says Hatch. “They were already there, but on the sidelines, waiting for the right time, and a lot of people think now is the right time.

“In our area of the state, the value of industrial and commercial properties have continued to climb, but that’s nothing new [in Southern and Central Maine].”

Inside Look: Off-Market Deals

Typically, in the past, commercial real estate brokers used the New England Commercial Property Exchange (NECPE), CoStar, LoopNet, & CREXi to advertise properties for sale. This is now the digital market, and has its place in dealmaking, but in many cases it isn’t as effective as good, old-fashioned, human-to-human interaction.

“When I’m approached by a seller, I assess the deal, then may choose to contact a certain broker,” says Tim Millett, a prominent commercial broker at Porta & Co. “Sometimes, just through conversation and problem solving, we can discuss prospective buyers, consider their objectives and criteria. Then, we customize the deal to meet the needs of both parties.”

“Some sellers don’t like putting their properties online,” continues Millett. “It can cause disruption with tenants in the building as tenants see strangers walking around the property. On the other hand, buyers like buying properties off market because they feel like they’re getting an inside look at a property that hasn’t been vetted by the general public.

“I think the key is that there’s trust amongst us and we don’t necessarily feel like we need to go through the steps of signing all of the binding paperwork that’s typically involved in listing a property, getting a co-brokerage, or listing agreement, can scuttle a deal.”

“Once we match a potential buyer to the seller, we immediately start avoiding (and removing) obstacles that could kill the deal down the road,” continues Soley. “With off-market transactions, there’s a level of control between all parties involved. There’s no misdirection, no last-minute changes, just both parties working toward a mutual goal.”

Resistance To Off-Market Deals?

Whether a seller or a buyer, the negatives of this type of exclusive transaction are few and far between. That is, as long as expectations are set-and met.

MRA is always working to increase the level of cooperation between local, in-the-know brokers. “Conducting these off market deals is pretty commonplace,” says Millett. “What I think MRA is trying to highlight is that in the past, many off-market deals were kept internal, but in the last few years that barrier has been broken.”

“I do know the old way of doing business is more focused on hoarding information and trying to keep deals amongst yourself, whereas the newer way of doing business is putting the full commission aside and being client-driven.”

A strong, honest, and open relationship of trust and cooperation between brokers enables business to thrive in this marketplace. “When you’re dealing with people you don’t trust, you’re more hesitant to bring up an off-market property because there’s a chance the other broker or buyer can call your seller or buyer directly and cut you out of the deal,” says Millett. “Whereas, when I’m doing a deal with Josh or anyone at MRA, I know they’ll honor the information I’m sharing with them.”

The paucity of suitable, competitively priced commercial properties in Maine has engendered a sentiment among investors that once a property has hit the market, and there’s a sign in the ground, it’s too late.

“When you have a pocket listing or an off-market property, very few people know about it, so buyers know that there’s an advantage to getting those deals,” says Millett. 

Also Check Out These MRA Articles:

The Revitalization of Downtown Lewiston

Solar Energy Boom Reaches Maine: How To Invest

The New Normal: Real Estate Challenges & Opportunities in Maine Post-Coronavirus