The self-storage industry is booming, while certain sectors of retail are struggling. The solution? Convert vacant retail to self-storage! Picture in your mind a 20-year-old Kmart or Walmart store, which is typically a 40,000- to 60,000-square-foot building on five acres of land. It’s set back on the lot with parking in front. It’s been vacant for five years because a superstore was build right down the street.
This scenario played out exactly in New Britain, Connecticut. Walmart vacated an 85,000-square-foot store in the late 2000s. Walmart was paying rent until 2017, but the store was unoccupied. In 2012, the property was purchased at an attractive price. In 2016, the redeveloper engaged an architect to configure a 700-unit self-storage facility within the existing building structure. Construction commenced in 2017 and the facility opened in November 2018. The redeveloper engaged Extra Space Storage to manage the property under the Extra Space brand. Extra Space Storage is the largest self-storage management company in the United States with nearly 15,000 owned or managed locations.
The property is currently in lease-up at a rate of 50 units/month. The New Britain self-storage market is underserved, creating strong demand for the Extra Space – New Britain property. The property is expected to stabilize at 90% occupancy by the end of 2019 and provide a substantial return on invested capital to purchase and redevelop the property.
Once the property is stabilized, it will be eligible for a fixed-rate, non-recourse CMBS conduit loan, which will likely return all the capital invested in the property and more!