SELF-STORAGE WINNERS AND LOSERS FROM THE NEW BIDEN ERA

Every action has a corresponding reaction. When you couple this withhe mantra that “life is not fair” you end up with the net effect from a new Presidential term. Biden is about to take office and his policy comments have already sparked a reaction as to who gets hurt and who gets helped by the new administration. So how will Biden impact the self-storage industry?

WINNER: Self-storage buyers

Biden is planning on eliminating capital gains tax. Just the mention of this fact sends mom and pop sellers running to the exits, even if he fails to get it passed. Who wants to pay more tax on their sale? Nobody. So those who were on the fence will suddenly put their storage facilities up for sale. It’s a cyclical moment that happens every decade or so. The new President goes on a rampage to eliminate capital gains tax and then the later administration reinstates it. It’s happened over and over, as shown in this chart of past swings.

LOSER: Self-storage sellers

If Biden succeeds in getting capital gains repealed (not just the threat that motivates sellers) you will want to hang in there and not sell until a future President puts it back in place. Look for example at the plight of the storage seller in 1979 when capital gains tax was 35% who got it knocked down to 20% if they could just wait three years. So if you’re a self-storage seller under Biden you may be in for a long wait if the threats come to fruition.

WINNER: Self-storage owners in suburbs and exurbs

Zillow calls it “The Great Reshuffling”. It’s the movement of the U.S. population away from urban centers and into suburbs and exurbs that are safer from both rioting as well as Covid-19. It is estimated that around 10% of greater Chicago has already left the building and pushed into suburbs and exurbs. Sure, they’ll have a longer commute, but also a much better life when they get home (of course, many will have no commute at all because nearly everyone is now working from home).

LOSER: Self-storage owners in urban centers

Investors with holdings in the big city are in deep trouble and they already know it, with dwindling occupancy and rates. It’s a huge hit to these large owners and one they’ll be feeling for years (or decades). This is such a disaster that you’ll see some creative PR as a result, as many of these large owners are REITs and they will refuse to accept the reality that America has permanently changed. A recent article I saw tried to pretend that the “Great Reshuffling” is simply a fad. Didn’t the silent movie industry say that same thing in the 1920s?

WINNER: Self-storage owners in economies not fueled by oil and gas

The biggest casualty of the Biden era appears to be the oil and gas industry. The Green New Deal initiative ensure that there’s anything but “green” in the petroleum industry going forward. The big storage winners are, by default, anyone who owns a storage facility in any market that does not have a big exposure to oil and gas. Sad but true. And this will be the big news story for the four years.

LOSER: Self-storage owners in oil and gas economies

Ouch. There’s no other way to describe the horrendous loss in property values coming in storage markets with a concentration on oil and gas employment. Places like Midland/Odessa might as well be manufacturing and selling VHS tapes given the Biden agenda. If you don’t own a storage facility in a petroleum-dependent market, then don’t even think about it. If you already do own one there, you might want to get ready to renegotiate your loan.

Conclusion

There will be winners and losers from the Biden presidency. It’s already becoming obvious who those will be even though he’s not been sworn in yet. Time to maneuver to harness the power to make profits and avoid the pitfalls.

By Frank Rolfe

Frank Rolfe has been an active self-storage investor for around two decades, with self-storage units in many states throughout the U.S. His nuts and bolts knowledge of what makes for a successful self-storage facility has led to a three-decade career without a single failed property.