Who's Who in Self Storage: Joe Margolis, CEO of Extra space

With the approval of both companies’ shareholders, Extra Space Storage and Life Storage completed their previously announced merger on July 20, 2023. Together the REITs have become the largest self-storage operator in the United States (based on total number of facilities) with more than 3,500 locations across 43 states, approximately 270 million rentable square feet of storage space, over two million customers, and an enterprise value of approximately $46 billion.

Though the two REITs had a market overlap of 80 percent, the addition of Life Storage’s portfolio has increased Extra Space Storage’s presence in Texas, Florida, and the Southeast. What’s more, Extra Space had no locations in Arkansas, Iowa, or Buffalo, N.Y., prior to the merger.

Since many self-storage professionals were mulling over the specifics of this record-breaking deal, Messenger sat down with Extra Space Storage’s CEO Joe Margolis to shed some light on the matter.

Margolis mentions that the merger will enable Extra Space to improve its balance sheet, lower its cost of capital, increase its buying power, expand its third-party management and bridge landing platforms, and form better industry relationships. On the corporate level, the REIT has already achieved some G&A expense savings by eliminating duplicate, higher level functions. For instance, there will be one board instead of two (although the Extra Space board has expanded from 10 to 13 directors with the addition of Mark G. Barberio, Joseph V. Saffire, and Susan Harnett), one executive team of C-level positions, and fewer administrative roles.

Alternatively, he says that there are “almost no redundancies” at the store level. “We need those employees to run the stores.”

As for facility operations, Margolis states that all of Life Storage’s stores are being moved up to Extra Space’s platform of proprietary and integrated systems. At the same time, the company will be analyzing Life Storage’s systems in search of possible improvements that could be incorporated into Extra Space’s platform to optimize operations.

Despite the substantial savings, it was digital marketing that motivated their decision to operate under two brands. Margolis explains that having both Extra Space and Life Storage pop up in “storage near me” search results doubles the REIT’s digital real estate, which can meaningfully impact its overall performance.

“… regardless of brand, the stores will be operated in similar manner, focused on providing a clean and safe storage facility and excellent customer service driven by our strong technology platforms,” adds Margolis.

While operating under multiple brands may be an uncommon strategy within the self-storage industry, Margolis says that “it’s nothing new,” pointing to the hotel industry as an example. “Marriot has many brands.” To be exact, Marriot has 31 brands, all of which offer different features at varying price points to accommodate any prospective customer.

When it comes to further expansion of the portfolio, though, Margolis clarifies that new stores will most likely be brought on as Extra Space Storage. However, that decision will be made on a case-by-case basis as some markets may be better suited for the Life Storage brand, such as those where it already has an established presence.

“We are laser-focused on integrating the Life Storage portfolio and people onto the Extra Space platform, extracting the synergies we have identified, and preserving our culture and values that have led to our consistent performance,” he says. “After smoothly integrating the Life Storage portfolio, people, and systems, we will turn to the external growth opportunities we believe will be available through this merger.”

Eventually, the merged REIT will resume external growth through acquisitions and ground-up development.

Why will consolidation continue? The answer comes down to scale, the importance of which cannot be overstated. With technology at the forefront of self-storage operations, and customers seeking elevated storage experiences, it’s becoming increasingly more difficult—and costly—for independent owner-operators to compete with larger regional operators and REITs. Many mom-and-pops have begun acknowledging this growing reality. In the first half of 2023, more than 100 self-storage owner-operators hired Extra Space for its third-party management services; its third-party management platform is the largest in the industry.

“Big operators have advantages,” he says, pointing to data, pricing, and technologies as a handful of operational components that economies of scale can make more affordable and effective. “It’s difficult for smaller operators to compete.”

He goes on to say that “NOI and occupancies won’t likely be as good” for independently operated facilities that share a market area with REITs and other larger operators.

For independent owner-operators to better compete and enjoy similar economies of scale, it may be necessary to employ a third-party management company or join a storage cooperative. Margolis says that most facilities “do better” with third-party management, but he adds that owner-operators should “only do it if you truly want them to manage it. Don’t hand over the keys and then ask to drive.”

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