How Long Does It Take to See a Return on a Ground-up Development in Self Storage?

DXD - Miami/N. Doral

The most opportunistic type of investing takes time, but typically offers the greatest return profile. This outlines what a typical investment timeline looks like for ground-up self storage investors.

1. Construction Phase (12 Months)

This phase requires substantial capital investment, as no revenue is generated during construction. The primary focus here is on project execution, staying on schedule, and managing costs to avoid overruns. Investors should be prepared for this period of zero cash flow, as preferred returns are accrued in capital accounts.

2. Lease-Up Phase (24–36 Months)

Once construction wraps up, the facility opens its doors to tenants. Unlike multifamily or other commercial real estate, self storage offers no preleasing. Occupancy typically grows gradually during this lease-up period, with the goal of reaching a stabilization point of about 92-93%. It may take two to three years to achieve the desired occupancy levels.

3. Refinancing (Year 4)

By year four, most facilities have achieved stabilization, making them eligible for refinancing. This process can allow investors to recoup some initial capital and realize a return of the balance accrued in their capital accounts. Refinancing also sets the stage for steady cash flow, which is a major milestone in the investment timeline.  

A refinance also allows investors to take advantage of ECRIs (existing customer rent increases) to maximize the value of the facility.  As rents increase, so too does the net operating income, and value of the property.

4. Distributions (Years 4–7)

As the property generates consistent cash flow, investors begin receiving regular distributions. This period is when returns on investment start to materialize. Additionally, this phase often includes planning for potential exit strategies, such as a sale or recapitalization, which can further enhance overall returns.

Patience Pays Off

While self storage development requires a multi-year commitment, the long-term benefits are substantial. By understanding the timeline and planning accordingly, investors can align their expectations and make informed decisions about their financial goals.

Would you like to explore detailed investment strategies or discuss market-specific timelines? Let me know!

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