Welcome back to Exit & Equity, the email for serious self storage owners.

Today's topic: Why 60% of ground-up storage deals underperform their pro formas and the framework for making sure you're not in that majority.

This is the biggest capital decision you'll make. Let's get it right.

Let’s go!

I'm a used car guy. Always have been. The idea of paying a 20% premium so I can watch that value evaporate the second I drive off the lot makes zero sense to me. Let someone else take the depreciation hit. I'll buy the 3-year-old model with one owner and full service records.

But I know plenty of smart people who only buy new. "I don't want someone else's problems," they say. "I want the warranty. I want to know exactly how it's been treated." And look, I get it. There's a logic there.

So here's what I've been wondering: Is the same thing happening in self-storage?

Is buying existing facilities basically like buying used cars? You're getting a discount, sure, but you're also inheriting whatever mystery problems the last guy left behind.

And is building ground-up like buying new off the lot? You're paying a premium, but you know exactly what you're getting because you controlled everything from day one.

Or does this analogy completely fall apart the second you look at actual returns?

Because I'll tell you what bugs me about this industry. Development gets glorified the exact same way car commercials glorify new cars. It's shiny. It's exciting. "Build your empire!" "8% yields!" "Be your own developer!"

But when I look around at the operators I know who've actually built wealth in self-storage? Most of them bought existing facilities and got better at operations. They're the used car guys. They found the deals everyone else passed on and made them work.

So today we're figuring out if the build vs. buy decision reveals something about your personality. It definitely does. But does it predict who actually makes more money?

That's what we're about to find out.

The Numbers Everyone Quotes vs. The Numbers That Matter

Here's what a typical ground-up development pro forma looks like:

Land: $500K to $1M
Hard costs: $45 to $65 per sq. ft.
Soft costs: 15 to 20% of hard costs
Total project: $4M to $6M all-in for 50,000 sq. ft.

Stabilized NOI: $350K to $450K at 90% occupancy
Pro forma yield on cost: 7.5% to 9%
Projected levered IRR: 15% to 20% over 5 years

That's a 200 to 300 basis point spread over buying stabilized at 5.5% to 6.5% caps. Sounds great, right?

Except that's not what actually happens.

The Three Things That Kill Development Deals

Time Value Erosion: Pro forma assumes 12 to 18 months to stabilization. Reality is 24 to 36 months. Permitting alone eats 6 to 12 months. Construction delays are guaranteed. Lease-up stretches to 2 or 3 years. A 12-month delay on a $5M project at 6% cost of capital destroys $300K in value before you collect a single rent check.

Cost Overruns: 85% of construction projects blow past budget with an average 28% overrun. Drywall up 45%, steel up 90% recently. An 18% overrun on $5M is $900K in unplanned capital.

Lease-Up Risk: Pro forma assumes 18 to 24 months to 85% occupancy. Reality? 36 to 42 months is now considered "safe." Every 6-month delay chops 200 to 400 bps off your IRR. If a competitor opens during your lease-up, double that timeline.

The Actual Math

Pro forma: $5.0M cost, 8% yield, $400K NOI, 15% IRR.

Reality: $5.75M after 15% overrun. 30 months to stabilize instead of 18. Actual NOI of $360K. That's 6.2% yield on cost. Maybe 10% to 11% IRR if you're lucky.

Meanwhile, you could've bought existing at 6.0% cap, collected rent from day one, and pushed it to 7% yield within a year through basic operations. Over 5 years, that acquisition delivers 12% to 13% IRR with way less volatility.

The Contrarian Take

Once you adjust for reality, that 300 bps return premium evaporates. You're taking 3x the risk for 1.2x the return. That's usually a bad trade.

Why do pros push development? Because it can pay off big under perfect conditions. And because developers, brokers, and builders make money when you build. They get paid either way.

But you're the operator who lives with the actual results. Separate the sales pitch from the statistical reality.

Sometimes the used car lot is empty. Or the only options are overpriced and beat to hell. That's when buying new actually makes sense.

Same thing in self-storage. Despite the reality check, development has its place. Five scenarios where building beats buying:

1. True Supply Shortage + Barriers to Entry Your market has under 5 sq. ft. per capita, facilities at 90%+ occupancy, and zoning makes new projects rare. You're filling genuine unmet demand without facing five competitors simultaneously. Always verify that high occupancy comes with high rates. If they're 95% full at rock-bottom rents, the market is price-sensitive, not undersupplied.

2. Entitled Land Below Replacement Cost You find land with permits in hand at 20% to 30% below market. Motivated seller, partner dispute, whatever. You've built in a cost cushion that can absorb overruns. But always ask why it's cheap. Hidden flood zone? Angry neighbors? Soon-to-be competitor? Don't assume you're smarter than the market.

3. Real Development Experience + Cheap Capital You've built 3+ facilities successfully. You know the local permit process, have trusted contractors, and patient low-cost capital that understands a 3+ year horizon. If this isn't your first rodeo, development's higher risk might be manageable.

4. Acquisition Market Is Completely Bonkers Stabilized facilities trading at 4.5% caps are hard to swallow. If you can confidently build to 7% yield on cost (accounting for overruns), the math might work. This happened in 2021 to 2022 when cap rates hit sub-5%. But be careful. Ultra-low caps often coincide with rent growth optimism. If conditions fade by the time you deliver, your advantage evaporates.

5. You Need a Specific Product the Market Lacks Market analysis shows under serviced segments. Huge boat/RV storage demand no one serves. All comps lack climate control in a hot humid market. You can design exactly what customers need. But prove it with real demand data, not assumptions.

In practice, most markets in 2025 are not development no-brainers. Interest rates and construction costs are up. An estimated 70% to 90% of planned self-storage projects got paused or canceled in the past year as pro formas broke. But in the right situation, building new can absolutely be the winning move.

Competitive Response - When New Supply Comes to Town

What if someone builds near you? Here's your playbook for defending your turf.

Step 1: Don't Panic - Gather Intelligence

Take a deep breath. Panic helps nothing. Start digging for information.

Get the facts. How big is it? What unit mix? Who's the developer? Experienced regional player or newbie? When do they open? Are they a REIT with deep pockets or a small merchant builder who needs to fill up fast and sell?

Check public records for building permits and planning applications. Search local news and trade publications. Talk to brokers, contractors, suppliers. Drive by the site regularly. The stage of construction tells you how far from opening they are.

Know your opponent. National REIT means polished operation with strong marketing and deep initial discounts. Local mom-and-pop might have less experience. If they're highly leveraged, they're under pressure to lease up quickly with aggressive move-in specials.

Information is power. And stay calm. Many new developments underperform their pro formas. Your existing operation has advantages. Stabilized tenant base. Local reputation. Operational knowledge. You're not automatically doomed if you play your hand well.

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Step 2: Quantify the Impact

Run the market absorption math. Simple example: Your 3-mile radius has 500K sq. ft. at 88% occupancy. That's 440K occupied, 60K vacant. New 50K facility opens. Total supply jumps to 550K. Market-wide occupancy drops to 80%.

To get back to 88%, you need 484K occupied. That's 44K of new demand plus the new facility's 50K. Total: 94K sq. ft. needs to fill. If your market historically absorbs 30K per year, you're looking at roughly 3 years to equilibrium.

During that period, expect pressure on rates and occupancy. The pie just got bigger. Until more people move in to fill it, everyone's slice gets smaller.

Is the new facility a 10% increase in market supply or a 30% overnight jump? The bigger the relative increase, the more aggressive your response needs to be.

Step 3: Pick Your Strategy

You've got four plays. They're not mutually exclusive.

Aggressive Rate Defense

If you're at 90%+ occupancy with healthy reserves, hold rates firm. Make the newbie blink first. They have zero occupancy on day one and loan payments ticking. Some customers will try the shiny new place. But you might be surprised how many stick with what's familiar if you emphasize your stability, security, and service.

You're winning a price war by not engaging. Let them burn through free month promotions while you accept maybe a slight occupancy dip but maintain revenue per unit. It's a game of chicken on rates.

Defensive Concessions

If a price war is inevitable, especially if multiple new facilities are coming or demand is flat, play defense early. Offer moderate discounts before they open. Lock in customers on longer leases.

Run a "Spring Move-In Special" a few months before their grand opening. Boost occupancy from 88% to 95%. When they open with "First Month Free," most serious renters are already housed at your place. You might drop to 88% instead of 75%. You sacrificed short-term revenue but emerged with a fuller facility. This is about not losing too much ground.

Operational Fortress

Differentiate on everything but price. Make your facility so clean, secure, and customer-friendly that people won't switch for a few bucks a month.

Extend access hours if they don't offer 24/7. Upgrade cameras and lighting. Train staff to learn tenants' names. Implement a referral program. Offer a free moving truck or package acceptance.

While the new facility competes on price or novelty, you double down on relationship and reliability. Business storage clients especially value stability. They won't jump ship for $5 a month if they trust you.

Acquire the Competition

If they struggle with slow lease-up and their loan comes due, be ready to buy at a discount. Consolidate the market back under your control.

This has happened in plenty of markets. A big operator waits for the dust to settle then swoops in and buys the underperforming new guy. It's a long game move but worth considering if you're well-capitalized.

You can't control new supply. You can control your response.

Panicking operators slash rates to the bottom and hurt themselves more than the competition. The better approach is data-driven and strategic. Understand the likely impact, decide on your game plan, and execute calmly.

Most new developments don't hit their aggressive pro forma targets. Remember Operator A from the beginning? If you're the incumbent, you have advantages. Existing cash flow. Customer relationships. Knowledge of the market. Use them.

Patience and operational excellence usually outlast a flashy new competitor who overbuilt or overpaid. A new competitor can actually force you to improve and become better. That's not a bad outcome.

Choose Wisely

The self-storage industry loves its development success stories. "I built this for $4M and sold it for $8M just two years later!" And those do happen, especially if you time the market right and cap rates compress.

What you don't hear as often are the misfires. The projects that took twice as long, cost 50% more, and ended up worth less than the total investment. Survivorship bias is real. For every "I doubled my money" development, there might be several that quietly underperformed or went into foreclosure.

Here's what I know after analyzing dozens of deals over the years:

Winning operators do three things. They model realistic scenarios instead of trusting rosy projections. They know their own risk tolerance and capital constraints and plan accordingly. No betting the farm on speculation. And they choose the strategy that fits their skillset and situation. Not the one that sounds sexiest at cocktail parties.

There's zero shame in buying a well-run, cash-flowing facility at a fair price and enjoying steady returns. And zero glory in chasing a development deal that doesn't make sense just to say you're a "developer."

Considering development right now? Take your pro forma and stress test it hard. Add 20% to the cost. Add 50% to the timeline. Cut the rental rates or occupancy ramp by a chunk. Does the deal still have a half-decent return? If yes, you might have something. Proceed cautiously. If it falls apart under realistic stress assumptions, do not proceed. Go find an existing facility to buy instead. Your future self may thank you.

Someone just announced a new facility in your market? Don't stick your head in the sand. Pull the permit data. Update your market supply model. Figure out your response now, months before they open. Ramp up marketing. Lock in tenants with promos. Refinance before any occupancy dip hurts your metrics. Have a plan before the new competitor opens their doors. Most operators only react after they start feeling the pain. Lost tenants. Lower rates. By then you're on the back foot. Be proactive. Play out the war game in advance.

On the fence about build vs. buy? When in doubt, default to fewer unknowns. Buy existing. You can always develop later once you gain experience and the market conditions are right. There's no rule that says you must develop to be a successful self-storage investor. Many of the largest private operators grew by acquisitions and expansions of existing sites, not ground-up builds. Development is not some required badge of honor. It's just one path. And a risky one at that. Patience is a virtue. You might sit out the development craze until you see a slam-dunk opportunity. That's okay. Capital preserved is capital that can fight another day.

Development isn't inherently better or worse than acquisition. They're different strategies with different risk/return profiles. The trick is to match the strategy to the situation.

Don't let ego or FOMO drive the decision. Some of the best deals I've ever done were boring old acquisitions that churned out cash. Some of the worst headaches I've seen came from "sexy" new developments that went sideways.

Choose wisely. Your next decade of returns depends on it.

It's 2025. You shouldn't be caught off guard by a new storage facility popping up. Yet most mom-and-pop operators only find out when the construction trucks roll in.

Let's do better. Here's how to build a simple intelligence system for new supply in your market.

Set Up Permit Monitoring

Create a basic spreadsheet. Columns: Project Name/Address, Developer, Size, Status (Proposed/Approved/Under Construction/Open), Estimated Open Date, Distance from Your Facility, Notes.

Every month or two:

Check public records. Most city or county planning departments have online portals. Search "self storage" or "mini-storage" in permits or zoning cases. Look at planning commission agendas for self-storage projects up for approval.

Set up Google Alerts for "[Your City] self-storage development" or "[Your City] storage facility permit". Follow Inside Self-Storage, SpareFoot Storage Beat, local business journals.

Let local commercial brokers know you're in the market. They'll tip you off about new projects. Attend self-storage association meetings. Word-of-mouth is powerful.

Log any hint of a project into your tracker. Even rumors. "Heard at SSA conference that Storage King is eyeing 4th Street." It may amount to nothing. But if it materializes, you'll be glad you had an early note.

Build a Site Visit Routine

When a project gets underway, visit the site periodically. Take photos with date stamps. This helps you gauge progress.

Just poured foundations? Maybe 6 to 8 months from opening. Walls and roof up? Perhaps 3 to 4 months out. Paving and signage? Opening is imminent.

Look for signs of trouble. Did construction stall? Financing or permit issues. Is the building smaller or larger than expected? Are they putting up a big monument sign? All this informs your response strategy.

Once they open, be a mystery shopper. Visit the facility. Act like a customer. Get their pricing and promotions. This isn't espionage. It's smart business.

Create a Market Supply-Demand Model

Maintain a simple model for your market. Update it whenever supply or demand changes.

List total square footage of each facility in your radius including yours. Sum it to get Total Supply.

Estimate total Occupied square footage. If you know competitors' occupancies, great. If not, use an assumed average. 90% if market is generally full. Lower if you've seen discounting.

When a new facility is coming, add it to supply. See what new occupancy percentage would be if demand stayed flat.

Factor in growth. If population is growing 2% a year in a 500K sq. ft. market, maybe 10K sq. ft. of new demand per year naturally comes.

Example: "We have 50K sq. ft. delivering next quarter. Market occupancy could dip from 90% to 80%. May take 2 years to get back to 90% assuming normal absorption."

With that, you can project how your facility's occupancy might trend. How long you might need to run defensive promotions. Much better to plan for an 18-month valley before it happens than to be six months into a slump wondering what went wrong.

Automate Where Possible

Set calendar reminders to check Google satellite imagery for your area. Sometimes you'll catch a new build before it's widely known. Google Earth Pro lets you see historical imagery to track progress over time.

If your city's permit portal is clunky, use a web scraper or API to auto-check for keywords. There are services that aggregate permit data by region.

Join online forums or Facebook groups for self-storage owners in your state. People share news. "Anybody else hear about the new CubeSmart coming to X town?"

Periodically search "[Town Name] self storage" on Google. See if any new names pop up. New projects often put up a coming-soon website or get listed on Google My Business before opening.

If you use Radius+ or Yardi Matrix, check properties under development in their database. Even CoStar tracks some self-storage construction now.

Quarterly Market Review

Every quarter, sit down and do a mini state of the market review. Update your supply tracker. Review your pricing vs. competitors. Are rents trending up or down? How's your occupancy relative to others? Any whispers of new development you need to prepare for?

Publicly traded REITs have whole teams monitoring this stuff. But you as a local operator can move faster on local intelligence once you have it. If you know 18 months ahead that 100K sq. ft. is coming, you can tighten expenses, renew tenants on longer terms, build up a warchest.

Make market monitoring a routine part of operations, not an afterthought. The days of "buy it, run it, and forget it" are over. Proactive operators armed with data on supply pipelines and demand trends will outperform those who operate in ignorance.

Early warning gives you optionality. Adjust pricing. Refinance. Expand. Or even consider selling before a big wave hits. That's how you stay ahead.

In theory there is no difference between theory and practice. In practice there is.

— Yogi Berra