Public Storage

Origins

The idea for Public Storage was conceived by Southern California real estate developer B. Wayne Hughes in the early 1970s. During a trip to Texas, he observed that local real estate developers were doing well creating mini-storage facilities outside of Dallas and Houston. He brought the self storage concept back with him to California. Hughes partnered with Kenneth Volk and the two founded Public Storage in August 1972 with a $50,000 initial investment, at first calling it "Private Storage Spaces Inc."

The first warehouse was built in 1972 in El Cajon, California with $50,000 in capital. According to Hughes, "Private Storage Spaces Inc." confused people into thinking it was private, so the name was changed to "Public Storage" to match the PS acronym. The founders initially planned to build storage warehouses as a temporary source of income until the land became more valuable and could be redeveloped for another use.

Within three months, the first location was breaking even with a 35% occupancy. The units were rented for a similar price per square foot as apartments or office space, but cost 35% to 40% less to build and maintain. A property management subsidiary called Public Storage Management Inc. was formed in 1973. By 1974, 20 locations had been built.

Real Estate Limited Partnership financing

Hughes disliked debt, so he financed the purchase and development of new properties primarily through real estate limited partnerships (RELPs). At first, Public Storage built warehouses and sold them to independent RELPs for a development fee. The company's own RELP, called Public Storage Partners Ltd, was formed in 1975 and closed its first deal for $3 million in investments two years later. Public Storage paid cash to acquire property and build a self storage facility, then used the property's income to pay investors back and earn a portion as profit. Public Storage Inc. also earned revenues from a portion of each deal that was made.

Early investors earned three to four times their money back due to increasing property values in Southern California, high occupancy rates, and increasing storage rental prices. By the mid-1980s, Public Storage was raising $200 to $300 million in investments each year. The RELP format allowed the firm to continue building more locations in the 1970s and 1980s when most of the industry had halted growth because of higher interest rates on loans. In the mid-1980s, co-founder Volk retired and his interest in Public Storage was purchased by Hughes. Forbes estimated that by this time the company was worth $800 million.

Investment funding was used to build mini-storage warehouses beyond California, targeting the 39 largest US cities. The firm opened self-storage locations in close proximity to each other, so the sites could share a development office, and justify local television advertising. The firm's growth slowed in the mid-1980s as new competition increased the cost of property and slowed the increase in rental prices to consumers. Poor weather and difficult labor markets outside of California delayed development projects; the company also made poor investments in office parks. Interest in real estate investing also diminished.

In 1984, PS Reinsurance was formed to sell insurance for a storage unit's contents.

By the late 1980s, the company opened its 1,000th Public Storage location and the company was three times larger than its nearest competitor in the US market. By 1989, $2.7 billion had been invested from 200,000 investors. Public Storage helped popularize the use of self-storage businesses as a real estate investment vehicle and became one of the longest-running RELP investment vehicles. By 1991, Public Storage had set up more than 150 RELPs and real estate investment trusts (REITs).

Theft, insurance and damages

In 2005, Public Storage said in a public filing that there had been "an increasing number of claims and litigation against owners and managers of rental properties relating to moisture infiltration, which can result in mold or other property damage." The company's rental contract says it is not responsible for the storage unit's contents, even if damage is caused by defects in the unit, and The Wall Street Journal reported that there were "surprisingly few remedies" for theft or property damage at self-storage facilities.

Many Public Storage customers have filed complaints with the Better Business Bureau regarding insurance policies sold by Public Storage representatives, after experiencing burglaries of their storage units and having their insurance claims denied. Investigative journalists from TV news stations in California, Kansas, and Washington have reported on difficulties consumers had when filing insurance claims for burglaries with Willis and The New Hampshire Insurance Company, which are affiliated with Public Storage. For example, claims have been denied because the storage unit had an intact lock; affiliated insurance companies cited insufficient evidence of forced entry, though burglars often replace the unit's lock in an attempt to conceal the burglary. Insurance commissioners in two states have criticized the practices of insurance companies affiliated with Public Storage. An ongoing class action lawsuit alleges Public Storage misleads consumers into thinking that insurance premiums are charged at cost, whereas a substantial amount of those premiums are retained as profits by Public Storage. Sales of these insurance policies do have a high profit, but generate less than five percent of the company's total revenue.

Price gouging

In 2019, the company was fined $140,000 for price gouging after it raised prices by over 10% after the October 2017 Northern California wildfires.