It might surprise investors to learn that self-storage was the best performing real estate subsector in 2021. In this Fool Live video clip, recorded on Jan. 14, Fool.com contributors Matt Frankel and Jason Hall discuss why Life Storage (LSI) could be an especially interesting way to play this red-hot type of commercial property in 2022 and beyond.
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Matt Frankel: Next one is self-storage REITs. These are the biggest player in the space is Public Storage (PSA -1.53%) and in full disclosure, stock I've owned for a while. But my favorite going forward is Life Storage. I don't know how familiar you are with Life Storage. Their brand name only has existed for a little while. They used to be known as either Sovran Self Storage or Uncle Bob's Self Storage.
Jason Hall: Uncle Bob's. [laughs]
Frankel: Has used both of those brand names. The reason I really like them is because they're taking a really well-rounded approach to growth. Let me show you real quick. This is their growth strategy. Most REITs grow through acquisitions or development one or the other. They either acquire properties that already exist, or they build properties from the ground up. Life Storage, if you look at that top one, that's the one I'm most excited about, that third-party management business. Let's say that Jason when he retires, builds a self-storage place in his neighborhood and wants to work there and use it as a real estate investment.
Hall: Which by the way, the unit economics are incredible. If you're looking for a good real estate business to go into, this is one.
Frankel: I agree. He might actually do that when he retires. But let's say that Jason has that but doesn't want to sell the property. He wants to keep it as an income stream. So, he would hire Life Storage to run it on his behalf. This is a great way for the owner to keep their real estate investment and for Life Storage to expand their portfolio in a very asset-light way without having to borrow any more money, or leverage their balance sheet or anything like that, or issue new stock or things like that.
The third-party management focus is one thing I really love about Life Storage. Like Jason said, the unit economics of self-storage are fantastic. These REITs can break even with 30% occupancy in most cases, which is just phenomenal. Imagine a business that can break even at 30% of what they want to do. It's a great business and Life Storage is my favorite in this space right now. Any other thoughts on that one?
Hall: No. That is too. Honestly, I haven't studied this space very much, but that's one that I've actually bought based on your recommendation and done a little bit of due diligence. But the economics of the business are great. If they can do what they want to do, it could be phenomenal.
