Understanding Self Storage Lease-Up: How New or Expanding Facilities Get Valued
Key Takeaways
- A “stabilized” self storage facility (85%+ occupancy, consistent revenue) and a “lease-up” facility (still filling units) are valued using fundamentally different methods — and the price gap can be 30–50% or more.
- Buyers discount lease-up facilities because they’re buying risk: the uncertainty that units will fill, rents will hold, and the market won’t shift before stabilization.
- Typical lease-up timelines for self storage range from 18 to 36 months in healthy markets, but can stretch to 48+ months in oversupplied or slower-growth areas.
- Certificate of Occupancy (CO) deals — selling immediately upon completion — offer speed but typically yield the steepest discounts, often 30–40% below stabilized value.
- The optimal selling window for maximum value is typically at 75–85% occupancy, when you’ve proven demand but haven’t fully stabilized — capturing the premium of reduced risk while leaving enough upside to attract competitive bidding.
- Understanding how buyers model lease-up risk is the key to timing your sale correctly.
If you’ve recently built a new self storage facility, completed an expansion, or you’re still filling up a facility you developed a couple of years ago, there’s something you need to understand before you consider selling: your facility is not valued the same way as the stabilized facility down the road.
This catches more owners off guard than almost any other aspect of self storage transactions. You invested $3 million to build a facility. Your pro forma shows it’ll generate $400,000 in NOI at stabilization. At a 6% cap rate, that’s a $6.67 million asset. So when a buyer offers $4 million, you feel insulted.
But the buyer isn’t wrong. They’re pricing your facility based on where it is today — not where it will be in 18 months. And the gap between “today” and “stabilized” is where most of the negotiation happens.
We’re the team behind The Storage Brief, and we’ve brokered sales of facilities at every stage of the lease-up cycle. Here’s how the valuation actually works — and how to time your sale for maximum value.
Stabilized vs. Lease-Up: The Definitions That Drive Everything
What “Stabilized” Means
In self storage, a facility is generally considered stabilized when it meets three criteria:
- Physical occupancy at or above 85%. This is the industry-standard threshold. Above 85%, the facility has proven that the local market supports demand for its units.
- Economic occupancy reasonably aligned with physical occupancy. Meaning tenants are actually paying — not just occupying units under heavy concessions or with growing delinquency balances.
- Revenue has normalized. Street rates reflect market pricing (not deep introductory discounts), and the rate of new move-ins has settled into a predictable pattern rather than rapid absorption.
When a facility is stabilized, buyers apply the Income Approach: they take your trailing twelve-month NOI, divide it by a market-appropriate cap rate, and arrive at a value. It’s relatively straightforward because the income stream is proven.
National data shows that stabilized facilities trade at cap rates ranging from 5.0% in primary markets to 7.5%+ in tertiary markets, with the national average sitting around 5.8% as of mid-2025.
What “Lease-Up” Means
A lease-up facility is any facility that hasn’t yet reached stabilized occupancy. This includes:
- Newly built facilities that opened within the past 12–36 months
- Recently expanded facilities with a significant number of new, unoccupied units
- Conversion projects (warehouses, retail spaces converted to storage) that are still building a customer base
- Facilities that lost occupancy due to market disruption, new competition, or operational issues — and are rebuilding
The key distinction: lease-up facilities have uncertain future income. A buyer doesn’t know — and neither do you, really — whether the facility will reach 85% occupancy in 18 months or 36 months. They don’t know what rents will be at stabilization. They don’t know what the competitive landscape will look like when you get there.
That uncertainty is what creates the discount.
How Buyers Value Lease-Up Facilities
Buyers don’t use the simple Income Approach for lease-up properties. Your in-place NOI — if you even have positive NOI yet — doesn’t reflect the facility’s potential, and the simple cap rate formula breaks down when applied to below-stabilized income.
Instead, buyers use one or more of these methods:
Method 1: Discounted Cash Flow (DCF)
This is the most common institutional approach for lease-up properties. The buyer models out the facility’s cash flows year by year, from today through stabilization and beyond, then discounts those future cash flows back to a present value.
How it works in practice:
A buyer will model:
- Current occupancy and revenue (the starting point)
- Absorption rate — how many units they expect to fill per month
- Rent growth assumptions — what rates will look like as occupancy increases
- Operating expense growth — typically 2–3% annually
- Time to stabilization — when the facility reaches 85%+ occupancy
- Stabilized NOI — the expected annual income once fully leased
- Discount rate — typically 8–12% for lease-up self storage, reflecting the risk premium over stabilized assets
- Terminal cap rate — what the facility would sell for at stabilization
Example:
Your newly built facility has 40,000 NRSF, is currently at 45% occupancy, and generates an in-place NOI of $80,000. Your pro forma projects stabilized NOI of $280,000 in 30 months.
A buyer might model it like this:
| Year | Projected Occupancy | Projected NOI | Discount Factor (10%) | Present Value |
|---|---|---|---|---|
| Year 1 | 60% | $120,000 | 0.909 | $109,080 |
| Year 2 | 78% | $210,000 | 0.826 | $173,460 |
| Year 3 | 88% | $280,000 | 0.751 | $210,280 |
| Terminal Value (Year 3) | Stabilized | $280,000 ÷ 6.5% = $4,307,692 | 0.751 | $3,235,077 |
Total DCF Value: ~$3,727,897
Compare that to the stabilized value of $280,000 ÷ 6.5% = $4,307,692. The lease-up discount in this example is roughly 13% — and that’s with relatively aggressive absorption assumptions. More conservative buyers might use a 12% discount rate and slower absorption, pushing the discount to 20–25%.
Method 2: Stabilized Value Minus Costs to Get There
Some buyers — particularly operators who plan to manage the lease-up themselves — use a simpler framework:
Value = Stabilized Value – Lease-Up Costs – Risk Premium
Lease-up costs include:
- Negative cash flow during lease-up. Until the facility’s revenue covers its operating expenses and debt service, someone is writing checks. The buyer factors in the total cash they’ll need to fund operations until breakeven.
- Marketing and concession costs. Filling a new facility typically requires $30,000–$75,000 in marketing spend above what a stabilized facility spends. Move-in concessions (first month free, discounted rates) further reduce early revenue.
- Management and staffing costs during ramp-up. You can’t run lean during lease-up. You need active on-site presence, aggressive customer acquisition, and responsive service.
The risk premium is the buyer’s margin for bearing the uncertainty. Even after accounting for quantifiable lease-up costs, buyers add 10–20% to account for things that can go wrong: new competition entering the market, slower-than-expected absorption, economic downturn, or rate pressure from oversupply.
Method 3: Price Per Square Foot (Cost Basis Floor)
For very early-stage lease-up properties — particularly CO deals — some buyers revert to a price-per-square-foot analysis benchmarked against replacement cost.
National data shows that the average self storage transaction price is approximately $159/SF as of Q2 2025 (down 12% from the Q1 2023 peak of $174/SF). New construction costs vary significantly by market but typically range from $65–$120/SF for standard drive-up and $100–$160/SF for climate-controlled product.
A buyer looking at an early lease-up facility might offer a price/SF below replacement cost but above land value — essentially paying you for the physical asset while discounting heavily for the uncertainty of lease-up.
The Pro Forma Trap: Why Buyers Won’t Pay for Your Projections
This is where most seller frustration comes from. You built the facility based on a pro forma that shows a clear path to $350,000 in stabilized NOI. Your architect and your lender both signed off on the projections. The market study said demand exists.
Buyers don’t care about your pro forma. They care about in-place performance.
Here’s why:
- Pro formas are optimistic by design. They’re built to get financing and justify construction. They assume best-case absorption, market-rate rents from day one, and no new competition.
- Market conditions change. The pro forma you built 24 months ago may have assumed occupancy trends that pre-date the current supply pipeline. In early 2026, markets like Phoenix (6.6% of existing inventory under construction), Tampa (6.6%), and Sarasota-Cape Coral (8.7%) look very different than they did in 2023.
- Buyers have their own models. They’ll plug your facility into their underwriting with their own assumptions about absorption, rent growth, and expenses. Their model — not yours — drives their offer.
The gap between pro forma NOI and in-place NOI is not value you get credit for. It’s upside the buyer is purchasing at a discount.
Our team puts it this way: “Every seller thinks their pro forma is conservative. Every buyer thinks it’s aggressive. The truth is usually somewhere in between — and the buyer controls where the deal gets priced.”
Typical Lease-Up Timelines by Market Type
Understanding how long lease-up typically takes helps you set realistic expectations — both for your own operations and for how buyers will model their acquisition.
Primary Markets (Top 30 MSAs)
Typical timeline to 85% occupancy: 18–24 months
In strong demand markets with limited new supply, facilities can lease up quickly. Supply-constrained markets like New York City, Washington D.C., and Boston — where rents are growing positively and new development is limited — see the fastest absorption.
The Los Angeles MSA, with only 5 SF per capita compared to the national average of 10–13 SF, represents one of the strongest demand environments for new storage.
What can go wrong: Even primary markets aren’t immune to oversupply at the submarket level. A new facility in a primary MSA but a saturated submarket may absorb much more slowly.
Secondary Markets (Population 200K–600K)
Typical timeline to 85% occupancy: 24–36 months
Secondary markets have solid demand but less population density to drive rapid absorption. These markets also tend to be more price-sensitive, meaning you may need to offer lower introductory rates to drive initial occupancy — which slows revenue stabilization even after physical occupancy improves.
Tertiary and Rural Markets
Typical timeline to 85% occupancy: 30–48+ months
Smaller markets have less natural demand, and new supply has a larger relative impact. A 50,000 SF facility in a market that previously had 200,000 SF of total inventory represents a 25% increase in supply — a market shift that takes years to absorb.
Buyers modeling tertiary market acquisitions during lease-up typically use very conservative absorption assumptions: 8–15 units per month rather than the 15–25 units per month assumed in primary markets.
Oversupplied Markets
Typical timeline: Unpredictable — and this is the problem.
In markets where the construction pipeline exceeds 5% of existing inventory, lease-up timelines stretch and become unreliable. If two competing facilities opened in your submarket within 12 months of yours, all three are competing for the same demand pool. Absorption slows, concessions increase, and the path to stabilization becomes murky.
As of early 2026, the markets with the highest construction pipelines include Sarasota-Cape Coral (8.7%), Phoenix (6.6%), Tampa (6.6%), and Orlando (6.3%). If your facility is leasing up in one of these markets, expect buyer skepticism and deeper discounts.
Certificate of Occupancy (CO) Deals: Selling at the Starting Line
A CO deal means selling immediately after construction is complete and the certificate of occupancy is issued — essentially selling an empty or near-empty building. This is the earliest possible sale point and commands the steepest discount.
Why Sellers Do CO Deals
- Capital recycling. Developers who build to sell want to deploy their equity into the next project. Holding through a 24-month lease-up ties up capital.
- Risk reduction. The developer takes construction risk off the table and leaves operational/lease-up risk to the buyer.
- Lender pressure. Construction loans typically convert to permanent financing or require payoff within 12–24 months of completion. Selling at CO avoids the conversion.
How CO Deals Are Priced
Buyers of CO deals are essentially buying a building and a market thesis. There’s no income to underwrite — it’s all projection. Pricing typically falls into one of two frameworks:
Cost-plus model: The buyer pays the developer’s total project cost (land + construction + soft costs) plus a margin of 5–15%. This ensures the developer makes money but doesn’t capture any of the stabilized value premium.
Discounted stabilized value: The buyer projects stabilized value using their own assumptions, then discounts by 30–40% to account for lease-up risk, carrying costs, and the time value of money.
Example: A developer builds a 50,000 SF climate-controlled facility for a total project cost of $5.5 million. Stabilized value (at projected NOI of $350,000 and a 6% cap rate) would be ~$5.83 million. A CO buyer might offer $3.5–4.2 million, representing a 28–40% discount to stabilized value.
The CubeSmart-Hearthfire Example
A real-world example from early 2026: CubeSmart sold a newly built 45,399 SF facility in Syracuse, NY — with 509 climate-controlled units — to Hearthfire Holdings. The facility was at approximately 32% occupancy at the time of sale. CubeSmart will continue managing the facility, and Hearthfire is betting on the lease-up upside. This is the CO deal model in action: the REIT recycled capital while the private investor took on lease-up risk.
When to Sell During Lease-Up for Maximum Value
This is the strategic question, and the answer isn’t the same for everyone. But here’s the framework we use with our clients.
The Lease-Up Value Curve
Think of your facility’s value during lease-up as a curve, not a straight line:
- At CO (0% occupancy): Value is at or near cost basis — maximum discount to stabilized value.
- At 40–50% occupancy: You’ve proven that demand exists, but the facility isn’t self-sustaining yet. Buyers still model significant lease-up risk.
- At 60–70% occupancy: The inflection point. Revenue typically covers operating expenses, and the path to stabilization is becoming clearer. Buyer confidence increases significantly.
- At 75–85% occupancy: The sweet spot for many sellers. You’ve de-risked the lease-up substantially. Buyers can see stabilization on the near horizon. Competition among buyers increases because the deal is “safer” but still offers upside.
- At 85%+ occupancy: You’re approaching stabilized value. The discount narrows to 5–10% — essentially a “newly stabilized” premium/discount. But you’ve also carried the property through the hardest part of the lease-up.
The Optimal Selling Window: 75–85% Occupancy
For most sellers, the optimal point to sell a lease-up facility is between 75% and 85% occupancy. Here’s why:
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You’ve captured the majority of the value. The difference between a 40% occupied facility and an 80% occupied facility might be 30–40% of stabilized value. The difference between 80% and 90% is only 5–10%.
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Buyer pool expands dramatically. At 75%+ occupancy, your facility transitions from a “lease-up deal” to a “value-add deal” in most buyers’ minds. This opens the door to a much larger pool of capital — including 1031 exchange buyers, smaller operators, and institutional value-add funds.
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You retain operational leverage. At 80% occupancy, you can credibly show buyers the remaining upside: “We’re filling 10–15 units per month, rents are at market, and we expect to hit 90% within 6 months.” That narrative drives competitive pricing.
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You avoid the risk of the last 10%. The final push from 85% to 93%+ is often the hardest. It’s when you need to start raising rates on existing tenants, reducing concessions, and managing turnover — all while keeping occupancy stable. Selling before you have to navigate that complexity can be strategically smart.
When to Hold Through Stabilization
In some cases, it makes sense to hold until full stabilization:
- Your market is supply-constrained. If you’re leasing up in a market with less than 2% new supply as a percentage of existing inventory, absorption should be predictable. The risk of holding is lower.
- Your debt is favorable. If you have a low-rate construction-to-permanent loan with no near-term maturity, the carrying cost of continuing lease-up is manageable.
- Cap rates are compressing in your market. If interest rates drop or buyer demand increases, the stabilized value of your facility may be higher in 12 months than it is today — making the wait worthwhile.
- You don’t need the capital now. If you’re not under lender pressure and don’t have another project waiting for equity, the incremental value of stabilizing may outweigh the time value of selling earlier.
Expansion Lease-Up: A Different Animal
Expansions — adding new units to an existing, stabilized facility — present a unique valuation challenge. You have a proven operation with a track record, but a portion of your inventory is in lease-up.
How Buyers Handle Expansion Lease-Up
Most sophisticated buyers will bifurcate the analysis:
- Existing stabilized units: Valued on the Income Approach using trailing twelve-month revenue and expenses.
- New expansion units: Valued separately using a DCF or cost-plus model, with the lease-up discount applied only to the expansion portion.
This blended approach typically produces a higher total value than valuing the entire facility as a lease-up property — which is why expansions of existing facilities tend to sell at smaller discounts than entirely new builds.
Example: Your facility has 300 existing units at 90% occupancy and 100 new expansion units at 30% occupancy. A buyer might value the existing units at $3.5 million (Income Approach) and the expansion units at $800,000 (DCF with lease-up discount), for a blended value of $4.3 million — rather than applying a single blended occupancy rate of 75% to the whole facility.
The Expansion Timing Consideration
If you’re planning an expansion and also considering selling within the next 2–3 years, consider the timing carefully:
- Expanding and then selling immediately means you take the lease-up discount on the new units and may dilute the perceived performance of your stabilized facility.
- Selling before expanding means you sell at stabilized value and let the buyer capture the expansion upside — but you leave that upside on the table.
- Expanding, stabilizing, and then selling gives you the maximum value — but requires the most time and capital.
Our brokers often advise sellers in this position to run the numbers on all three scenarios. The right answer depends on your cost of capital, your timeline, and your tolerance for continued operational involvement.
What to Prepare Before Selling a Lease-Up Facility
If you’re going to market with a facility that isn’t fully stabilized, preparation is even more critical than for a stabilized sale. Buyers need to be convinced that your lease-up trajectory is real and sustainable.
Essential Documentation
- Monthly occupancy and revenue data from opening through present — not just annual summaries
- Unit-level rent roll showing move-in dates, current rates, and any concessions
- Absorption data — units rented per month, net of move-outs
- Marketing spend and lead tracking — what are you spending to fill units, and what’s the cost per acquisition?
- Competitive market analysis — who are your competitors, what are their rates, and what’s their occupancy?
- Construction and development costs — total project cost documentation
- Any market studies conducted pre-development (helpful but not dispositive)
The Narrative Matters
For lease-up facilities, the story you tell matters more than for stabilized deals. Buyers want to understand:
- Why did you build here? What market thesis drove the development?
- What has the absorption experience been? Better or worse than expected?
- What’s the competitive landscape? Is anyone else building nearby?
- What does the pipeline look like? Are there planned projects in your submarket?
- When do you expect to stabilize, and what supports that projection?
A well-documented, clearly communicated lease-up narrative — backed by data — can be the difference between a lowball offer and a competitive process.
The Bottom Line
Selling a lease-up facility is fundamentally different from selling a stabilized one. The valuation methods change, the buyer pool shifts, and the negotiation dynamics are more complex. But understanding these differences — and timing your sale accordingly — can mean the difference between selling at a steep discount and capturing the majority of your facility’s stabilized value.
The worst mistake you can make is assuming your pro forma value is what buyers will pay. The best decision you can make is understanding how buyers actually model lease-up risk — and positioning your facility to minimize that perceived risk before you go to market.
Not sure where your facility falls on the lease-up curve? Our free self storage valuation calculator can help you estimate value at your current occupancy level. Or reach out to our team directly — we’ve priced lease-up deals from CO to stabilized, and we’ll give you a straight answer on where your facility stands.