For Extra Space Storage, Inc. (NYSE: EXR), the facilities that it wholly owns or partially owns via joint venture partnerships make up the REIT’s bread and butter. But its third-party management program delivers notable financial and strategic advantages, and as development and acquisition activity remains fairly tepid—at least for now—it represents a steady, growing component of Extra Space’s business.
Today, facilities managed for other owners represent almost 40% of the Extra Space portfolio, which recently exceeded the 4,000-store mark. CEO Joe Margolis says the third-party platform, which launched in 2008, “gives us more scale, and scale is really important in our business.”
The program is simple. Once a self-storage property owner joins the Management Plus program, their facilities adopt Extra Space’s branding, gain access to Extra Space’s marketing power, and put facility management in the REIT’s hands. In exchange, Extra Space earns a management fee.
Aside from the $182 million in income that third-party management and tenant insurance produced in 2024, maintaining owned and managed facilities in the same metro area or submarket enables consolidated operations and generates cost savings, Margolis says. That’s where the scale advantage comes in.
Beyond those benefits, third-party management gives Extra Space additional customer data, which helps beef up the REIT’s testing of new customer features, online search performance, and other aspects of the business. “We’re a data-driven company. Almost everything we do is based on performing … A/B tests,” Margolis says.
Furthermore, third-party management bulks up Extra Space’s pipeline of acquisition targets, Margolis notes. Since 2008, the REIT has spent about $2 billion to buy facilities that had been customers of the third-party program, he points out.
Another plus: The third-party platform helps foster relationships with other self-storage owners and operators.
“If we’re good managers with someone, they might want us to manage some more stores, or sell us stores, or take a loan out from us, or do something else with them,” Margolis says. “So, the stronger industry relationships we have, the better. As long as a store is in a market within our operational footprint and of equal quality, we’d be happy to put our name on [it].”
What does the future hold for third-party management? Margolis says Extra Space hasn’t set any targets for third-party management in terms of capturing a greater percentage of facilities. For now, he’s satisfied with the third-party management platform growing organically.
Cautious Approach to Development and Acquisitions
While Extra Space is building up its third-party management program — which Margolis notes requires little capital — it’s hardly ignoring other revenue producers. Nonetheless, the REIT is cautiously approaching some of them. For instance, Extra Space has “a very small handful” of ground-up projects underway since they’re not penciling out right now, Margolis says.
That’s in line with the industry as a whole. A forecast from Yardi Matrix indicates that weak growth in rental rates and a tough financing environment mean the recent slowdown in new development will continue. Yardi Matrix forecasts new supply will represent just 2% of self-storage inventory in 2027.
On the acquisition front, the REIT continues to hunt for individual facilities, and small to large portfolios to purchase. “But given our cost of capital and market pricing for deals, we do a lot of those with joint venture partners,” Margolis says.
In 2025, Extra Space’s acquisition guidance is $325 million, and a significant portion of this is expected to be Extra Space’s minority portion in properties bought in a joint venture. Last year, the REIT allocated $581 million for wholly owned investments and slightly more than $360 million for joint venture investments.
Integration With Life Storage
Of course, recent investment spending numbers come on the heels of Extra Space’s $12 billion acquisition of competitor Life Storage in 2023.
Margolis said the Extra Space-Life Storage integration is largely done. Within 19 days of the deal closing in July 2023, all Extra Space and Life Storage locations were connected to the same point-of-sale system, he says, “so that was a very heavy lift and impressive achievement by our team.”
As for the once-separate workforces, they now largely operate as a single team, Margolis notes. “It’s one platform, one team, one process.”
The one big integration task that remains is switching the branding of Life Storage facilities to Extra Space branding. The Extra Space team decided in August 2024 that “the benefit from having two brands was not worth the cost,” Margolis says, so the full Life Storage-to-Extra Space conversion got underway.
Last September, Extra Space phased out online branding for Life Storage, he says. Physical rebranding will continue throughout 2025, with all Life Storage facilities eventually bearing Extra Space signage and color schemes.
Benefits of Bridge Lending
Although the REIT has dialed back its acquisition and development plans for 2025 compared with last year, Extra Space keeps supercharging its lending program. Last year, the REIT originated $980.2 million in bridge loans and sold $199.3 million in loans. At the end of the year, outstanding balances for bridge loans added up to about $1.2 billion.
Under the program, Extra Space can lend up to 80% of a property’s value to existing and potential third-party management partners. Margolis says the bridge loan strategy largely mirrors the third-party management strategy. In addition to offering another revenue stream, the bridge loan program, which rolled out in 2019, enables Extra Space to manage the borrower’s property and put another potential property in its acquisition pipeline. With the bridge loan setup, “we get the additional scale and the additional relationships,” Margolis says.
Assessing the Competitive Landscape
As Extra Space ramps up programs like bridge lending and third-party management, and searches for acquisition and development opportunities, who does the REIT consider to be its competition?
Margolis says most people view Extra Space’s rivals as publicly traded self-storage REITs like Public Storage, Inc. (NYSE: PSA) and CubeSmart (NYSE: CUBE). In reality, though, Extra Space keeps a closer eye on regional or local self-storage operators, he says. But it’s an uneven playing field, according to Margolis. For example, Extra Space spent $34 million on marketing in 2024, up 12.2% from the previous year — spending levels that smaller operators would struggle to reach.
“While many of those competitors are very good and focused, they just don’t have the resources we have,” Margolis says. “They don't have the resources to put into [a] technology stack. They don’t have the resources to develop proprietary pricing models like we have or proprietary algorithms to bid on Google search terms. They don’t have the scale to do the testing and data analytics we have.”
Margolis stresses that he means no disrespect in his assessment of smaller competitors. “They’re very good, focused, smart, hard-working people. They just don’t have the resources we have,” he says. “So, it's as if we wanted to open Joe and John’s Hotel and put it right next to a Marriott, and it was exactly the same as a Marriott — furnishings and pricing and food and everything. We would get crushed by the Marriott; we just would. And it’s the same thing in storage.”
Margolis believes the “Marriotts” of self-storage will gain an even bigger foothold. About five years ago, public companies owned about one-fifth of storage facilities in the U.S., he says. Now, that share stands at 40%.
“That’s pretty significant consolidation in a five-year period, but it’s still only 40%,” Margolis says. “The industry is still dominated by local and regional owners. And I think that 40% is just going to continue to grow, resulting in improved facilities and better services for customers across the country."