Why Self Storage Cap Rate Data Misses 80% of the Industry
Self storage headlines are built on a sliver of the market. On EP 511 of Collecting Keys, AJ Osborne joined Mike DeHaan, Dan Austin and Dylan Koch to explain how the asset class actually behaves outside the REIT-dominated top metros — where cap rates went up, rental rates collapsed, and the exit a lot of buyers assumed they had never existed.
Why don't published storage cap rates reflect the real market?
Osborne owns and operates in more than 12 states with over 2 million square feet, and said he's purchased more than a million net rentable square feet this year with another 2 million under contract. His main complaint about the industry isn't pricing — it's data.
He pointed to a Wall Street Journal figure saying storage had bottomed out at an average 5.7 cap rate. According to Osborne, that number came from less than 1% of assets in only the top 10 largest MSAs in the country. He said most industry reports leave out roughly 80% of the industry, which is why his group worked with Tenant and Tract IQ to publish what he calls the first real industry report.
CMBS loans are another distortion, he said. When people call storage the lowest-defaulting asset, they're comparing CMBS performance — and CMBS represents something like 80% of the multifamily universe but less than 15% of storage, concentrated in the largest players and top metros. Dan noted the town he grew up in has no multifamily at all but four or five separately owned storage facilities. Osborne said 65% of storage is owned by single owners and mom and pops, versus multifamily where he estimated only about 20% is not institutionalized.
Is there really an institutional exit for a small facility?
Mike raised the 2022-era playbook he heard at conferences: stabilize a facility, then sell it to a large fund at a two or three cap. Osborne's answer was blunt — for most facilities, that buyer doesn't exist.
Institutions and large operators don't buy the small stuff, he said, including his own company. Many facilities are cheaper than people assume, in the $2 million to $3 million range and under in most markets. If you buy a million-dollar, 80-door facility outside the top 100 metros and plan to flip it to an institution, Osborne said that isn't going to happen.
The pricing gap follows from that. He put top-metro, REIT-driven cap rates around five and a half, while outside those markets cap rates have risen to the highest level since before 2015 — an average of 7.7, with a range of roughly seven to nine.
How did storage values fall by half?
Osborne said he wrote a piece in 2021 calling storage a bubble, because cap rates had gone \"even\" — a facility in a small market trading at a four or five cap the way a top-metro asset would. He expected inflation and rising rates, and expected housing to freeze rather than crater, since roughly 90% of mortgages were 30-year fixed under 4%. Nobody losing a home meant nobody moving, which he called the worst-case setup for storage demand.
The second hit was rental rates. Osborne described the largest rate drop in storage history — around 20% in a single year on average, worse than the Great Recession. In one market, the going rate for a 10x10 was $200 when they bought, the asset itself was renting at $150, and two years later the market rate was $60.
He tied that to how REITs use revenue management: drop street rates to hold occupancy, then push renewals hard once a tenant is in, because a 30% increase still costs less than renting a moving truck. Stack flat-to-negative NOI growth on top of doubled interest rates and expanded cap rates, and Osborne said properties lost 50% of their value. Dylan added the real killer is being on the clock with a bridge or adjustable loan when that happens.
Where is the opportunity, and what makes it survivable?
That stress is exactly why Osborne says they're buying. About half of what his company bought this year and last came from developers who broke ground during the boom, opened three years later, and needed permanent financing they never planned on — the original plan was to sell on pro forma or at a five cap on certificate of occupancy. He said they're buying roughly 40% under replacement cost, with a lot of activity in Texas and Florida where overbuilding hit hardest, and expects to buy more next year than this year. Transactions were effectively dead until the last twelve months.
His caveat was about survival, not timing. Osborne said he kept another job while building the portfolio, keeps debt at 50% to 60% LTV, locked ten-year fixed rates in 2021 — which he noted is uncommon in commercial real estate, where five-year terms are now coming due — and has put personal capital into struggling assets rather than issue a capital call. Mike tied it back to a long-running show theme: build a massive income before a passive one, because underperforming assets become liabilities when you don't have the cash flow to carry them.
On the operations side, Osborne said his company spent more than $10 million on its tech stack and moved service center calls to an AI platform after testing it on about eight assets. He reported saving 300 man hours, and said missed calls for good large operators average 30% to 40% while theirs are now below 10%. His starting advice for smaller operators: upload your org chart, vendors, processes and job descriptions, then ask the tool where it can help — which only works if you've documented how your business actually runs.
- Same income, roughly 40% less value — Osborne's framing of today's discount
- Prepayment penalties on CMBS loans can make selling or refinancing uneconomical
- Osborne: \"The problems are why the opportunity exists, not the other way around.\"
The full episode goes deeper on CMBS prepayment mechanics, new fixed-rate debt products showing up in commercial, and the hosts' take on AI adoption. Listen to EP 511 of Collecting Keys.
Frequently asked questions
Do REITs buy small self storage facilities?
AJ Osborne said they generally don't — institutions and large operators, including his own company, don't buy facilities in the low-seven-figure range outside major metros.
What happened to self storage rental rates?
Osborne described the largest rate drop in the industry's history, around 20% in one year on average, with one market seeing 10x10 street rates fall from $200 to $60 in two years.
Why is self storage data so limited?
According to Osborne, one widely cited cap rate figure came from under 1% of assets in the top 10 MSAs, leaving roughly 80% of the industry untracked.
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Educational content from the Collecting Keys podcast. Not financial, legal or tax advice.