Alternate Attic: Easing the Space Squeeze

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Easing the space squeeze

As prices in the U.S.'s inflated housing market have climbed higher and higher, some builders have struggled to hold down costs by constructing homes and apartments that are smaller and smaller. Closets are shrinking, attics are disappearing, basements are becoming ground-level concrete slabs. The result for more and more families is one of the oddest new shortages of all: storage space.

Now the homeowner's headache is becoming the entrepreneur's opportunity. While the housing market remains flattened by mortgage rates that are approaching 17% in many parts of the country, business is booming for a hybrid real estate product known as the miniware-house, usually a one-story building of garage-like cubicles rented as neighborhood storage space to individuals, families and small businesses. Renters supply their own locks and can generally visit their cubicles as often as they like.

In the past ten years or so, the fledgling industry has jumped from a mere handful of warehouses to more than 3,500 buildings, many of them in the fast growing Sunbelt. Though 85% of all mini-warehouses are still little more than mom-and-pop operations, often owned and managed by retired couples seeking to supplement their pension income, big money is now moving in.

Dean Witter Reynolds, a leading Wall Street brokerage house, has already raised more than $165 million from investors for Public Storage Inc. of Pasadena, Calif., the nation's largest miniwarehouse chain. Public Storage operates 165 separate warehouses, located mostly in the Sunbelt. Shearson Loeb Rhoades is helping to finance the growth of rival Colonial Storage Group of Odessa, Texas, which was founded in 1969 and now has 81 facilities in operation. Meanwhile, Merrill Lynch has also entered the field, with a $15 million miniwarehouse investment program for pension funds.

In some parts of the country, building a miniwarehouse is only about half as expensive as constructing an apartment building, which can cost $40 or more per sq. ft. to put up. But demand for storage space is so strong that rates per sq. ft. often very nearly match the yearly rents that apartments themselves command.

Renters sometimes put their units to inventive uses. A New Mexico manager discovered a user who regularly drove his girlfriend and his Cadillac into his roomy cubicle. The manager had to inform him that love in the warehouse was not allowed. In Altamonte Springs, Fla., police arrested a tenant who was using a mini-warehouse cubicle to grow 364 potted marijuana plants under fluorescent lighting. Perhaps the sneakiest case of all was a Los Angeles woman who made daily trips to her cubicle with new pieces of furniture. When asked by the manager what her purpose was, she explained that she was planning to divorce her husband and wanted to have as much household furniture as possible hidden away in advance.